With California Gov. Jerry Brown slowly
The California Homeowner Bill of Rights, which goes into effect at the beginning of 2013, prohibits a series of inherently unfair bank practices from taking place, including restricting dual-track foreclosures, instituting a single point of contact between a servicer and borrower, and imposing civil penalties on fraudulently signed mortgage documents. In addition, homeowners may require loan servicers to document their right to foreclose.
“Californians should not have to suffer the abusive tactics of those who would push foreclosure behind the back of an unsuspecting homeowner,” Brown said in a press release after signing the bill into law. “These new rules make the foreclosure process more transparent so that loan servicers cannot promise one thing while doing the exact opposite.”
Now that California has codified the national mortgage servicing settlement for Golden State residents, are attorneys general, specifically those on the West Coast, going to “follow the leader” and enact this type of legislation within their state?
According to Keith Dubanevich, associate attorney general and chief of staff for the Oregon Department of Justice, Oregon is instituting new policies to address the state’s foreclosure crisis on a step-by-step basis based on complaints from its constituents, rather than creating one large bill like California.
For example, in July, Oregon AG Ellen Rosenblum announced the adoption of rules that regulate the conduct of home mortgage loan servicers who violated the state’s Unlawful Trade Practices Act.
As part of the new rules, all servicers who operate in Oregon can no longer assess a late fee charge against a homeowner for any loans that were paid in full within the grace period applicable for that payment. Additionally, servicers cannot misrepresent to a borrower any material information regarding a loan modification and not disclose the proper information set forth in an affidavit detailing a borrower’s default and the servicers right to foreclose.
“We wanted to address the most common consumer complaints and clarify precisely what we perceive to be wrongful conduct so there was no ambiguity,” Dubanevich told this publication. “The industry was well aware of what is prohibited and now homeowners are also aware of what their servicer is forbidden to do.”
Secondly, the Oregon Legislature adopted a new mediation program last month (Senate Bill 1552) allowing any homeowner at risk of foreclosure, but not in default, the opportunity to meet face-to-face with the servicer to explore alternative options to foreclosure including loan modifications, refinancing and short sales before any final decision is made. In essence, this eliminates dual-tracking.
As part of SB 1552, a servicer has to provide the homeowner 30 days notice that no loss mitigation strategy could be finalized, therefore resulting in eventual foreclosure.
“The rational is to give fair warning to homeowners that they are not eligible for a loan modification anymore and will have to vacate the property soon,” Dubanevich added.
Although Nevada posted the nation’s highest foreclosure rate in the first half of 2012, according to RealtyTrac, the state is currently analyzing its “Foreclosure Fraud Reform” law that went into effect October 2011 in relation to the California Homeowner Bill of Rights.
AB 284 gives Nevada residents access to information on the companies that hold their mortgages by requiring the documents used in the foreclosure process to be recorded in the county where the property is located. Additionally, the legislation requires a party who wants to issue a foreclosure in Nevada has to record a notarized affidavit of authority ensuring that they have the legal right to exercise the power of sale.
“This law helps protect Nevadans from improper foreclosures and protects the integrity of the system for homeowners,” said Cortez Masto in a press release. “This bill creates security, legitimacy and transparency in the foreclosure process by ensuring homeowners and prospective purchasers can get a clean chain of title and are treated more fairly.”
Meanwhile, the press secretary for the Arizona attorney general’s office said Tom Horne would consider pursing a homeowner bill of rights, but he would first need to discuss this with state agency stakeholders, particularly Department of Financial Institutions, industry representatives and consumer groups. So far though, no decision has been made to institute a homeowner bill of rights in Arizona.
In general, it seems like the California Homeowner Bill of Rights was intended to benefit homeowners by allowing them to stay in their homes for a longer period of time and also have the capability to access courts to enforce their rights under this legislation.
But attorneys think the new California legislation is not going to be beneficial for the housing market in the Golden State because it will only slow down the foreclosure process there.
Donald Lampe, a partner at Dykema, a law firm that represents servicers and creditors, believes the California Homeowner Bill of Rights was created in favor of the borrowers. He added that more servicers are now going to have to defend their ability to move forward with a foreclosure in court because the borrower will claim certain steps of the law were not followed.
“If what is needed in California is healing of the housing market, forming up of real estate values and providing affordable financing for future homeowners who can afford to buy homes in California, then this is basically moving in the opposite direction,” Lampe said in an interview. “These sorts of laws can be very good for consumers, but at some point, if the plaintiffs bar gets a hold of the private rights of action, then the activities of lenders can wind up in court which would slow down any disposition of the property.”
If litigation does result because of the California Homeowner Bill of Rights, Lampe said the foreclosure process could be delayed for months or even years.
Nancy Thomas, co-chair of the financial services litigation practice group at Morrison & Foerster, agrees with Lampe that the California Homeowner Bill of Rights has serious implications for servicers. She said this law tries to codify the national mortgage servicing settlement on a borrower-by-borrower basis, thus ensuring that every individual at risk of foreclosure has an opportunity to be considered for some sort of alternative.
“When lenders entered into the loans, there were clear rights in the document that said if you don’t pay, here’s our recourse. The loan document certainly did not say you can foreclose as long as you provide a meaningful opportunity for borrowers to change the terms that they agreed, too,” Thomas said. “That’s where this is more significant to servicers and will be more expensive.”
