SB 729 (Leno and Steinberg), Page 1

SB 729 (Leno and Steinberg), Page 1

SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE

Senator Juan Vargas, Chair

Bill No: SB729Author:(Leno and Steinberg)Hearing Date: April 27, 2011

As Amended:April 14, 2011

Fiscal:Yes

Urgency:No

SUMMARY Would require servicers to complete additional foreclosure avoidance actions, as specified, before recording a notice of default (NOD), prove they have standing to foreclose, as specified; and record a new document, called a declaration of compliance, as an attachment to every NOD. Would establish specific penalties to be applied to servicers who fail to comply with the provisions of the bill.

DESCRIPTION

1.Would require every NOD to include a certification that the foreclosing party owns the mortgage or deed of trust note. The foreclosing party could comply in either of the following two ways:

1. The mortgagee, trustee, beneficiary, or authorized agent would have to include a copy of the mortgage or deed of trust note, and evidence of all assignments and endorsements of the note and the mortgage or deed of trust, along with a declaration attesting to the existence and possession of the note and all assignments and endorsements, and certifying ownership of the mortgage or deed of trust and right to foreclose.
   
2. If the note cannot be located, the mortgagee, trustee, beneficiary, or authorized agent can attach a declaration signed either by an individual having personal knowledge of the facts stated within, or by an individual with authority to bind the mortgagee, trustee, beneficiary, or authorized agent, which includes facts sufficient to show that the mortgagee, trustee, beneficiary, or authorized agent has the right to enforce the note; a statement that the person cannot reasonably obtain possession of the note, and a description of the reasonable efforts made to obtain the note; a description of the terms of the note and any riders to the note, including, at a minimum: the date of execution, the parties, the principal amount, the amortization period, the initial interest rate and, if applicable, the initial date and frequency of any adjustments to the interest rate, the index and margin used to calculate the interest rate at the time of any scheduled adjustment; and the expiration date of any interest-only period, if applicable.
   

2.Would prohibit a mortgagee, trustee, beneficiary, or authorized agent from recording a NOD unless it makes a reasonable and good faith effort to evaluate the borrower for all available loss mitigation options to avoid foreclosure.

1. Would,effective January 1, 2013, prohibit a mortgagee, trustee, beneficiary, or authorized agent from recording a NOD on any mortgage or deed of trust secured by owner-occupied residential real property containing up to four dwelling units, until the later of 46 days after contacting the borrower in writing to inform the borrower about options that may be available for avoiding foreclosure, or the date on which it sends the borrower a loan modification denial explanation letter, as specified. Would require every NOD to include a declaration of compliance (described in a subsequent section).
   
2. Prior to January 1, 2013, the bill would require servicers to comply with both SB 1137 (described below under Existing law number 2) and to send borrowers a loan modification denial explanation letter, as specified, before recording a NOD. Would require every NOD to include a declaration of compliance.
   

3.Would require servicers to adhere to the following timelines when evaluating borrowers for loss mitigation options:

1. If an eligible borrower requests a loan modification, either orally or in writing, on or before the 90th day of delinquency on the mortgage loan at issue, or the 45th day following contact by the mortgagee, trustee, beneficiary, or authorized agent, whichever is later, the mortgagee, trustee, or beneficiary may not record a NOD until it has, in good faith, reviewed the loan modification application submitted by the borrower, rendered a decision on the application, and sent the borrower a denial explanation letter, as specified.
   
2. If a borrower requests a loan modification, either orally or in writing, by the deadline immediately above, but does not submit all of the information necessary to be considered for a modification, the mortgagee, beneficiary, or authorized agent must provide the borrower with a written notice, listing any supplemental information required, and include a deadline to submit that information. The deadline cannot be shorter than 30 days from receipt of the written notice by the borrower.
   
3. If a borrower requests a loan modification, either orally or in writing, within 15 days after receiving a copy of the NOD in the mail, and submits a complete loan modification application by the later of 15 days after receiving application instructions from the mortgage servicer or any application deadline communicated in writing by the mortgage servicer, the mortgagee, trustee, beneficiary, or authorized agent may not record a notice of sale until at least 10 business days after it has, in good faith, reviewed the application, rendered a decision on the application, and sent the borrower a denial explanation letter, as specified.
   
4. If a mortgage servicer has signed a Making Home Affordable Servicer Participation Agreement or is otherwise required to review the borrower’s loan under federal Making Home Affordable Modification Program (HAMP) guidelines, the servicer may satisfy the timeline requirements of the bill by complying with applicable HAMP deadlines and timeframes. HAMP servicers must follow the timelines specified in the bill, once HAMP is no longer in effect.
   

4.Would require the following, with respect to the denial explanation letter that must be sent by servicers to borrowers that do not qualify for a loan modification:

1. If a borrower who requests a loan modification is denied either a permanent loan modification or a HAMP trial modification, the mortgagee, beneficiary, or authorized agent must send the borrower a denial explanation letter by certified mail, no later than ten business days following the denial decision, either in English, or in Spanish, Korean, Chinese, Tagalog, or Vietnamese, if communications with the borrower were primarily in one of those foreign languages.
   
2. If the loan modification is denied because of a borrower’s failure to provide all required verification documents, the denial explanation letter must list the date by which the borrower was directed to provide the documents, list the documents or information that were not provided, and state that the borrower’s request for a loan modification was denied for that reason.
   
3. If the borrower submitted all required written application materials, and the borrower’s application was denied, the denial explanation letter must include all of the following information: date the application materials were received by the servicer; date the loan modification was denied; the reason or reasons the borrower did not qualify for a loan modification, including, as applicable, copies of relevant sections of pooling and servicing agreements, income and expense figures, net present value inputs, assumptions, and calculations, inability of the borrower to successfully complete a previously offered loan modification; the name and contact information of the holder of the note for the borrower’s loan; a description of other foreclosure alternatives for which the borrower may be eligible and a list of the steps the borrower must take in order to be considered for those options; instructions regarding how to contact the mortgagee, beneficiary, or authorized agent about the reasons for denial of the loan modification; and other information required pursuant to HAMP, as specified.
   
4. As long as a denial explanation letter complying with the provisions of the bill is sent to a borrower, the mortgagee, beneficiary, trustee, or authorized agent may record an NOD. The decision of a borrower to dispute a loan modification denial does notprevent the mortgagee, beneficiary, trustee, or authorized agent from recording a NOD.
   

5.Would require the following, with respect to the declaration of compliance, which must be included as part of, or attached to, every NOD filed on a mortgage or deed of trust secured by owner-occupied residential real property containing up to four dwelling units:

1. The declaration of compliance is a form intended for use by servicers to document their efforts relating to borrower contact, review of foreclosure avoidance alternatives, and proof of note ownership.
   
2. Before filing a declaration of compliance, each servicer would have to compile a record of attempts to contact the borrower, including the dates and times of, and addresses and telephone numbers used for contacts and attempted contacts, as well as a record of the good faith efforts undertaken to evaluate the borrower for a loan modification and provide the borrower with a denial explanation letter. Servicers would be required to make these records available to borrowers within ten business days of a request in writing.
   
3. Servicers would have to ensure that the declaration of compliance was signed either by an individual having personal knowledge of the facts stated within, or by an individual with authority to bind the servicer, who certifies that the declaration is based upon records made in the regular course of the servicer’s business at or near the time of the events recorded.
   

6.Would provide all of the following remedies through a private right of action by a borrower who believed his or her servicer had failed to comply with the bill:

1. Enjoinment of a pending trustee sale: If the mortgagee, trustee, beneficiary, or authorized agent records a notice of sale without properly evaluating a borrower for a loan modification and sending the borrower a denial explanation letter that materially complies with the bill’s requirements, the borrower may seek an order in any court to enjoin the trustee sale, until the mortgagee, trustee, beneficiary, or authorized agent complies with the provisions of the bill.
   
2. Post-trustee sale remedies: If the mortgagee, trustee, beneficiary, or authorized agent records a NOD without properly evaluating a borrower for a loan modification and sending the borrower a denial explanation letter that materially complies with the bill’s requirements, and if the property at issue is sold at a trustee’s sale, the borrower may pursue one of the following options against the beneficiary or mortgage servicer, within one year following the trustee’s sale:
   
3. Recover the greater of treble actual damages or statutory damages of $15,000, plus reasonable attorney’s fees and costs, if the property is sold to a bona fide purchaser at the trustee’s sale.
   
4. Recover the greater of treble actual damages or statutory damages of $15,000, plus reasonable attorney’s fees and costs, if the property is sold to a bona fide purchaser by the foreclosing party subsequent to a trustee sale, prior to any action being pursued by the borrower. If the foreclosing party has notice of a borrower’s claim before it sells the property to a bona fide third party, the borrower is entitled to recover an additional $20,000 in statutory damages, over and above the other recoveries described in this paragraph.
   
5. Bring an action to void the trustee sale, and enjoin the recording of any further notice of sale until 30 days after the beneficiary or servicer complies with the provisions of the bill, if title to the property is transferred to the foreclosing party, and there is no subsequent sale to a bona fide purchaser.
   

A beneficiary or mortgage servicer can avoid civil liability under the bill, if, prior to the initiation of a legal action by a borrower, and no later than 180 days following the trustee sale, the mortgagee, trustee, beneficiary, or authorized agent does either of the following:

1. Voluntarily rescinds the trustee sale before filing an unlawful detainer action; within three days of the rescission, sends the borrower a written communication listing the steps the beneficiary or mortgage servicer will take before recording another notice of sale; and materially complies with all of the requirements of the bill which were not previously complied with, at least 30 days before recording any further notice of sale.
   

1. Sends the borrower a written communication stating that the beneficiary or mortgage servicer will not file an unlawful detainer action against the borrower until at least 30 days after materially complying with all of the requirements of the bill, complying with those requirements; and, if applicable, rescinding the sale and offering the borrower a loan modification.
   
2. Remedies Relating to Unfiled or False Declarations of Compliance (additive to the remedies above):
   
3. If the mortgage servicer fails to record a completed declaration of compliance, a borrower may recover statutory damages of between $1,500 and $10,000, plus attorney’s fees and costs, from the mortgage servicer.
   
4. If the mortgage servicer records a materially false declaration of compliance, including a declaration of lost note, a borrower may recover statutory damages between $10,000 and $25,000, plus attorney’s fees and costs, from the mortgage servicer.
   

7.Would provide all of the following remedies through a suit by the state Attorney General or enforcement by a state licensing agency:

1. Any person, including a partner or officer of the mortgagee, trustee, beneficiary, or authorized agent, who violates any provision of the act, is subject to a civil penalty of up to $10,000 per violation.
   
2. Notwithstanding the paragraph above, any trustee, beneficiary, or authorized agent that records or has recorded a false or fraudulent declaration of lost note is additionally subject to a civil penalty of $25,000 per violation.
   
3. The Attorney General may also bring a civil action for injunctive relief, and may include in that action a claim for restitution, disgorgement, or damages on behalf of affected consumers. The Attorney General may include in any action a claim for costs, including reasonable attorney’s fees and expenses.
   
4. A violation of the bill’s provisions by a person licensed by the State of California is deemed to be a violation of that person’s licensing law, and subjects that person to enforcement action by his or her regulator.
   

EXISTING LAW

1.Prescribes rules that govern the nonjudicial foreclosure process in California (Civil Code Section 2924 et seq.). A layman’s description of the portions of the process that are relevant to this bill follows immediately below. Modifications that were made to this process by SB 1137 (Chapter 69, Statutes of 2008) are described in Existing Law Number 2, below.

1. The nonjudicial foreclosure process begins with the recordation of a NOD by a mortgagee, trustee, beneficiary, or authorized agent. The NOD must be recorded in the county in which the property securing the defaulted loan is located, and must be mailed to specified persons with a financial interest in the property, including the property owner. Existing law does not prescribe the minimum amount of time that must pass between a delinquency and the recordation of a NOD, although NODs are commonly recorded only after a borrower is at least 90 days delinquent on his or her mortgage loan.
   
2. At least three months must pass after recordation of a NOD, before the mortgagee, trustee, beneficiary, or authorized agent may record a notice of sale. Notices of sale must be recorded in the county in which the property securing the defaulted loan is located, mailed to the property owner and other specified persons with a financial interest in the property, published in a newspaper of general circulation, and posted on the property that is the subject of the sale.
   
3. At least 20 days must pass after recordation of a notice of sale, before a property may be sold. However, sale dates may be, and often are, postponed. Under existing law, a sale date may be postponed for any of the following reasons: 1) upon the order of any court of competent jurisdiction; 2) if stayed by operation of law; 3) by mutual agreement, whether oral or in writing, of any trustor and any beneficiary or any mortgagor and any mortgagee (i.e., by mutual agreement between a borrower and his or her lender); and/or 4) at the discretion of the trustee. A new notice of sale must be recorded, if a postponement or postponements delay the sale for more than 365 days following the first scheduled sale date.
   

2.Pursuant to SB 1137 (Perata), Chapter 69, Statutes of 2008, until January 1, 2013, requires the following, before a NOD may be recorded on a mortgage or deed of trust that was recorded from January 1, 2003 through December 31, 2007, and that is secured by single-family, owner-occupied residential real property:

1. A mortgagee, beneficiary, or authorized agent must contact the borrower in person or by telephone, in order to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure. Contact (or attempted contact, if a borrower is unreachable) must be made telephonically and in writing, as specified. During the initial contact, the mortgagee, beneficiary, or authorized agent must advise the borrower that he or she has the right to request a subsequent meeting, which, if requested, must occur within 14 days of request. The mortgagee, beneficiary, or authorized agent must also provide the borrower with a toll-free telephone number that can be used by the borrower to contact a HUD-certified housing counseling agency.
   
2. A mortgagee, beneficiary, or authorized agent must wait at least 30 days after making initial contact with a borrower, or satisfying specified due diligence requirements to make contact, before it may record a NOD on a loan covered by the provisions of SB 1137.
   
3. Each NOD that is recorded on a loan covered by the provisions of SB 1137 must include a statement that the mortgagee, beneficiary, or authorized agent contacted the borrower, tried with due diligence to contact the borrower, or that no contact was required, because one of the express exemptions applied. Exemptions from the bill’s contact requirements are provided, in cases where a borrower has already surrendered the property, contracted with an organization or other entity that advises borrowers on how to “game” the foreclosure process, or filed for a bankruptcy that is still before a court.
   

COMMENTS

1. Purpose: According to the authors and sponsors, “SB 729 fills the gaps in current law and addresses the mounting evidence of servicer shortcomings and abuses by improving fairness, transparency, accountability, and enforcement in the foreclosure process. The bill would require loan servicers to give eligible homeowners who submit timely loan modification applications a yes or no decision on their applications before beginning the foreclosure process. Additionally, the bill would provide homeowners with sorely needed remedies when serious violations occur, to give homeowners a chance to save their homes and provide a small measure of recourse to families who lose their homes due to servicer misconduct.”