In an effort to “help even more Californians keep the American Dream of homeownership alive,” Governor Schwarzenegger signed SB 1137 into law on July 8, 2008. Taking full effect on September 6, 2008, the new laws have implications for lenders and borrowers alike.
Understanding the Intentions
At first read, the legislation seems straightforward and reasonably defined. However, when applying real-world scenarios, the ambiguities begin to appear. The aim of SB 1137 is to avoid residential, non-judicial foreclosures whenever possible, by requiring additional communications between the borrower and lender.
What Loans are Affected by the New Foreclosure Law?
The answer is not as clear as one might hope, but the text of the legislation identifies loans made between January 1, 2003, and December 31, 2007 that are “secured by residential real property and are for owner-occupied residences.” Loan agreements signed and dated during these periods meet this initial requirement. Whether these loans are “secured by residential property and…are for owner-occupied residences” is the more difficult determination. Many legal professionals agree that this section is not limited to “1-4 residential properties.” More likely this covers any loan secured by property on which the borrower principally resides.
What are the New Notification Requirements for Affected Loans in Default?
The new notice provisions affect both Notice of Default (“NOD”) and Notice of Sale (“NOS”) requirements. The new laws require lenders to contact borrowers at least 30 days prior to filing a NOD. If contact cannot be made, lenders must file a declaration with their NOS stating that “due diligence,” as defined by the statute, has been followed. Some very limited exceptions exist.
The new NOS provisions require increased compliance for any loan secured by residential property, where the mailing address of the borrower is different from the mailing address of the property. Presumably, the legislature included these provisions for the protection of tenants who might not otherwise get notice. Lenders are required to provide statutory language to tenants including posting and mailing notices in English, Spanish, Chinese, Tagalog, Vietnamese, and Korean. There are statutory fines for anyone tearing down the notices.
In addition to notice requirements, the new laws also have post-foreclosure implications for lenders. Any REO’s (properties retained by the lender after an unsuccessful foreclosure sale) that are not properly maintained may expose lenders to fines of up to $1000 per day by local government entities. While this is just a brief introduction to the new compliance regulations, it is easy to see that lenders need to make immediate changes to their current foreclosure practices. Policies and procedures need to be implemented to ensure that lenders are following the proper time line and notice requirements. Although the laws may be more complex and ambiguous than they first appears, compliance is mandatory, but manageable.
If you have questions or concerns related to this or any other legal issue, please contact Lang, Richert and Patch at (559) 228-6700.