August 1, 2018

by Kayo Manson-Tompkins
The Wolf Firm
USFN Member (California)

Will the Provisions of the Homeowner Bill of Rights, which Ended on 12/31/2017, be Reinstated by New California Legislation? After five long years under the California Homeowner Bill of Rights (HOBR), many of the most onerous provisions of HOBR sunset on December 31, 2017. In anticipation of these changes, many servicers took steps to update their systems to follow the revised statute made effective January 1, 2018. Among the many changes, there was no longer any requirement for post-notice of default letters; no need to provide postponement notices; appeals of loan modification denials were eliminated; and most of the differences in the requirements for small and large servicers were removed. In short, the provisions effective January 1, 2018 were significantly easier to follow.

Alas, the excitement was fleeting. On January 3, Senator Beall introduced Senate Bill 818. In essence, this bill would reinstate those provisions that sunset on December 31, 2017 — a return to the pre-2018 HOBR. As of May 9, SB 818 had passed on the Senate floor and was going to the Assembly. Consensus among opponents of SB 818 is that it will be approved by both houses and signed into law by the governor. However, no one will know for sure until, at the very latest, September 30, 2018 — which is the last day that the governor has to either sign or veto bills passed by the legislature.

Interestingly, most of the proponents of SB 900 (which resulted in the enactment of HOBR) are no longer in the legislature. Senator Beall and the proponents of SB 818 do not have the background, knowledge, or expertise to fully understand HOBR and the impact it has had on the industry. Furthermore, they are not taking into consideration the recently amended Consumer Financial Protection Bureau’s (CFPB) regulations, which provide for (basically) the same protections as HOBR. Nonetheless, the proponents believe HOBR offers more protection to the consumers. In addition, they believe that some of the consumer protections will be rolled back under the leadership of CFPB Acting Director Mick Mulvaney, who was appointed by the Trump Administration. It seems that the current legislators are being driven by their constituents, with an apparent belief (by legislators and constituents) that the industry is not doing a good enough job on its own to protect the interests of homeowners.

Unfortunately, since its enactment on January 1, 2013, many homeowners have routinely used HOBR as a delay tactic. Countless lawsuits have claimed a violation of HOBR, almost all of which have resulted in dismissals or judgments in favor of the lender and servicer. Repetitive suits and appeals have been filed — together with bankruptcy petitions — to further delay a foreclosure sale and eviction. HOBR has resulted in significant increases in the timelines of a standard California nonjudicial foreclosure and eviction proceeding. Of course, these delay maneuvers ultimately result in increased costs to be borne by consumers who are seeking new loans.

As indicated above, SB 818 will more than likely pass, which will bring back the original HOBR statutes. Servicers will need to be ready to change their system again and go back to the pre-January 1, 2018 statutory scheme. Among the provisions that sunset December 31, 2017 — but would return under the new legislation — are the following:

1. Before recording the notice of default (NOD), the servicer is to inform the borrowers of rights available to servicemembers and their dependents; and inform the borrowers that they may request copies of their note, deed of trust, any assignment, and loan history. CA Civil Code Section 2923.55.

2. Large servicers (those foreclosing on more than 175 foreclosures per year) must send a written notice to the borrowers of foreclosure prevention alternatives within five business days after recording an NOD. CA Civil Code Section 2924.9.

3. Large servicers are required to provide written acknowledgments of all documents submitted with a loan modification application. CA Civil Code Section 2924.10.

4. Large servicers must stop the foreclosure process once a complete loan modification application is submitted. They may not proceed until a written determination is made that the borrowers are not eligible, and the appeal period has expired or the borrowers do not accept an offer within 14 days, or the borrowers accept an offer but default or breach the modification. CA Civil Code Section 2923.6.

5. Large servicers are required to review a subsequent application of the borrowers if there has been a material change in their financial condition. CA Civil Code Section 2923.6.

6. Large servicers must send a written notice of denial identifying the reasons for the denial, describing other foreclosure prevention alternatives, and providing a list of steps the borrowers must take to be considered for those options. CA Civil Code Section 2923.6.

7. Postponement notices will be revived, so a written notice must be sent to the borrowers with the new sale date and time within five business days following the postponement. CA Civil Code Section 2924.

8. Prohibition against robo-signing: servicers engaged in multiple repeated uncorrected violations are liable up to $7,500 per mortgage or deed of trust, in addition to other available remedies. CA Civil Code Section 2924.17.

9. Large servicers are prohibited from proceeding with a foreclosure while the borrowers are in compliance with a loan modification, forbearance, or repayment plan, or if a foreclosure prevention alternative has been approved in writing. CA Civil Code Section 2924.11.

10. Large servicers must provide a fully executed copy of the foreclosure avoidance agreement and must rescind the NOD and cancel the sale. CA Civil Code Section 2924.11.

11. Large servicers may not charge fees to apply for a loan modification, or late fees, while an application is pending. CA Civil Code Section 2924.11.

12. New servicers on transferred loans must honor prior agreements made by large servicers. CA Civil Code Section 2924.11.

13. Small servicers (those foreclosing on less than 175 foreclosures per year) are prohibited from proceeding with a foreclosure while a complete loan modification application is pending, or until a written determination is sent to the borrowers. If approved, the foreclosure may not proceed, so long as the borrowers are in compliance. CA Civil Code Section 2923.18.

14. Added provision: a large servicer must provide a single point of contact to any borrower who applies for a foreclosure prevention alternative. CA Civil Code Section 2923.6.

15. Added provision: to address the “gap year” if SB 818 passes. In other words, there is a catch-all savings clause so that both the repeal and reenactment of the original HOBR do not act to extinguish existing claims.

There is a strong likelihood that SB 818 will pass, and HOBR in its original format will become a permanent part of California’s statutes. At this time, it appears best for servicers to prepare an implementation plan to effectuate the necessary changes to their systems.

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