The Department of Real Estate Adopts Final Regulations for the California Foreclosure Protection Act Including Many of UTA’s Suggested Changes

By Phillip M. Adleson, Esq., Adleson, Hess & Kelly, Corporate Counsel for UTA

Good news on the regulatory front! The DRE has issued final Regulations for the implementation of the California Foreclosure Prevention Act (“CFPA” or SBx2-7/ABx2_7).

When the CFPA became effective, Civil Code § 2923.52 defined a “Covered Loan” under the CFPA as a loan where all of the following conditions exist: (1) it was recorded between January 1, 2003 to and including January 1, 2008 (“Covered Loan Period”), and is secured by residential real property; (2) it is secured by a first mortgage or deed of trust; (3) the borrower occupied the property as the borrower’s principal residence at the time the loan became delinquent; and, (4) a notice of default has been recorded on the property. Because the definition of “residential real property”
was not provided in the statute, we had to look to the regulations for clarification.

Many of UTA’s suggestions were incorporated in the Emergency Regulations adopted on June 1, 2009 by the Department of Financial Institutions (“DFI”), the Department of Corporations (“DOC”) and by the DRE. However, the DRE inadvertently omitted some provisions that would clarify the application of Civil Code § 2923.52 (i.e., determining what “residential mortgage loans” are covered by the CFPA).

Because of the DRE’s correction of this omission in its final regulations, real estate brokers will now have clarification already in the DOC and DFI regulations defining the terms "residential mortgage loan".  The DRE final regulations will clarify that "residential mortgage loan" means “any loan primarily for personal, family, or household use that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on a dwelling (as defined in section 1.03(v) of the Truth in Lending Act or residential real estate upon which is constructed a dwelling (as so defined).”  Section 1.03(v) of Truth in Lending Act states: “The term ‘dwelling’ means a residential structure or mobile home which contains one to four family housing units, or individual units of condominiums or cooperatives.”  This definition in the regulation adds needed clarification of the type of real property is subject to the CFPA.

The DRE’s response to UTA’s request to clarify the regulations will level the playing field for all lenders subject to the CFPA, regardless of whether they are regulated by the DRE, DFI or DOC.

Once again, we are proud that UTA serves its members so effectively.

The following are available for you here:

DRE Notice of Action (to adopt final regulations);

Initial Statement of Reasons for the Adoption of Rules under the California Foreclosure Prevention Act [reasons for changes];

Text of Proposed Changes under the California Foreclosure Prevention Act Pursuant to Notice, Dated: December 17, 2009 [actual text of the final regulation]. By looking at the footnotes in the “Initial Statement of Reasons”, you can tell how many times the DRE based changes on comments from UTA.

The most likely result of these clarifications will be to prevent frivolous lawsuits over the definition of “residential mortgage loan.” While these changes should not change most servicers’ compliance procedures, each servicer should consult with competent legal counsel as to what, if any impact the DRE’s final regulations may have.