California Legislature Passes Homeowners’ Bill Of Rights

State lawmakers approved a series of foreclosure relief bills Monday, July 2, 2012, that supporters say will help hundreds of thousands of struggling Californians stay in their homes.

The legislation, opposed by banks that in previous years had succeeded in killing similar proposals, is meant to help people at risk of foreclosure stay in their homes, prevent banks and mortgage companies from engaging in unfair practices, and more broadly, help communities around the state cope with the ongoing foreclosure crisis.

It tackles what some homeowners see as egregious practices in a foreclosure process that critics describe as confusing, haphazard and arbitrary. California Attorney General Kamala Harris, a key sponsor of the legislation, says 1 million Californians lost their homes to foreclosure between 2008 and 2011, and another 500,000 homeowners are in the foreclosure pipeline.

The bills, if signed by Gov. Jerry Brown, would bar a practice known as “dual-tracking” – when a bank continues to proceed with a foreclosure even though a homeowner is seeking a loan modification. They would also require banks to provide struggling borrowers with a single point of contact. If lenders do reject borrowers for a loan modification, the legislation would require the bank to offer a clear explanation for why.

Banks would also have to verify mortgage documents before a foreclosure and provide copies to borrowers upon request. “The goal is to provide real, meaningful protections for homeowners on the precipice of losing their most important asset, while at the same time taking no steps that will impede the recovery of the real estate market.

Giving borrowers the right to sue lenders for “significant, material violations” of the new laws. “If the rules of the game are violated, borrowers have the right to say no. They will not be kicked out of the home they have lived in for decades unless the rules are followed,” he said.

The bills mirror and extend protections that were implemented under a nationwide settlement between 49 states attorneys general and the five largest U.S. banks, a case brought over robo-signing practices. Unlike that settlement, the new legislation would apply to all banks, although those that process fewer than 175 foreclosures a year would be exempt from some procedural requirements.

While some smaller banks and credit unions were neutral on the bills, large banks opposed the legislation, as did the California Chamber of Commerce, title companies, trustees and securities industry representatives. On Monday, the United Trustees Association issued a report warning that the bills could stifle ongoing housing-market recovery by creating new regulatory and legal hurdles and reducing home values, and would make it harder for most consumers to secure loans.

Lenders would be subject to fines of $7,500 per loan for filing and recording unverified documents. The bills’ provisions apply to first-lien mortgages for owner-occupants.

Adapted from, Wyatt Buchanan and Marisa Lagos, San Francisco Chronicle Legislature Passes Homeowners’ Bill Of Rights July 2, 2012 8:14 a.m.