2018 Changes to Homeowner Bill of Rights

• Jurisdiction: California,United States
• Author: Andrew W. Noble
• Citation: Vol. 2018 No. 2
• Publication year: 2018

2018 Changes to Homeowner Bill of Rights

Andrew W. Noble

Andrew W. Noble is an attorney at Severson & Werson in San Francisco, California, and is a past chair of the Consumer Financial Services Committee. Mr. Noble represents residential and commercial mortgage lenders in litigation and transactional matters, and has tried numerous mortgage-related cases in California, Washington, and Colorado courts. Mr. Noble may be reached at awn@severson.com.

The California Legislature enacted the Homeowner Bill of Rights ("HBOR") in 2012 to provide protections for homeowners facing non-judicial foreclosure and to modify certain aspects of the foreclosure process.¹ Many (but not all) HBOR statutes were scheduled to sunset on January 1, 2018. Of the statutes that were scheduled to sunset, many (but not all) were replaced by parallel statutes that became operative the same day. The changes add some new homeowner protections, but remove others, and modify still other protections in ambiguous ways. This article explores how a mortgage servicer's obligations toward its defaulted borrowers changed effective January 1, 2018, and how courts and litigators are responding.

Who Is Covered

As before, the HBOR covers only a natural person who is the borrower on a first-position deed of trust encumbering California residential real property containing no more than four dwelling units and that serves as the borrower's principal residence.² However, many former HBOR requirements did not apply to "small" mortgage servicers that foreclosed on 175 or fewer residential real properties in California during the previous year.³ The HBOR now largely omits the distinction between large and small servicers, except with respect to the servicer's obligation to appoint a single point of contact for the borrower, which still does not apply to small servicers.⁴

Pre-Notice of Default Contact

The servicer's obligation to contact its borrower to explore alternatives to foreclosure before initiating foreclosure has largely been re-codified from Civil Code section 2923.55 to section 2923.5 without material change.⁵ The servicer may not record a Notice of Default until at least thirty days after initial contact is made or after having satisfied due diligence requirements, which include sending a first-class letter, attempting to call the borrower by telephone at least three times at different hours and on different days, and then sending a certified letter.⁶

Post-Notice of Default Contact

Before January 1, 2018, servicers were required to send a letter to the borrower after they recorded a Notice of Default, explaining what loss mitigation options were potentially available and the process by which the borrower could apply for assistance.⁷ The 2018 HBOR amendments repealed the servicer's obligation to send such a letter to the borrower.

The HBOR revision dispensed with other pre-foreclosure contact requirements as well. Before, a servicer was obligated to send a statement to the borrower that he or she may be entitled to certain protections under the Servicemembers Civil Relief Act.⁸ Not anymore.

Also, a servicer no longer must send a letter explaining that the borrower may request a copy of the borrower's promissory note and deed of trust, the borrower's recent payment history on the property, or a copy of "any assignment" of the borrower's deed of trust "required to demonstrate the right of the mortgage servicer to foreclose."⁹ The omission will be welcomed by servicers and their attorneys, as it remained unclear until the day the statute was repealed what "assignment" was required to demonstrate a servicer's right to foreclose. A written Assignment of Deed of Trust is not required to be recorded—or even exist—to transfer a debt secured by real estate.¹⁰ The repealed statute caused unnecessary disputes about what servicing contracts and securitization instruments could be responsive.

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Single Point of Contact

The statute setting forth a large servicer's obligation to designate a single point of contact for the borrower upon request was not repealed, and remains in effect.¹¹

Application Acknowledgment

Previously, a servicer was required to provide a written acknowledgment of an application for assistance within ten days of receipt.¹² The HBOR no longer requires a written acknowledgment. However, confirming that the application was received and is being processed may remain the best practice, to facilitate communication and transparency and avoid confusion about the application's status.

Dual Tracking

The HBOR prohibition on "dual tracking" means that a servicer may not record a Notice of Default or Notice of Trustee's Sale, or complete a foreclosure sale, while a complete application is pending. Dual tracking remains prohibited, but the operative language that was contained in section 2923.6 is now, confusingly, divided between section 2923.5, subdivision (a)(1)(A) (dual tracking with respect to a Notice of Default), and section 2924.11, subdivision (a) (Notice of Trustee's Sale and conducting a sale). As before, a "complete" application means that the borrower has provided all documents and information required by the servicer within a reasonable time frame specified by the servicer.¹³ But there are substantive— and significant—changes as well.

Before, the HBOR prohibited dual tracking only after the servicer had received an application for a "first lien modification."¹⁴ By inference, a servicer could therefore record a Notice of Default or Notice of Trustee's Sale, or complete a sale, while in possession of an application for lesser relief such as a temporary forbearance, short sale, or deed in lieu of foreclosure. No longer.

The HBOR now applies to any application for a "foreclosure prevention alternative," which means a first lien loan modification "or another available loss mitigation option."¹⁵ The dual tracking prohibition therefore appears to extend to a forbearance, short sale, deed in lieu of foreclosure, or other relief short of a permanent modification.¹⁶

Denial Letter

Before the 2018 changes, a denial letter following a servicer's decision not to offer a loan modification was required to comply with detailed and very specific requirements. To comply with the HBOR, the letter had to specify why the investor disallowed the modification (if applicable), or the income and property values if the application was denied due to insufficient net present value ("NPV") , and to include a statement that the borrower could request the NPV inputs.¹⁷ The requirements were extensive, but it was clear exactly what was required of servicers. That is no longer the case.

Now, the HBOR requires that the denial letter state "with specificity" the reason for the denial and that the borrower may request unspecified "additional documentation supporting the denial decision" from the servicer.¹⁸ The...