State lawmakers approved a series of foreclosure relief bills Monday that supporters say will help hundreds of thousands of struggling Californians stay in their homes.
The legislation, opposed by banks that in previous years had succeeded in killing similar proposals, is meant to help people at risk of foreclosure stay in their homes, prevent banks and mortgage companies from engaging in unfair practices, and more broadly, help communities around the state cope with the ongoing foreclosure crisis.
It tackles what some homeowners see as egregious practices in a foreclosure process that critics describe as confusing, haphazard and arbitrary. California Attorney GeneralKamala Harris, a key sponsor of the legislation, says 1 million Californians lost their homes to foreclosure between 2008 and 2011, and another 500,000 homeowners are in the foreclosure pipeline.
The bills, if signed by Gov. Jerry Brown, would bar a practice known as “dual-tracking” – when a bank continues to proceed with a foreclosure even though a homeowner is seeking a loan modification. They would also require banks to provide struggling borrowers with a single point of contact. If lenders do reject borrowers for a loan modification, the legislation would require the bank to offer a clear explanation for why.
Banks would also have to verify mortgage documents before a foreclosure and provide copies to borrowers upon request.
“This will prove to be one of the most important pieces of legislation this body will act on this year or any year,” said Los Angeles Assemblyman Mike Feuer, one of several Democratic lawmakers who authored the bills. “The goal is to provide real, meaningful protections on the precipice of losing their most important asset, while at the same time taking no steps that will impede the recovery of the real estate market.
Feuer in particular championed a provision of the legislation that was attacked by some Republican lawmakers: Giving borrowers the right to sue lenders for “significant, material violations” of the new laws.
“If the rules of the game are violated, borrowers have the right to say no. They will not be kicked out of the home they have lived in for decades unless the rules are followed,” he said.
But Assemblywoman Diane Harkey, R-Irvine (Orange County), warned if the bills passed, the “only people who will make money is attorneys.” She said the average foreclosure takes 352 days, which is “plenty of time.” Warned or threatened?
“California is going to prevent our economy from being stimulated,” she said. “We are putting our fingers in the dike here, California communities are starting to bounce back and the longer you delay recovery from the housing market, the longer property tax revenues will continue to decline. … We are pounding the nails in the coffin of the small guys and helping the big banks, because they are the only ones who will be able to play in this market.”
The bills mirror and extend protections that were implemented under a nationwide settlement between 49 states attorneys general and the five largest U.S. banks, a case brought over robosigning practices. Unlike that settlement, the new legislation would apply to all banks, although those that process fewer than 175 foreclosures a year would be exempt from some procedural requirements.
While some smaller banks and credit unions were neutral on the bills, large banks opposed the legislation, as did the California Chamber of Commerce, title companies, trustees and securities industry representatives. On Monday, the United Trustees Association issued a report warning that the bills could stifle ongoing housing-market recovery by creating new regulatory and legal hurdles and reducing home values, and would make it harder for most consumers to secure loans.
Lenders would be subject to fines of $7,500 per loan for filing and recording unverified documents. The bills’ provisions apply to first-lien mortgages for owner-occupants.
The California State Legislature approved two bills today, Senate Bill 900 and Assembly Bill 278, which will enact the California Homeowner Bill of Rights.
I jointly authored Senate Bill 900, which is designed to provide a more fair and reasonable process for Californians struggling to stay in their homes. Almost three million Californians have already lost their homes through foreclosure. We are doing everything we can to help our communities recover from this terrible economic recession.
This legislation builds on the protections provided by the national mortgage settlement agreed to by five of the country’s largest banks. Borrowers will gain new protections in two key areas.
SB 900/AB278 will ban the practice of so-called “dual tracking.” This provision requires lenders to halt foreclosure proceedings once a borrower completes a loan modification application. The mortgage lender will be required to render a decision on a loan modification application before advancing the foreclosure process. We’ve all heard of cases where a borrower working on a modification with one bank representative suddenly receives notice that a separate bank representative is initiating a foreclosure. This won’t happen again once these bills take effect.
For borrowers potentially eligible for a loan modification, mortgage lenders must provide a “single point of contact,” which may include a team of individuals who are knowledgeable of the borrower’s status, have access to decision-makers on the loan, and will coordinate the flow of documentation between the borrower and mortgage servicer. No longer will borrowers experience the endless passing of the buck from customer service representative to customer service representative while their family’s home hangs in the balance.
As a result of more than 20 hours of public hearings and weeks of negotiations involving banking representatives, consumer advocates and other stakeholders, struggling homeowners will have a much better chance of staying their homes.