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December 20th, 2012

California Homeowner Bill of Rights takes effect Jan. 1



protectionIt’s no secret that California has been hard hit by the housing crisis. More than 1 million homes in the state were lost to foreclosure between 2008 and 2011, and some 700,000 more are currently in the foreclosure pipeline, according to state officials.

Since so many foreclosures were unfairly handled, Calif. Gov. Jerry Brown and Attorney General Kamala Harris have responded with the California Homeowner Bill of Rights, a new set of reforms for how the state will handle foreclosures moving forward.

While the bill was signed into law back in July, it takes effect on Jan. 1, 2013.

The California Homeowner Bill of Rights marks the third step in the governor and attorney general’s three-step approach to bring more fairness, accountability and transparency to the foreclosure process. The previous two steps included:

  1. Establishing a mortgage fraud task force to investigate and prosecute mortgage “misconduct.”
  2. Utilizing $18 billion from the national mortgage settlement with the five major banks to provide relief in the form of settlement payments to those wrongfully foreclosed, principal reductions, refinances, short-sale and relocation assistance.

Here are the major reforms included in the California Homeowner Bill of Rights:

  • Dual-track foreclosure ban. Mortgage servicers will be required to approve or decline a homeowner’s application for a loan modification before they advance the foreclosure process by filing a notice of default or notice of sale or conducting a trustee’s sale. This dual-track ban will essentially pause the foreclosure process for the duration of the lender’s review of a completed loan-modification application. The intent is to protect homeowners from foreclosure if they could have obtained a modification.
  • Single point of contact. Mortgage servicers will be required to designate a single point of contact for borrowers who are potentially eligible to apply for a federal or proprietary loan modification. The single point of contact can be an individual or team of people. The contact point must have knowledge of the borrower’s status and foreclosure-prevention alternatives, access to decision-makers and the responsibility to coordinate the flow of documents between the borrower and servicer. The intent is to minimize hassles and delays in the homeowner’s efforts to communicate with the servicer.
  • Document verification. Mortgage servicers that record and file multiple unverified documents will be subject to civil penalties of up to $7,500 per loan in an action brought by a civil prosecutor.
  • Enforceability. Borrowers will be able to seek redress of material violations of certain homeowner protections. Redress may include injunctive relief before a foreclosure sale and recovery of damages after a sale.

How these protections will work in practice remains to be seen and many questions are still unanswered.

Open issues include how servicers will implement the requirements and the extent to which they’ll try to defeat the intended protections, implications for local home sales, and whether the federal government or other states will follow California’s lead.

One Response to “California Homeowner Bill of Rights takes effect Jan. 1”

  1. Jason Says: December 29th, 2012 at 10:25 pm

    These are very good moves for California, and other states that had high foreclosure rates should think of adopting something like this. I have to admit that I expected something like this to occur on a national level since many of the organizations doing this crossed state lines.

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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