California Foreclosure Protection: The Homeowner Bill of Rights
The new California Homeowners Bill of Rights helps protect homeowners in foreclosure from lender abuses.
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On January 1, 2013, California's Homeowner Bill of Rights, went into effect. The law reformed some aspects of the California foreclosure process in order to better protect homeowners in foreclosure.
Between 2008 and 2011, more than one million homes in California were foreclosed. In many cases, lenders did not provide homeowners with a significant opportunity to obtain loss mitigation options to avoid foreclosure and also engaged in extensive mortgage servicing misconduct. To address this issue, Governor Jerry Brown signed the California Homeowner Bill of Rights into law on July 11, 2012.
The Homeowner Bill of Rights makes the nonjudicial foreclosure process in California more fair and transparent. Read on to learn about the law's protections for homeowners and how the Homeowner Bill of Rights can help you if you are facing foreclosure in California.
(See our article Summary of California Foreclosure Laws for more information on the California foreclosure process).
What Is the California Homeowner Bill of Rights?
The purpose of the Homeowner Bill of Rights is to provide protections for homeowners facing foreclosure and to reform some aspects of the foreclosure process. It aims to ensure that homeowners are considered for, and have a meaningful opportunity to obtain, available loss mitigation options, such as loan modifications or other alternatives to foreclosure. (Learn more in our Alternatives to Foreclosure area.)
The Homeowner Bill of Rights is part of California Attorney General Kamala D. Harris’ response to the state’s foreclosure crisis and largely came about as a result of the recent national mortgage settlement between 49 states and certain lenders. (Learn more about the the national mortgage settlement.)
However, whereas the national mortgage settlement is only applicable to the five settling banks and their customers, the Homeowner Bill of Rights extends the reforms addressed in the national mortgage settlement to almost all mortgage lenders and servicers.
Key Reforms in the California Homeowner Bill of Rights
The Homeowner Bill of Rights contains four key reforms:
Previously, a lender could foreclose on a homeowner even while a loan modification application was pending, which is a process called “dual-tracking.” The Homeowner Bill of Rights banned the dual-tracking of foreclosures. This means loan servicers must make a decision to grant or deny a first lien loan modification application before starting or continuing the foreclosure process.
What does this mean for homeowners? Once the homeowner submits a complete loan modification application, the foreclosure is stalled while the loan servicer reviews the application and makes a decision. Even if the lender denies the loan modification, it still cannot foreclose until any applicable appeals period has expired (this is generally 30 days from the date of the written denial).
A few months after the law passed, a California man who had submitted a complete loan modification application successfully used the Homeowner Bill of Rights to get a preliminary injunction halting a foreclosure sale since he never received a decision on the application before the bank moved to foreclose on the property. A month later, the parties settled and the case closed. See Singh v. Bank of America, 2013 WL 1858436 (E.D. Cal. May 1, 2013).
Lenders Must Provide Homeowners With a Single Point of Contact
In the past, homeowners who called their lender to get help with mortgage problems have had to explain their circumstances repeatedly, often to several different representatives. Under the Homeowner Bill of Rights, mortgage servicers must designate a single point of contact for homeowners who are potentially eligible for loan modifications or other foreclosure prevention alternatives. The homeowner must be given one or more direct means of communication with the single point of contact.
The point of contact may be an individual person or a team of personnel each of whom has:
- knowledge of the homeowner’s status
- information regarding foreclosure prevention alternatives
- access to decision-makers, and
- the responsibility to coordinate the flow of documents between the homeowner and mortgage servicer.
The single point of contact will remain assigned to the account until all loss mitigation options are exhausted or until the account is brought current.
Penalties for Robo-Signing
“Robo-signing” occurs when a representative of the lender or servicer signs foreclosure documents without reading them or having any personal knowledge about the accuracy of the information contained in them. The Homeowner Bill of Rights imposes a civil penalty up to $7,500 per loan on lenders or servicers that record or file multiple, unverified documents. (Learn more about robo-signing in the mortgage industry.)
Homeowners Have the Right to Sue for Violations
Homeowners may sue the lender or servicer for violations of the California Homeowner Bill of Rights. Potential relief includes:
- injunctive relief, such as a halt to the foreclosure sale (if the foreclosure sale hasn't happened yet), or
- actual economic damages if the foreclosure sale has already occurred.
In addition, if the court finds that the violation was intentional, reckless, or resulted from willful misconduct by a loan servicer or lender, the court may award the borrower the greater of treble actual damages or statutory damages of $50,000.
Effective Date of the New Law
The Homeowner Bill of Rights goes into effect on January 1, 2013. Many provisions are scheduled to sunset on January 1, 2018, while others become operative at that time.
Applicability of the California Homeowner Bill of Rights
The protections afforded to homeowners by the Homeowner Bill of Rights generally apply to first lien mortgage loans for properties that are:
- residential, and
- no more than four units.
Smaller servicers (entities that conduct fewer than 175 foreclosure sales per year or annual reporting period) are exempt from some of the procedural requirements.
To Learn More About the California Homeowner Bill of Rights
For more information, go to the State of California Department of Justice’s webpage at www.oag.ca.gov and click on the link to “CA Homeowner Bill of Rights”.