New Foreclosure Laws Take Effect September 6, 2008

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New Foreclosure Laws Take Effect September 6, 2008

On September 6, 2008, most foreclosures in California will need to be conducted under the new requirements of California Civil Code 2923.5. This new code provision applies to loans made from January 1, 2003, to December 31, 2007, inclusive, that is secured by residential real property and are for owner-occupied residences.

This law is aimed to stop the widespread foreclosures across the State of California by requiring Lenders to attempt workouts and modifications of existing mortgages. Failure of a lender to make such attempts could result in that lender’s inability to foreclose.

Prior to this new law, the non-judicial foreclosure process in California was relatively simple. Once the debtor went into default, the lender recorded and noticed a “notice of default,” waited 90 days, recorded and noticed a “notice of sale,” waited 3 weeks, and then sold the property at auction. The foreclosure process was technically less than 4 months long without any court intervention.

Under the new law going into effect on September 6, 2008, a lender can not even get to the very first step of recording a notice of default until 30 days transpire from when it either first contacts the debtor (by phone or in person, and a message on the answering machine will not suffice) to explore options to avoid foreclosure, or, 30 days after it satisfies the “due diligence” requirements.

Moreover, once these requirements are met, the notice of default will still not be effective, unless the notice of default also includes “a declaration from the mortgagee, beneficiary, or authorized agent that it has contacted the borrower, tried with due diligence to contact the borrower as required by this section, or the borrower has surrendered the property to the mortgagee, trustee, beneficiary, or authorized agent.”

What must be done to satisfy the due diligence requirements if no contact is made with the debtor? It’s a laundry list requiring website changes, letters, certified mail, calls, etc. Specifically, a lender will be deemed to satisfy the due diligence requirements only if it performs all the following
(in the event it does not contact the borrower):

1. A mortgagee, beneficiary, or authorized agent shall first attempt to contact a borrower by sending a first-class letter that includes the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.

2. After the letter has been sent, the mortgagee, beneficiary, or authorized agent shall attempt to contact the borrower by telephone at least three times at different hours and on different days. Telephone calls shall be made to the primary telephone number on file.

3. If the borrower does not respond within two weeks after the telephone call requirements of paragraph (2) have been satisfied, the mortgagee, beneficiary, or authorized agent shall then send a certified letter, with return receipt requested.

4. The mortgagee, beneficiary, or authorized agent shall provide a means for the borrower to contact it in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours.

5. The mortgagee, beneficiary, or authorized agent has posted a prominent link on the homepage of its Internet Web site, if any, to the following information: (A) Options that may be available to borrowers who are unable to afford their mortgage payments and who wish to avoid foreclosure, and instructions to borrowers advising them on steps to take to explore those options. (B) A list of financial documents borrowers should collect and be prepared to present to the mortgagee, beneficiary, or authorized agent when discussing options for avoiding foreclosure. (C) A toll-free telephone number for borrowers who wish to discuss options for avoiding foreclosure with their mortgagee, beneficiary, or authorized agent. (D) The toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency. Amazingly, virtually all the major lender and servicers’ websites currently wholly fail to post a “prominent link” as required by this new law anywhere on their home pages. Accordingly, if contact can not be made with the borrower, and these websites are not changed, none of these foreclosures can take place!

So all borrowers beware! If you get a notice of default after September 6, 2008, CHECK IT CAREFULLY. If it fails to contain the lender declaration of contact or due diligence, the foreclosure CAN NOT TAKE PLACE. Moreover, if a foreclosure does take place in violation of this new law, chances are you have a pretty good case to sue the lender for wrongful foreclosure, and get the property back in addition to other damages.

posted by MORTGAGE AUDIT SERVICE December 15, 2008 11:35 PM

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