California’s Homeowner Bill of Rights was signed into law in 2012 at the tail-end of the Great Recession and foreclosure crisis that forced many residents out of their homes, some unfairly and unlawfully. Its aim was to give qualified homeowners facing foreclosure a meaningful opportunity to obtain a mortgage modification and keep their homes. [Calif. Civil Code §2923.4]
The biggest changes the Homeowner Bill of Rights made were to prevent:
- dual-tracking foreclosure, when a homeowner is simultaneously going through the mortgage modification process and the foreclosure process;
- robo-signing of foreclosure documents, heightening the risk for wrongful foreclosure; and
- more than one point of contact for distressed homeowners in the foreclosure process.
These protections are once again in place for first lien mortgages secured by residential property. The main differences between the original Homeowner Bill of Rights and this new version are new exceptions:
- allowing servicers to be exempt from the provisions in SB 818 when an application for a mortgage modification is received less than five days before a scheduled foreclosure sale; [CC 2924.18(a)] and
- exempting servicers from the telephone contact requirements of SB 818 when the homeowner has notified the servicer in writing to cease and desist all communications. [CC 2923.5(e)(2)(C)(ii)]
When a homeowner requests a foreclosure prevention alternative such as a mortgage modification, the servicer needs to promptly establish a single point of contact for the homeowner. This will prevent confusion and help prevent the homeowner from becoming lost in the shuffle of other homeowners considering foreclosure prevention options. [CC §2923.7(a)]
Mortgage servicers may not record a notice of default (NOD) until:
- at least 30 days have passed after initially contacting the homeowner; or
- if the servicer is unable to contact the homeowner, they have satisfied the due diligence requirements made to reach the homeowner, including mailing a notice and calling at different times of day. [CC 2923.5(a)(1)(A)]
Further, servicers may not record an NOD when a homeowner submits a complete application for a loan modification at least five business days before a scheduled foreclosure sale. Once the servicer provides the homeowner with a written decision on the loan modification, the servicer may proceed with the foreclosure process if necessary. [CC §2923.5(a)(1)(B)]
When the homeowner is rejected for a loan modification, the servicer needs to wait at least 31 days after the homeowner is notified before recording an NOD or — if an NOD was already recorded — recording a notice of trustee’s sale (NOTS). [CC §2923.6(e)]
When the homeowner is approved for a loan modification, the servicer may not proceed with the foreclosure process as long as the homeowner complies with the terms of the modification. [CC §2924.18(a)(2)(A)]
Servicers may not charge homeowners any fees to apply or obtain a mortgage modification or other foreclosure prevention alternative. [CC §2924.11(e)]
The bill gives California the right to sue lenders and banks up to $50,000 for violating the laws. [CC §2924.19(b)]
Looking ahead to the next recession
The original Homeowner Bill of Rights was scheduled to expire in 2018, undoubtedly because the 2012 legislature figured the foreclosure crisis would be well over by now.
They were right — foreclosures reached a healthy level in 2016, and have remained low well into 2018. But the cycle of housing boom and bust continues to roll on, and the next recession is approaching on the horizon.
Experts forecast the next economic recession to arrive in 2020. Leading up to that recession, home sales volume will slow (as it is already in the process of doing) and home prices will flatten and drop off, expected to begin in 2019. This is all precipitated by rising interest rates, which have dampened buyer purchasing power and discouraged homebuyers.
Slowing sales and falling prices inevitably lead to an uptick in foreclosures as fewer homeowners who need to sell are able to. However, the 2020 recession won’t see the same type of foreclosure activity that reached a crisis level in 2008 and the years following. The laws put in place in the recovery years have stemmed the tide of unqualified homeowners, thus more homeowners will be able to continue to pay their mortgage during the coming recession than in 2008.
Still, the common-sense protections provided in the Homeowner Bill of Rights will be needed for those who do face foreclosure in the coming years. Fewer needless foreclosures protects homeowners and the housing market at large, including the real estate professionals who seek to weather the coming recession.