Homeowner protection bills go to governor

Pete Carey

San Jose Mercury News, July 3, 2012

Two bills to protect all California homeowners from arbitrary foreclosures and loan fraud are headed to Gov. Jerry Brown following their passage Monday in the Assembly and Senate.

The bills — part of Attorney General Kamala Harris’ Homeowner Bill of Rights — would make California the first state to extend to all homeowners the provisions of a national mortgage settlement with five big lenders.

“We really got it right this time,” said Assemblyman Mike Eng, D-Alhambra, who helped pilot the bills through the Assembly. “It means more Californians will stay in their homes, and the California economy will be better for that.”

The vote passing the bills was 53-25 in the Assembly and 25-13 in the Senate.

The measures address one of the most vexing problems faced by struggling homeowners seeking to remain in their homes — sudden foreclosure while they are working with a lender on a loan modification. The legislation also tackles a common complaint from homeowners, who say they are shuttled from one bank officer to the next in a confusing process that requires the repeated submissions of documents.

The foreclosure crisis continues to roil the state. More than 600,000 homeowners are either not making their mortgage payments or are facing foreclosure, according to ForeclosureRadar. Banks currently own 75,000 foreclosed homes.

If signed by Brown, the Foreclosure Reduction Act and the Due Process Rights Act will require lenders and

servicers to:

–Decide on a loan modification application before beginning to foreclose on a home. This would end “dual tracking,” in which one department in a bank works on a loan modification while another initiates a foreclosure.

–Establish a “single point of contact” at a bank for borrowers who might be eligible for a loan modification. The point of contact would have to be knowledgeable about the borrower’s loan and personal circumstances.

The bills also give borrowers the right to sue before being foreclosed, and to recover damages following a sale, a provision the banking industry felt was too broad.

In addition, the legislation also imposes a $7,500 civil penalty per loan when the lender has filed unverified documents — a practice known as “robo-signing.”

“Passing these key elements of the Homeowner Bill of Rights represents a significant step forward for struggling homeowners,” Harris said in a statement. “These common-sense reforms will require banks to treat California homeowners more fairly and bring more transparency and accountability to their practices in our state. Responsible homeowners will have a better shot to keep their homes.”

The measures would have helped Jose and Maria Carrillo of San Jose. Their three-bedroom home was sold at auction Jan. 10 after a two-year struggle to modify their mortgage with Bank of America. Maria’s sister, Ana Nunez, helped with the modification and said that it involved a long, frustrating process of submitting and resubmitting documents.

During that time a default notice was filed and the house was scheduled for sale. “We were told not to worry,” Nunez said. “But my sister and husband were at home Jan. 10 in the evening when two gentlemen showed up to tell them they had three days to move out of the house.” The men had purchased the home at auction that day.

Nunez said she called the bank officer who was dealing with their modification. “The lady who answered the phone was very apologetic.”

The Carrillos’ story has a happy ending, but many such stories don’t. The Fair Housing Law Project of San Jose took their case and persuaded the bank it had made a mistake. The foreclosure was canceled and the couple’s loan modified.

“It never should have gotten to this point,” said James Zahradka, one of the lawyers who handled the Carrillos’ case. “This wouldn’t have happened” if the Foreclosure Reduction Act bill had been law last year, said Zahradka, who is also a board member of the California Reinvestment Coalition.

Sen. Noreen Evans, D-Santa Rosa, who co-chaired a joint conference committee on the bills with Eng, said she expects the governor to sign the legislation. “We did work very closely with the governor’s advisers in crafting the final compromise,” she said.

The measures were passed despite opposition from the banking and mortgage industry, which fears that the Due Process Rights Act — giving borrowers the right to sue their lenders — will spur lawsuits and raise the cost of making loans.

More than half a dozen banking and financial industry groups in California fought the bills. The groups, including the California Chamber of Commerce, said the measures are “overly complicated” and are likely to “encourage frivolous litigation.”

“Numerous studies have shown that when you lengthen litigation and lengthen the foreclosure process there’s no tangible benefit to borrowers,” said Dustin Hobbs, spokesman for the California Mortgage Bankers Association. “It significantly delays the recovery of the real estate market.”

But proponents said the bills merely level the playing field for all California homeowners.

“It’s one rare measure of accountability brought to banks,” said Kevin Stein of the California Reinvestment Coalition. The bills lay out what they are supposed to do. We hope they are going to follow the law, but if they don’t, consumers will be able to enforce their rights.”

The intent is to reduce wrongful foreclosures, but not all foreclosures, said Paul Leonard of the Center for Responsible Lending.

“There are 700,000 Californians who are today in some stage of delinquency or in foreclosure,” Leonard said. “There’s a large number of folks who could benefit from the protections that are included in the bill.”

Unlike the national settlement, which expires in three years, these laws are permanent, except for some provisions that sunset in 2018. The laws would go into effect Jan. 1.