Why this article is important: Servicers of second mortgages attempting foreclosure on non-performing debts are barred from foreclosing unless they have met notice requirements under a new law which gives property owners additional defenses against servicers of old, “zombie mortgages.”
Foreclosure outlawed on dormant second mortgages
Ancient and inactive second trust deed mortgages on property are no longer collectible by either judicial or trustee’s foreclosure. For example, home equity lines of credit (HELOCs), home improvement loans and piggyback trust deeds of the predatory type from the Millennium Boom era were usually second mortgages. A security device other than a trust deed securing the debt in a junior position on title are also included.
In some instances, servicers of second mortgages that have long been discharged — called “zombie mortgages” — attempt to foreclose and collect on old, forgotten trust deed liens. A new law curbs this practice.
The new law, passed by Assembly Bill 130, requires a current or former mortgage servicer of a second mortgage to prove written communication with the property owner occurred at least once every three years during the existence of the encumbrance. Absent the communications, the servicer is barred from foreclosing, and the trust deed will be removed from title at the court’s discretion. [Calif. Civil Code §§2924.13(b)(1); (f)]
Further, a mortgage servicer of a second mortgage must have notified the owner of any transfers of loan servicing as required by the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). [CC §§2924.13(b)(2); (3)]
Under the new law, a mortgage servicer may not threaten or commence a foreclosure:
- when the owner has received an Internal Revenue Service (IRS) Form 1099 or other documentation indicating the debt has been treated as discharged; [CC §2924.13(b)(4)] or
- until the servicer records with an NOD their certification that the servicer has not engaged in an unlawful practice.
Further, when a second trust deed holder or servicer engages in any of these unlawful actions, the court may bar the foreclosure or require the servicer to correct the issues before the foreclosure may proceed. [CC §2924.13(f)]
When a second trust servicer initiates a foreclosure and the owner petitions a court for relief, the court will delay the foreclosure sale until a decision is made. [CC §2924.13(d)]
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