California Foreclosure Protection: The Homeowner Bill of Rights

California's Homeowner Bill of Rights, which went into effect on January 1, 2013, reformed some aspects of the state's foreclosure process to help mortgage borrowers. On January 1, 2018, many provisions of the Homeowner Bill of Rights were replaced with new ones—a change that was widely considered to benefit lenders and servicers, not homeowners. Then, on September 14, 2018, Governor Jerry Brown signed Senate Bill No. 818, which permanently reinstated the Homeowner Bill of Rights' expired provisions that protect homeowners' interests.

Background Information

The Homeowner Bill of Rights was part of California's former Attorney General Kamala D. Harris’ response to the state’s foreclosure crisis. It largely came about as a result of the national mortgage settlement between 49 states and individual banks.

However, whereas the national mortgage settlement was only applicable to the five settling banks and their customers, California's Homeowner Bill of Rights extends the reforms addressed in the national mortgage settlement to almost all mortgage lenders and servicers that conduct foreclosures in the state.

Key Reforms in the California Homeowner Bill of Rights

The Homeowner Bill of Rights contains several key provisions, including:

No Dual-Tracking

In the past, a lender or servicer could foreclose even while a loss mitigation application was pending in a process called “dual tracking.” The Homeowner Bill of Rights prohibits the dual tracking of foreclosures in California. Federal law also restricts dual tracking.

Servicers Must Provide Homeowners With a Single Point of Contact

During the foreclosure crisis, homeowners who called their servicer to get help with mortgage problems typically had to repeatedly explain their circumstances to several different representatives. Under the Homeowner Bill of Rights, a servicer must promptly establish a single point of contact upon a request from a borrower who asks for a foreclosure prevention alternative. The servicer also has to give the homeowner one or more direct means of communication with the single point of contact.

The point of contact must be an individual or a team of personnel who can:

• communicate the process by which a borrower can apply for a foreclosure prevention alternative and the deadline for any required submissions to be considered for these options
• coordinate receipt of all documents associated with available foreclosure prevention alternatives and notify the borrower of any missing documents necessary to complete the application
• access current information and personnel sufficient to timely, accurately, and adequately inform the borrower of the current status of the foreclosure prevention alternative
• ensure that a borrower is considered for all foreclosure prevention alternatives offered by, or through, the servicer, if any, and
• access individuals with the ability and authority to stop foreclosure proceedings when necessary.

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.

Preforeclosure Help for Borrowers

The Homeowner Bill of Rights requires the lender or servicer to contact, or attempt to contact, the borrower to discuss foreclosure alternatives before starting a foreclosure. Specifically, a servicer has hold off for 30 days after contacting the borrower—or meeting the contact attempt requirements—regarding foreclosure alternatives before recording a notice of default, which is the first official step in a California foreclosure.

While this requirement appears straightforward, some borrowers in California have sought to prevent or delay foreclosures by filing lawsuits alleging that their lender or servicer failed to comply with this requirement because contact was initiated by the borrower, instead of the lender or servicer. The borrowers' argument was, under the Homeowner Bill of Rights, lenders or servicers—not borrowers—are required to initiate the contact. But various federal courts disagreed and found that the contact requirement is satisfied regardless of who initiates the contact, so long as contact is made and the parties discuss foreclosure alternatives. Also, on November 7, 2018, the California Court of Appeal formally agreed with the federal courts' interpretation of the statute and held that borrower-initiated contact satisfies the legal requirements. (Schmidt v. Citibank, N.A., 28 Cal.App.5th 1109 (Cal. Ct. App. 2018)).

Homeowners Have the Right to Sue for Violations

Homeowners may sue the lender or servicer for material violations of certain sections of the California Homeowner Bill of Rights. Potential relief includes:

• injunctive relief (prior to the recording of a trustee’s deed upon sale), or
• actual economic damages if the trustee’s deed upon sale has already been recorded.

Also, if the court finds that the violation was intentional, reckless, or resulted from willful misconduct by a servicer or lender, the court may award the borrower the greater of treble actual damages or statutory damages of $50,000.

Applicability of California's Homeowner Bill of Rights

The protections afforded to homeowners by California's Homeowner Bill of Rights generally apply to first lien mortgage loans for properties that are:

• owner-occupied
• 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.

Getting Help

To get specific information about how California's Homeowner Bill of Rights applies in your situation and whether you have any defenses to a foreclosure, talk to a foreclosure lawyer. To get more information about foreclosure alternatives, like a loan modification, consider making an appointment to speak to a HUD-approved housing counselor.