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Special Alert: California Legislature Approves Key Parts of State's "Homeowner Bill of Rights"

Loss Mitigation

On July 2, the California State Legislature passed AB 278 and SB 900 (“the Bills”), two substantively identical pieces of legislation that implement significant portions of the “Homeowner Bill of Rights” initiative announced by California Attorney General Harris on February 29.  The portions of the initiative that still must be considered by the Legislature are listed in a fact sheet appended to the Attorney General’s press release regarding the Bills.  If signed by Governor Brown, the Bills will (i) codify a number of protections similar to those contained in the Multistate Servicer Settlement between 49 state attorneys general, the Federal Government, and the nation’s five largest mortgage servicers announced on February 9 (“the Settlement”), (ii) amend the mechanics of California’s foreclosure processes, and (iii) provide borrowers with new private rights of action.

First, the Bills create protections similar to those provided to customers of the mortgage servicers that are subject to the Settlement.  For example, the Bills will restrict "dual tracking" and guarantee a single point of contact for certain borrowers pursuing loss mitigation.  Additionally, the Bills will impose certain notice requirements similar to those contained in the Settlement.  For example, the Bills will require that prior to recording a notice of default, covered mortgage servicers will need to send borrowers a disclosure stating that if they are servicemembers, they may be eligible for benefits and protections under the federal Servicemembers Civil Relief Act.  Likewise, the Bills also will require that, under certain circumstance, mortgage services must send Borrowers loss mitigation solicitations within 5 days of the recording of a notice of default.  Lastly, the Bills also will establish sanctions for inaccurate, incomplete, and unsupported foreclosure documentation, so-called "robo signing" activities.   These sanctions include civil penalties of up to $7,500 per mortgage or deed of trust, in an action brought by specified state and local government entities, as well as administrative enforcement against licensees of the Department of Corporations, the Department of Financial Institutions, and the Department of Real Estate.

Second, with respect to the state’s foreclosure process, the Bills will make permanent the state’s current pre-foreclosure contact requirements and extend the reach of these requirements to mortgage servicers.  In addition, the Bills will impose a number of new disclosure requirements that will last through January 1, 2018.  For example, whenever a foreclosure sale is postponed for a period of at least 10 business days, the mortgagee will be obligated to provide the borrower with written notice regarding the new sale date and time of the foreclosure sale within five business days of the postponement.

Finally, the Bills will provide borrowers new private rights of action, allowing them to seek both injunctions and damages (including attorneys’ fees) for violations of certain of the Bills’ provisions.  Furthermore, with respect to damages, if a court determines that a violation was intentional, willful, or reckless, it will have the power to award the greater of treble actual damages or $50,000 in statutory damages.  In addition, the Bills will provide that certain violations committed by licensees of the Department of Corporations, the Department of Financial Institutions, and the Department of Real Estate automatically will become violations of the Departments’ respective licensing laws.

The Bills’ provisions will be applicable (i) only to mortgage servicers, mortgagees, trustees, beneficiaries, and authorized agents who conduct more than 175 foreclosure sales per year in California and (ii) only with respect to mortgages or deeds of trust secured by owner-occupied, residential real property not exceeding four dwelling units. For a copy of the Bills, please see: