Q. Hello. I submitted a loan modification application to my mortgage company on August 1. They sent me a letter on August 7 stating that the modification was “under review.” On August 20, they recorded a “notice of trustee sale.” My neighbor told me that they couldn’t do this because of some new law that protected homeowners against foreclosure. Is this true? I can’t believe they would sell my house out from under me when we’ve been talking about modifying the loan! I feel so betrayed. Please help!
A. Oh, Molly, I’m so sorry—that sounds awful! Depending upon the circumstances, there are a couple of new laws that might help you—California’s Homeowner Bill of Rights (HOBR) and the National Mortgage Settlement NMS). Key provisions of HBOR, Attorney General Kamela Harris’ response to the state’s foreclosure and mortgage crisis, effective January 1, 2013, include:
• Restriction on dual track foreclosure: Mortgage servicers are restricted from advancing the foreclosure process if the homeowner is working on securing a loan modification. When a homeowner completes an application for a loan modification, the foreclosure process is essentially paused until the complete application has been fully reviewed.
• Guaranteed single point of contact: Homeowners are guaranteed a single point of contact as they navigate the system and try to keep their homes – a person or team at the bank who knows the facts of their case, has their paperwork and can get them a decision about their application for a loan modification.
• Enforceability: Borrowers will have authority to seek redress of “material” violations of the new foreclosure process protections. Injunctive relief will be available prior to a foreclosure sale and recovery of damages will be available following a sale.
• Tenant rights: Purchasers of foreclosed homes are required to give tenants at least 90 days before starting eviction proceedings. If the tenant has a fixed-term lease entered into before transfer of title at the foreclosure sale, the owner must honor the lease unless the owner can prove that exceptions intended to prevent fraudulent leases apply.
• Tools to prosecute mortgage fraud: The statute of limitations to prosecute mortgage-related crimes is extended from one to three years, allowing the Attorney General’s office to investigate and prosecute complex mortgage fraud crimes. In addition, the Attorney General’s office can use a statewide grand jury to investigate and indict the perpetrators of financial crimes involving victims in multiple counties.
• Tools to curb blight: Local governments and receivers have additional tools to fight blight caused by multiple vacant homes in their neighborhoods, from more time to allow homeowners to remedy code violations to a means to compel the owners of foreclosed property to pay for upkeep.
The NMS, which was signed by the federal government and every state attorney general but Oklahoma’s in February 2012, is an agreement with only five of the largest mortgage servicers:
The NMS settles only some aspects of the five banks’ conduct related to the financial crisis (foreclosure practices, loan servicing, and origination of loans), in return for as much as $25 billion in relief to distressed borrowers and direct payments to states and the federal government. Key provisions of the NMS include:
• Immediate aid to homeowners needing loan modifications now: including first and second lien principal reduction. The five servicers are required to work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide.
• Immediate aid to borrowers who are current, but whose mortgages currently exceed their home’s value: Borrowers will be able to refinance at today’s historically low interest rates. The five servicers will have to provide up to $3 billion in refinancing relief nationwide.
• Payments to borrowers who lost their homes to foreclosure: with no requirement to prove financial harm and without having to release private claims against the servicers or the right to participate in the Office of the Comptroller of the Currency (OCC) independent review process. $1.5 billion will be distributed nationwide to borrowers who lost their home due to foreclosure between January 1, 2008 and December 31 2011 and whose loans were serviced by one of the five mortgage servicers that are parties to the settlement.
• Nationwide reforms to servicing standards: These servicing standards require single point of contact, adequate staffing levels and training, better communication with borrowers, and appropriate standards for executing documents in foreclosure cases, ending improper fees, and ending dual-track foreclosures for many loans.
• State AG oversight of national banks: National banks will be required to regularly report compliance with the settlement to an independent, outside monitor that reports to state Attorneys General. The five servicers will have to pay heavy penalties for non-compliance with the settlement, including missed deadlines.
So, depending upon whether your servicer was one of the five covered by the NSA, or a “large” or “small” servicer under the HOBR, different protections apply. A large servicer under HBOR is one that conducts more than 175 foreclosures annually; a small servicer is everyone else. To find out whether your servicer is a large servicer, look it up on the California Department of Business Oversight’s “List of Mortgage Servicers licensed and regulated by the Department of Business Oversight with more than 175 Foreclosures in calendar year 2012” at http://www.dbo.ca.gov/Laws_&_Regs/legislation/ca_foreclosure_reduction_act.asp. The website gives you tips for finding your servicer if it does not appear on that list.
Whether your servicer is large or small under HBOR, or one of the five covered by the NMS, it is prohibited from “dual tracking,” or pursuing both foreclosure and loan modification with you at the same time, if you have submitted a complete loan modification application (with the NMS, this complete application must be submitted by day 120 of the delinquency; if substantially complete, you must be given an additional ten days to complete it).
It is unclear from what you have said whether your application is complete, but they did say it was “under review.” If they are a large servicer under HBOR, they are required to send you a written acknowledgment letter within five days of receipt of the application, and it must include a description of the process and relevant timelines, identify any missing documents and a deadline to submit those missing documents, and the expiration dates of the documents you have submitted. If your large servicer did not send you a written acknowledgment letter, yet they still claim your application is incomplete and so they can pursue the foreclosure, you may sue the servicer, and your attorney may receive attorneys fees if you win.
I would find an attorney right away if I were you, Molly. Attorneys can receive free assistance and resources from the HBOR Collaborative, a partnership of four housing advocacy organizations, led by the National Housing Law Project (NHLP) and funded by the Office of the California Attorney General under the National Mortgage Settlement.
NHLP and its partners, Western Center on Law & Poverty, National Consumer Law Center, and Tenants Together, offer free training, technical assistance, litigation support, and legal resources to California’s consumer attorneys and the judiciary on all aspects of the new California Homeowner Bill of Rights, including its new tenant protections.
Good luck, Molly!
Do you have a question for the County Law Librarian? Just email [email protected]. If your question is selected your answer will appear in next Thursday’s column. Even if your question isn’t selected, though, I will still respond within two weeks.