One of the lesser talked-about laws that went into effect Jan. 1 is the California Foreclosure Reduction Act, which is part of the Homeowners Bill of Rights that California’s Attorney General proposed three years ago.
The law benefits homeowners and establishes new procedures that lenders must follow.
Here’s a brief rundown on the law’s four main parts:
- The law prohibits “dual tracking,” which is when a lender is reviewing someone for a loan modification and continuing with the foreclosure process at the same time. This only applies to owner-occupied, first mortgages. Lenders also must provide a written acknowledgment within five business days of receiving a complete modification package. If the servicer denies the loan mod request, the lender must give a reason why and the homeowner has at least 30 days to appeal. The servicer can’t proceed with the foreclosure until the appeal ends or 31 days, whichever is greater. The act doesn’t clarify how many times a borrower can request a modification, though. (See an issue there?)
- A servicer must provide a single point of contact for any borrower who requests a foreclosure prevention alternative. This contact can be an individual or a team of people, but the contact needs to have access to information about the homeowner’s situation and access to someone with authority to halt the foreclosure.
- The law is set up to prevent another “robo-signing” debacle by holding lenders accountable for ensuring that reliable evidence has been verified before banks can record or file any foreclosure documents. Lenders face $7500 per loan fines for any violation. Bloomberg reports that the nation’s big banks made more than $60 billion in profits last year, so those fines might not be much of a sting.
- The act also includes a private right of action provision for any “material violation.” This means that a homeowner can take a lender to court for disregarding the new law. A borrower can seek $50,000 or triple actual damages and reasonable attorney fees for a violation. This makes it easier on an individual homeowner since they won’t have to deal with class action cases.
I believe we can expect banks to put more resources toward helping struggling homeowners. I also think that the lack of clarity about the number of times a person can apply is the kind of loophole that may allow people to play the system. If I’m being a realist about it, this kind of legislation may make things costlier for banks and I believe that those costs are passed on to us.
Some big banks have made headlines by being proven in court to be involved in serious foreclosure abuses, and they’re also making record profits. This California Foreclosure Reduction Act helps, but hasn’t most of the damage already happened?
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