California Homeowners Bill of Rights

California Homeowners Bill of Rights becomes effective January 1, 2013

The California Legislature passed the package of foreclosure prevention bills making up the so-called “California Homeowners Bill of Rights.” The state assembly approved the legislation by a 53-25 vote, and the Senate approved it by a 25-13 vote.

 The legislation allows California homeowners to sue servicers to stop foreclosures under certain conditions, prohibits mortgage servicers from foreclosing on borrowers while they are pursuing loan modifications, and requires a “single point of contact” for borrowers eligible for loan modifications.

While I don’t see anything in the legislation that is as harmful as the Nevada Foreclosure Fraud Reform Law that basically halted all foreclosure activity, that does not mean the banks will not choose to stop or significantly delay foreclosures. The California Bankers Association did oppose the legislation because it would encourage “frivolous litigation”, and force banks to raise borrowing costs.

The laws contained in the California Homeowners Bill of Rights will go into effect on January 1, 2013, allowing borrowers to access courts to enforce their rights under this legislation.

The California Homeowner Bill of Rights builds upon and extends reforms first negotiated in the recent national mortgage settlement between 49 states and leading lenders. Attorney General Harris secured up to $18 billion for California homeowners in that agreement, and has also built a Mortgage Fraud Strike Force to investigate crime and fraud associated with mortgages and foreclosures.

“The California Homeowner Bill of Rights will give struggling homeowners a fighting shot to keep their home,” said Attorney General Harris. “This legislation will make the mortgage and foreclosure process more fair and transparent, which will benefit homeowners, their community, and the housing market as a whole.”

“Californians should not have to suffer the abusive tactics of those who would push foreclosure behind the back of an unsuspecting homeowner,” said Governor Brown. “These new rules make the foreclosure process more transparent so that loan servicers cannot promise one thing while doing the exact opposite.”

Here is a breakdown of how the legislation will help California homeowners after going into effect:

“Dual-tracking” will be outlawed. The law bans banks from pursuing foreclosure while a borrower is seeking a loan modification, a process known as “dual-tracking” that led to countless foreclosures even as homeowners were attempting to stay in their homes. Modification departments at banks like Wells Fargo and Bank of America, for instance, often instructed homeowners to stop making payments to help enter the modification process. When borrowers followed those directions, the banks foreclosed on them anyway.

Robo-signing will be prohibited. The law also bans robo-signing, the process through which banks approved often-fraudulent foreclosure documents en masse in order to speed up the process. Under the law, lenders who file unverified documents will face fines and potential recourse from borrowers. Robo-signing, prevalent at big banks, led to fraudulent, wrongful, and mistaken foreclosures and was one of the major subjects of the federal mortgage settlement. Wells Fargo insiders said their robo-signing department was “exactly like an assembly line,” and the bank once put a junior employee it had hired from a pizza restaurant in charge of loan documentation.

Borrowers will have an easier time dealing with their banks. The new law requires the banks to assign borrowers a single point of contact when they discuss their loans. It also requires banks to explicitly approve or deny a modification, verify foreclosure documents, and provide such documentation to homeowners upon request.

Borrowers will be able to sue their banks. California homeowners will now have the right to sue banks for “significant, material” violations of the new laws, a level of recourse that has been valuable for homeowners in other states. A judge in Louisiana, for instance, awarded a homeowner $3.1 million in damages because of “reprehensible actions” from Wells Fargo, which serviced the loan.

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