Senators Leno and Steinberg introduce California Homeowner Protection Act

Bill aims to prevent wrongful foreclosures


Center for Responsible Lending
March 4, 2011

Oakland, Calif.—California State Sen. Mark Leno (D-San Francisco) and Senate President pro Tem Darrell Steinberg (D-Sacramento) vowed at the end of last year’s legislative session that they would not give up on trying to prevent wrongful foreclosures of California homeowners. Their 2010 bill, which would have put an end to banks’ pursuing foreclosures while simultaneously considering loan modifications, passed the Senate but failed in the Assembly.

This year’s California Homeowner Protection Act (SB 729) retains the same major goal as last year’s SB 1275: avoiding wrongful foreclosures by making sure that borrowers are given a decision on a loan modification before the foreclosure process begins.

“Banks should not foreclose on a family’s home until they inform the owner whether the loan can be modified to an affordable level,” said Sen. Leno. “California homeowners who qualify for modifications should get them – not a foreclosure notice.”

Banks and servicers commonly pursue a “dual-track” approach, which means that they are going through the modification and foreclosure processes at the same time. The signature problem with this practice is that once the foreclosure process starts, it is nearly impossible to stop—regardless of whether a borrower ultimately qualifies for a loan modification—and many homeowners wrongfully lose their homes as a result.

SB 729 would:

  • Give Borrowers a Clear Yes or No Before Starting Foreclosure Process:  If a borrower applies for a loan modification in a timely fashion, the servicer must evaluate the application—and provide the borrower with a yes or no decision—before beginning foreclosure proceedings.
  • Require Proof of Ownership:  Servicers must establish ownership of the note and the right to foreclose when they record notices of default.
  • Require Life of Loan Accounting:  Requires the servicer to send to the borrower at the time it sends the notice of default a life of loan accounting, including an accounting of all payments with application and running balances, an itemization and description of all fees charged and the like.
  • Provide a Limited Legal Recourse:  To ensure compliance, the bill provides a limited legal recourse to borrowers.  This will provide a deterrent to servicers who are not playing by the rules and provide a modest measure of recourse to families who lose their homes due to servicer misconduct.  This provision includes limitations to prevent “gotcha” litigation.

“When people hit hard times but can still manage to make their mortgage payments with the help of a loan modification, they deserve that opportunity,” said Senate President pro Tem Darrell Steinberg. “SB 729 requires lenders to give hard-working homeowners a fair evaluation on a modification before foreclosing on a home. Helping families stay in their homes is best for them and best for California’s economy.”

Last year, 305,000 California borrowers received notices of default and more than 170,000 families actually lost their homes to foreclosure. Due to the large numbers of Californians falling behind on their payments and lacking any equity, CRL expects to see near-record levels of foreclosures for at least the foreseeable future without strong and common-sense legislative action.

“It was a major disappointment when last year’s bill failed to pass the Assembly,” said Paul Leonard, director of the California office of the Center for Responsible Lending, which is a sponsor of this year’s bill, along with California Labor Federation and California Reinvestment Coalition. “Perhaps all the recent news of robo-signing, bank errors and wrongful foreclosures will mean another chance at getting real protections for California homeowners.”

For more information: Ginna Green at (510) 379-5513 or ginna.green@responsiblelending.org.

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About the Center for Responsible Lending

The Center for Responsible Lending is a nonprofit, nonpartisan research and policy organization dedicated to protecting homeownership and family wealth by working to eliminate abusive financial practices. CRL is affiliated with Self-Help, one of the nation's largest community development financial institutions.