This is the third and last installment summarizing California’s new foreclosure law effective January 1, 2013. Then it is on to more fun stuff.
Notice before Notice of Default
A mortgage servicer or lender may not record a notice of default (NOD) for a foreclosure until the borrower is informed of the borrower’s right to: Request copies of the promissory note, deed of trust, payment history, and transfer of loan, if any, to demonstrate the right to foreclose, and there are additional requirements for borrowers who are members of the armed services. Note, the requirement is to present copies not originals.
Remember the basic non-judicial foreclosure process in California is: the lender mails by certified mail and records a notice of default and election to sell, waits three months, then mails, records and posts on the property a notice of trustee’s sale announcing a specific time and place for the foreclosure, which will be approximately three to four weeks later, barring any bankruptcy or negotiated extensions of time.
Notice after NOD
Within five business days after recording a notice of default, the servicer or lender must send a written notice to the borrower on how to apply for a short sale or a foreclosure unless the buyer has already gone through the first lien loan modification process.
Postponing a Trustee’s Sale
Whenever a Trustee’s sale (the foreclosure auction) is postponed for at least ten business days, the lender must provide written notice of the new sale date and time to the borrower within five business days after the postponement.
Failure to comply with this requirement, however, does not invalidate any foreclosure sale. This requirement applies to all trust deeds regardless of occupancy or number of units and this portion of the law expires on January 1, 2018.
Right to Sue
This discussion is very abbreviated but generally a borrower may sue to stop a foreclosure sale if the lender has violated the law. If a foreclosure has already been completed, the borrower may recover money damages for certain material violations.
For “intentional, reckless or willful misconduct,” the borrower may recover treble damages or $50,000, whichever is greater. Plus, a prevailing borrower who wins may also recover reasonable attorney’s fees and court costs.
It’s unclear whether lenders may recover attorney’s fees if they are the prevailing party as that right is not expressly stated in the new law. Banks that signed a settlement agreement with the California Attorney General are not subject to these right to sue codes, and this includes Bank of America, CitiBank, Chase, Ally and Wells Fargo
Pre 2013 Transactions
Mortgage servicers/lenders are not required to evaluate loan modification applications from borrowers who have “already been evaluated or afforded a fair opportunity to be evaluated” for a loan modification prior to January 1, 2013, or “who have been evaluated or afforded a fair opportunity to be evaluated consistent with the requirements of the new law,” unless there has been (a) a “material change” in the borrower’s financial circumstances since the borrower’s last loan modification application and (b) the change is documented by the borrower and submitted to the mortgage servicer.
Accordingly, for defaulting loans (where the foreclosure is not yet completed) for the new law to apply to loan modifications being processed prior to January 1, 2013, the burden is on the borrower to establish there was a material change in the borrower’s financial circumstances since the previous loan modification application, and the material change was documented by the borrower. Otherwise the new law is inapplicable.
California’s new law is a significant step in the right direction to force large institutional lenders to at least be fair and honest with their delinquent California borrowers which has not been the historic practice. There, I said it.
Jim Porter is an attorney with Porter Simon licensed in California and Nevada, with offices in Truckee and Tahoe City, California, and Reno, Nevada. He may be reached at firstname.lastname@example.org or at the firm’s web site www.portersimon.com.