A Long and Winding Road

Michael Belote, Esq.

By Michael Belote, Esq., California Advocates, UTA California Lobbyist

To call 2012 a busy year for UTA in the California Legislature is an understatement of truly epic proportions.  As the 2011-2102 two-year session of the legislature winds to a close, foreclosure “reform” may be the highest-profile issue enacted by the Legislature this year.  The bad news is that UTA and the rest of the coalition opposing the “Homeowner’s Bill of Rights” did not get all of the amendments we asked for.  The good news is that the ultimate product was much better than earlier versions of the bills, and that the basic structure of nonjudicial foreclosure remains intact.

In all, at least two dozen foreclosure-related bills were introduced in California this year.  Whereas in prior years, loan modification bills were killed by a coalition of lenders, UTA and others, the big difference for 2012 was the signing of the national mortgage settlement by the largest national servicers, and the development of a pro-reform coalition including Attorney General Kamala Harris, Assembly Speaker John Perez, and Senate President pro Tem Darrell Steinberg.  This created a veritable tsunami making the enactment of a package more a question of “what”, and “when”, than “if”.

UTA members are familiar with the issues at the heart of the reform agenda: loaded terms like “dual tracking”, “robo-signing”, and “chain of title”. For a time, the reform bills literally covered all real estate loans, including seconds, multi-family units, and even commercial loans.  Early on, the byzantine requirements before recording notices of default and notices of sale may well have created a de facto foreclosure moratorium.  Even up to nearly the end of the legislative process, chain of title requirements would have required the recording of every assignment and the provision of every document to borrowers.

UTA participated in dozens, perhaps hundreds, of hours of meetings on the foreclosure package.  We were one of the prime participants in a three-hour hearing devoted entirely torobo-signing, chain of title, and accuracy of foreclosure document issues.  While there is broad consensus that the ultimate package was far better than earlier iterations, UTA ultimately determined to remain opposed to the Homeowner’s Bill of Rights, even knowing that final passage and a signature by the Governor essentially was a foregone conclusion.

The final package is far too complicated to describe with any precision in a brief column; attendance at the fall UTA Conference is an absolute must.  But important concessions were made by proponents of the bills.  Nearly all sections, for example, apply only to consumer loans secured by deeds of trust on one to four residential units.  Many of the provisions will “sunset”, or expire by their own terms, in 2018.  There are exemptions for licensed lenders or brokers which foreclose on 175 or fewer foreclosures in California per year.  There is language protecting the title to property after foreclosure, and no suits for damages are available before the trustee’s sale.

On the other hand, the package may encourage serial reapplications for modifications by borrowers claiming “material” changes in circumstances, and may encourage meritless requests for injunctive relief by lawyers who may hope to be awarded attorneys fees for obtaining nothing more than a temporary restraining order.  The bill also imposes additional burdens on trustees, including written notices to borrowers when sales are postponed for ten days or more.

In an unusual move, the Homeowner’s Bill of Rights was enacted in two separate but identical bills.  UTA members will find that the contents of AB 278 (Chapter 86, Statutes of 2012) and SB 900 (Chapter 87, Statutes of 2012) are completely the same, so obviously compliance with one bill will constitute compliance with both.

There are other elements of the foreclosure package of interest to UTA, but of far less significance than the Homeowner’s Bill of Rights, including bills relating to maintenance of foreclosed properties, and tenant’s rights after foreclosure.  And as this column is written, AB 1599 (Feuer) remains alive, relating to the obligation to provide summary translations of notices of default and notices of sale.  On this final piece, UTA and others have requested and obtained very significant amendments.