In July, Governor Brown signed the Homeowner Bill of Rights, which addresses many of the problems commonly suffered by homeowners seeking a loan modification or facing foreclosure and will give California homeowners the nation’s toughest protections against wrongful foreclosures.
One major item addressed by the law is the prohibition of “dual-tracking.” Before, while processing a loan modification with a borrower, the lender would continue to pursue a foreclosure at the same time. The borrower, thinking they were working together with the lender to find a solution, would suddenly and unexpectedly receive notice that their property was sold at public auction and that they are being evicted. This problem was compounded by the fact that often the lender wouldn’t even consider a loan modification unless the borrower was in default, which would cause the borrower to purposefully go into default, which would trigger a separate department of the lender to initiate and pursue foreclosure proceedings, causing the homeowner to lose their home instead of gain a loan modification. The new law forbids such “dual-tracking” and allows a foreclosure only after a final decision has been made on alternative procedures (i.e., modification, short sale, etc.).
The law also provides that lenders must provide a single point of contact to homeowners for all procedures (loan modification, foreclosure, etc.) and provide a clear explanation for the decision to approve or deny a request for a loan modification. In addition, in pursuit of a foreclosure, Lenders cannot “robo-sign” mortgage documents, which must now be verified before foreclosing (with copies provided to borrowers). Finally, the law provides that a borrower can sue the lender in civil court for violating its provisions.
The law only applies to first liens on owner-occupied residential property and does not take effect until Jan. 1, 2013 so until then, borrowers seeking a loan modification must still be wary of dual-tracking in order to avoid losing their homes.
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