The California Homeowner Bill of Rights: A Precursor to the New CFPB Rules?

A significant event in the mortgage servicing industry took place on January 1, 2013. On this date, the California Homeowner Bill of Rights (CHBOR) went into effect.¹   Lenders and servicers that have loan portfolios secured by real estate located in California are now experiencing the impact.  Similar legislation, rules, and requirements could soon go into effect on a nationwide basis.

The CHBOR was sponsored by California Attorney General Kamala Harris for the purpose of codifying much of the State Attorney General's settlement concerning California foreclosures with five large servicers.²   It creates several new requirements that foreclosing lenders must meet in order to initiate and complete foreclosure proceedings.  Notable components of the CHBOR include:  additional notifications that must be issued to borrowers to inform them of the existence of loss mitigation opportunities; a prohibition on dual tracking; designating a single point of contact for borrowers interested in pursuing loss mitigation; and requirements for document verification and increased transparency of the foreclosure process.³

Most of the CHBOR applies only to owner-occupied property and to lenders or servicers that seek to foreclose on a senior Deed of Trust or Mortgage.  Some of the provisions further differentiate between lenders or servicers that processed less than 176 foreclosures in California in the preceding year, and those that processed 176 or more.  For example, lenders or servicers that processed 176 or more in the preceding year must issue additional loss mitigation notices to a borrower before and after filing a Notice of Default if the borrower has not yet applied for a loan modification.⁴   Those which processed less than 176 foreclosures in the preceding year do not have this same requirement.⁵   Similarly, lenders or servicers meeting the 176 or greater threshold have a duty to provide a single point of contact to a borrower who applies for a foreclosure prevention alternative.⁶   Lenders coming in underneath the 175 threshold are not required to do so.

One of the stand-out components of the CHBOR is a restriction on the practice of foreclosing on a property while a loan modification application is pending.  Dual tracking, as this practice is otherwise known, is now precluded.  A lender or servicer may not initiate the foreclosure process by filing a notice of default if a borrower's application for a loan modification is pending.⁷   If foreclosure proceedings have already been initiated at the time a borrower submits an application for a loan modification, the lender must place its foreclosure proceedings on hold until such time that the application has been reviewed and approved or denied.⁸   It is also important to note that if an application for loan modification is denied, the borrower has a 30 day appeal period during which time foreclosure proceedings must remain on hold.⁹

As discussed above, another important part of the CHBOR is the requirement of lenders and servicers to provide a single point of contact for borrowers who apply for a foreclosure prevention alternative.¹⁰   Under the new legislation, a single point of contact, or SPOC, is defined as an individual or team of personnel, each of whom has the ability and authority to perform the following responsibilities:  communicating the process for application for a foreclosure prevention alternative; coordinating receipt of all documents necessary for the application; access to individuals with the ability and authority to stop foreclosure proceedings if necessary; ensuring that the borrower is offered all foreclosure prevention options provided by the lender or servicer.¹¹   A lender or servicer's responsibility to provide a SPOC begins upon a request from a borrower, and ends when the lender or servicer has determined that all loss mitigation options have been exhausted or when the borrower's account becomes current.¹²

Recently, the Consumer Financial Protection Bureau (CFPB) issued its final rules on mortgage servicing.¹³   These new rules are scheduled to take effect on January 10, 2014.¹⁴   A complete list of the new rules can be viewed at CFPB's official website.¹⁵   It is interesting to note that many similarities exist between the CHBOR and the new CFPB rules.  Examples of similarities include a prohibition against dual tracking, increased notification requirements of loss mitigation opportunities, and the appointment of an SPOC for individuals interested in loss mitigation options. 

The new CFPB rules will, of course, be applied on a nationwide basis.  This means that although a lender or servicer may not currently be affected by California's new Homeowner Bill of Rights, it will almost certainly be impacted by similar rules and requirements in the not-too-distant future.  Accordingly, lenders and servicers will be well-served by preparing to incorporate policies and procedures that contemplate the new rules and by becoming familiar with the issues and trends that will undoubtedly arise in California foreclosure proceedings over the next year.