Effective July 8, 2008, the State of California enacted new requirements for foreclosures on owner-occupied properties, as well as a new requirement for eviction of tenants by the purchaser at a foreclosure sale. The new law applies to residential mortgage loans that were made between January 1, 2003 and December 31, 2007 and will expire on January 1, 2013. The new law can be found at California Civil Code Sections 2923.5, 2923.6, 2924.8and 2929.3, and California Code of Civil Procedure Section 1161b. The key provisions of the new law provide that:
1. A mortgagee, trustee, beneficiary or authorized agent (hereafter referred to as the "mortgagee") must wait 30 days after contact is made with the borrower, or 30 days after satisfying due diligence requirements to contact the borrower before filing a notice of default.
2. Contact must be made in person or by telephone in order to assess the borrowers financial situation and explore options for the borrower to avoid foreclosure.
3. The borrower must be advised that he has the right to request a subsequent meeting and, if requested, the subsequent meeting must occur within 14 days of the original contact. Any meeting may occur telephonically.
4. The borrower must be provided with the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.
5. In order to satisfy the due diligence requirement, the mortgagee must first attempt to contact a borrower by sending a first-class letter that includes the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency. After that, the mortgagee must attempt to contact the borrower by telephone at the primary telephone number on file at least three times at different hours and on different days. The diligence requirement is deemed satisfied if the mortgagee determines that the borrowers primary telephone number and secondary telephone number or numbers on file, if any, have been disconnected. If the borrower does not respond within two weeks after the telephone call requirements have been satisfied, the mortgagee must send a certified letter, return receipt requested. The mortgagee must also provide a means for the borrower to contact it in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours, and post a prominent link on the homepage of its internet web site, if any, to the following information:
a. Options that may be available to borrowers who are unable to afford their mortgage payments and who wish to avoid foreclosure, and instructions to borrowers advising them on steps to take to explore those options;
b. A list of financial documents borrowers should collect and be prepared to present to the mortgagee when discussing options for avoiding foreclosure;
c. A toll-free telephone number for borrowers who wish to discuss options for avoiding foreclosure with the mortgagee; and
d. The toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.
6. A notice of default must include a declaration from the mortgagee that it has contacted the borrower, tried with due diligence to contact the borrower, or that the borrower has surrendered the security property to the mortgagee.
7. If the mortgagee has already filed a notice of default prior to July 8 and did not subsequently file a notice of rescission, then the mortgagee must, as part of the notice of sale, include a declaration that either (a) states that the borrower was contacted to assess the borrowers financial situation and to explore options for the borrower to avoid foreclosure, or (b) lists the efforts made, if any, to contact the borrower in the event that no contact was made.
8. Most of these requirements do not apply if the borrower has filed for bankruptcy (and the proceedings have not been finalized), the borrower has surrendered the property to the mortgagee, as evidenced by either a letter confirming the surrender or delivery of the keys to the property to the mortgagee, or the borrower has contracted with an organization or person whose primary business is advising people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual obligations to mortgagees.
9. A servicer under a pooling and servicing agreement is deemed to have acted in the best interests of all parties if it agrees to or implements a loan modification or workout plan if the loan is in payment default or payment default is reasonably foreseeable, and anticipated recovery under the modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis.
10. If the billing address for the mortgage note is different than the property address, then upon posting a notice of sale, the notice required by Civil Code Section 2924.8 must also be posted.
11. A legal owner that fails to maintain vacant residential property may be subjected to a fine of up to $1,000 per day. Failure to maintain means failure to care for the exterior of the property, including without limitation permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action to prevent trespassers or squatters from remaining on property, or failing to take action to prevent mosquito larvae from growing in standing water or other conditions that create a public nuisance.
12. A tenant or subtenant in possession of a rental housing unit at the time the property is sold in foreclosure must be given 60 days written notice to quit before the tenant or subtenant may be removed from the property.
If you have any questions about the new law, please contact David Sands at (213) 617-5536 or Sherwin Root at (213) 617-5465.
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