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SB 1275 Summary

June 2, 2010
Mortgage Lending

Summary of SB 1275 (As Amended 5-18-10)

Section 2923.4: New Notice for Delinquent Borrowers on Foreclosure Process, Rights and Obligations

  • Requires a state agency to create and translate a notice for delinquent borrowers that describes a borrower's rights and obligations, and outlines what to expect in the foreclosure process. (Specific text included in bill).

Section 2923.5: Pre-NOD Determination for Loan Modification and Borrower Solicitation Requirements

  • Pre-NoD Requirements. Provides that a servicer may not file a Notice of Default (initiating the foreclosure process) until all applicable requirements of the bill have been satisfied (notice, borrower solicitation, loan modification denial letter after review (if applicable) and preparation and recordation of a declaration of compliance.
  1. Existing CA law includes similar borrower solicitation and declaration requirements
  2. HAMP requires borrower solicitation and loan modification denial letter after review
  • Borrower Solicitation. Requires that the servicer attempt to contact the borrower to discuss loan modification or other foreclosure avoidance options and specifically sets forth specific types of solicitation (calls, letters) required, including sending the notice described in 2923.4. (Compliance with HAMP requirements is sufficient to satisfy)
  1. Borrower solicitation requirements are substantially similar to existing law.
  2. HAMP requires servicers to make more calls and send more letters than SB 1275 does.

Section 2923.7: Improvements to Existing Law Declaration of Compliance

In order to initiate foreclosure, the servicer must a) compile a record of the contacts required by 2923.5 (to be made available upon borrower request); and b) transmit to the foreclosure trustee a declaration of compliance, attesting that the servicer has complied with the various provisions of this bill. This declaration must be filed with the Notice of Default.

  • Existing law requires that a declaration attesting to compliance with existing borrower solicitation requirements must be filed with the Notice of Default.
  • HAMP requires that the servicer formally notify the foreclosure trustee that it has complied with HAMP requirements and that foreclosure may be initiated.

Section 2923.73: Required Denial Letter and Minimum Timeframes for Borrowers to Apply

  • Denial Explanation Letter. Requires that if a borrower initiates an application for a loan modification, and a modification is denied, the servicer has to send the borrower a letter detailing the reasons for denial. HAMP already requires such a letter.
  • Minimum Timeframes for Borrowers to Apply. Sets forth minimum timeframes (45 days from early notice to initiate application; 25 days to provide additional documentation/information) to apply, shorter than those governing HAMP. HAMP compliance satisfies requirements.
  • Does Not Apply If No Loan Modification Options Available.

Section 2923.75: Narrowly-Crafted Remedies

  • Post Foreclosure Sale Remedies. Adds limited remedies only where a home is sold in foreclosure after a serious violation of the bill's requirements.
  • Tiered Remedies. More limited remedies available for important but less significant violations: a) In most cases of 1st tier violations, if the home is sold to a 3rd party, the borrower may pursue the greater of treble actual damages or nominal damages of $10,000; b) In most cases of 1st tier violations, if title of the property is transferred to the foreclosing party at trustee sale, then the borrower may bring an action to void the sale; c) For 2nd tier violations, borrowers may only seek statutory damages of up to $10,000.
  • No Remedy for Technical Errors. Specifically provides that a borrower does not have a cause of action for technical or de minimis failures or errors.