In response to the ongoing foreclosure crisis in this country, many states have implemented mediation programs to assist homeowners in finding ways to avoid foreclosure. While California does not have a statewide foreclosure mediation program, the state has taken legislative steps to ensure loan servicers work with borrowers to find alternatives to foreclosure. To that end, California first passed SB 1137 in 2008 and on January 1, 2013, the Homeowner Bill of Rights became effective. Read on to learn more about how California law can help you in exploring alternatives to foreclosure.
In California, foreclosures are generally nonjudicial, which means the lender does not have to go through state court to get a foreclosure. (To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
To learn about options for dealing with foreclosure, visit Nolo's Foreclosure section.
Foreclosure Mediation in California
There is no statewide foreclosure mediation program in California. However, on July 8, 2008, California passed Senate Bill 1137 (SB 1137), an emergency bill to assist homeowners facing foreclosure, which was codified at Cal. Civ. Code § 2923.5. More recently, the California Homeowner Bill of Rights extended the protections first introduced by SB 1137, as well as enacted new reforms to better assist homeowners in foreclosure.
The main requirement under SB 1137 was that a lender could not file a notice of default, which is the first step in a California foreclosure, until 30 days after contacting the borrower to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure.
Learn more about the California foreclosure process.
Foreclosure Protections Introduced by SB 1137
SB 1137 enacted the following requirements:
- The lender or authorized agent was required to contact the borrower in person or by telephone and advise him or her of the right to request a meeting to explore alternatives to foreclosure.
- If requested, the lender was required to schedule the meeting, which could be done telephonically, to occur within 14 days. (An assessment of the borrower’s financial situation could be completed during the first contact or at the subsequent meeting.)
- The lender was required give the borrower the toll-free telephone provided by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency.
If the lender was unable to contact the borrower by telephone (meaing it tried at three different times on different days), then the lender was required to send a certified letter, return receipt requested, that provided a toll-free number to reach a live representative during business hours so the borrower could call and learn about alternatives to foreclosure.
The lender was also required to post a link on its website to information about:
- avoiding foreclosure
- the financial documents borrowers should collect to assist in discussing options for avoiding foreclosure
- a toll-free telephone number for borrowers who wish to discuss options for avoiding foreclosure, and
- the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.
These protections were designed to ensure that borrowers had the opportunity to speak to their lender about options to avoid foreclosure before the lender filed a notice of default.
Protections Limited to 2003-2007 Loans
SB 1137, as originally enacted, only applied to mortgages or deeds of trust that were recorded from January 1, 2003, to December 31, 2007, and that were secured by owner-occupied residential real property containing no more than four dwelling units.
The protections provided by SB 1137 were set to expire January 1, 2013, but the provisions of that law were extended and expanded when a new California law, the Homeowner Bill of Rights, went into effect on January 1, 2013. The Homeowner Bill of Rights also contains new reforms to better protect homeowners in foreclosure.
The California Homeowner Bill of Rights
The Homeowner Bill of Rights makes it more difficult for lenders to foreclose and allows homeowners to sue to stop a foreclosure process. It contains several key extensions and reforms:
SB 1137 Protections Extended
Under the Homeowner Bill of Rights, the basic foreclosure protections and requirements introduced by SB 1137 that were to sunset on January 1, 2013, will remain in effect. Some of the procedures are more detailed for larger residential mortgage lenders (those with more than 175 foreclosed properties during the preceding annual reporting period) than for smaller residential mortgage lenders. However, on January 1, 2018, the requirements for all institutions become uniform.
Protections Not Limited to 2003-2007 Loans
The protections afforded to homeowners by the Homeowner Bill of Rights generally apply to first lien mortgage loans for residential properties that are owner-occupied and no more than four units. Its protections are not limited to 2003-2007 loans.
The Homeowner Bill of Rights bans the dual-tracking of foreclosures, which means mortgage servicers must make a decision to grant or deny a first lien loan modification application before starting or continuing the foreclosure process.
Lenders Must Provide Homeowners With a Single Point of Contact
Mortgage servicers must designate a single point of contact for homeowners who are potentially eligible for loan modifications or other foreclosure prevention alternatives. The single point of contact remains assigned to the account until all loss mitigation options are exhausted or until the account is brought current.
Penalties for Robo-Signing
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 (“robo-signed”) documents. (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.)
Homeowners Have the Right to Sue for Violations
Homeowners may sue the lender or servicer for violations of the California Homeowner Bill of Rights.
See California Foreclosure Protection: The Homeowner Bill of Rights for more detailed information on the key reforms contained in the Homeowner Bill of Rights.
Should You Explore Alternatives to Foreclosure With Your Mortgage Servicer?
While participating in talks with your lender does not guarantee that a foreclosure will be avoided, it doesn't hurt to explore all options. The lender won’t offer you a nonforeclosure solution if you don’t ask and you might qualify for a loss mitigation option that you hadn’t previously considered.