Changes to California's Homeowner Bill of Rights
Originally enacted in 2013, the California Homeowner Bill of Rights (HOBR) was recently amended, effective January 1, 2018. The new provisions are generally less burdensome on residential mortgage lenders and servicers than previous versions, but a few areas are more favorable to borrowers. However, certain procedural aspects that are particularly troublesome for servicers remain unaddressed.The following are key provisions of the amendments to the HBOR:
Annual Foreclosure Volume. The previous HOBR made a distinction between mortgage servicers that conduct more or less than 175 foreclosure sales each year. The new version removes this distinction and treats all mortgage servicers the same.
Pre-Notice of Default Notices. Section 2923.5 will replace Section 2923.55 of the California Civil Code regarding required notices before delivering a Notice of Default. The only differences between the two sections are that the new statute does not require:a written notice regarding service members; ora statement that the borrower may request a copy of the promissory note, deed of trust, assignment, or payment history.
Dual Tracking Prohibition. Section 2924.11 will replace Section 2923.6 regarding the prohibition of dual tracking. Dual tracking refers to recording a notice of sale or conducting a foreclosure sale after receiving an application for a foreclosure prevention alternative. The new section prohibits dual tracking after the servicer receives an application for any type of foreclosure prevention alternative, while the previous section prohibited foreclosure only for applications for loan modifications (see Standard Document, Modification to Deed of Trust (CA)). For more information on California residential foreclosure alternatives, see Cal. Prac. Guide Real Prop. Trans. Ch. 6-I.
No Appeal Period Required. Section 2924.11 no longer requires an appeal period after a written denial of a loan modification for a first lien loan. The denial must:specifically state the reasons for the denial; andinclude a statement that the borrower can request documentation supporting the denial by submitting a written request to the servicer.
Multiple Applications. Under Section 2923.6(g) of the previous version of the HBOR, servicers were not required to review multiple applications for loan modifications unless there was a material change in the borrower's financial circumstances. This section is removed from the new HBOR, meaning servicers may have to fully review several applications.
Notice of Receipt of Loan Documents. Under Section 2924.10 of the previous version of the HBOR, servicers were required to provide a written acknowledgement within five business days of receiving a loan modification application. This section is removed from the new HBOR, although these notifications are still required under the Consumer Financial Protection Bureau (CFPB) rules.
Postponement of Foreclosure Sale. Section 2924(a)(5), which required servicers or foreclosure trustees to provide written notice to a borrower if a foreclosure sale is postponed more than ten days, is not included in the new HBOR.
Private Right of Action. Under the new HBOR, borrowers have a private right of action to enforce the HBOR, but only if there is a material violation of Sections 2923.5, 2923.7, 2924.11, or 2924.17.
Unaddressed Problems for Servicers and Lenders. Servicers are still required to review competent and reliable evidence to validate their right to foreclose. The new HBOR does not address a servicer's obligations when it receives a complete loan modification application or an application for a foreclosure prevention alternative directly before a foreclosure sale is supposed to occur. Additionally, servicers may have to fully review multiple applications that are submitted simultaneously, even if submitted right before the foreclosure deadline.
Practical Implications. Residential mortgage servicers and lenders in California should take note of these amendments and ensure that their formal policies and procedures are updated accordingly. Counsel for distressed borrowers should also be aware of the new amendments to ensure that lenders and servicers are abiding by their obligations.Lenders and servicers should also take note that certain obligations that are no longer required under the California HBOR may still be required under the CFPB rules.