Bill Barrage Continues In California

By Michael Belote, California Advocates, UTA California Lobbyist

No doubt there is a certain inevitability to the relationship between the default and foreclosure environment and the introduction of legislation to address the situation.  As long as foreclosure rates are increasing or at least remaining high, there will be numbers of legislators ready to propose “solutions”.  If some of the proposals would have the practical effect of simply making nonjudicial foreclosure impossible, well, that may have been the intent all along.

As the California Legislature begins the second year of the current two-year session, it is clear that the barrage of mortgage-related bills is continuing.  The deadline for introduction of new bills for 2010 was February 19, and as of that date, more than three dozen bills were identified of potential interest to UTA.  Most are introduced in the regular 2009-2010 session, but UTA-related bills continue to be alive in the “Eighth Extraordinary Session”, called by Governor Schwarzenegger to address the unrelenting state budget crisis.

As UTA has noted in email correspondence with members, the special session bill on foreclosures is SBx8 38, meaning the 38th bill introduced in the eighth special session. Introduced rather suddenly on February 8, the bill would require lenders to provide an application for loan modification 30 days prior to recording a notice of default, would require lenders, servicers or trustees to explain to borrowers which modification options were considered and why they were not chosen, and add extensive new information to the declarations required in foreclosure notices.

Within days after introducing SBx8 38 in the special session, the senators authoring the bill announced that they would not seek passage of the bill in the special session, but would instead reintroduce the bill in the regular session, with an intent to seek final passage by April.  The regular session version of the bill, introduced with the same contents, is SB 1275 (Leno and Steinberg).  But the special session bill remains alive as long as the special session lasts (no one is quite sure when the special session will conclude), so in reality there are two different legislative vehicles alive with the same language.

With the introduction of SBx8 38 and SB 1275 in the Senate, we have one house of the Legislature focused on requiring consideration of loan modification options and greater disclosure to borrowers about those options and whether they work in given circumstances, while the Assembly still has AB 1588, essentially providing for mandatory mediation prior to foreclosure.

Other bills pending in the Assembly and Senate include the following:

• AB 2024 (Blumenfield): Loan Modifications. Requires lenders who reject applications for loan modifications to state specifically why the application was rejected.
• AB 2236 (Monning): Notices to Borrowers.  Requires any lender sending a notice to a borrower stating that a payment was missed to provide contact information for the person responsible for handling loan modifications.
• AB 2677 (Torrico): Foreclosures.  Prohibits foreclosures during the period of time in which negotiations are occurring to modify the loan.
• AB 2678 (Torrico): Postponements.  Requires notice to borrowers of postponements.
• SB 127 (Calderon): Trustee Functions.  Proposes a variety of changes to trustee practice, including an obligation to place sales information online, and to provide information to potential bidders about liens and encumbrances. This is a two-year bill dating back to 2009; UTA is working with the author and his staff on language which might be acceptable to all parties.
• SB 931 (Ducheny): Deficiency Judgments.  Prohibits deficiency judgments in the case of short sales of “dwellings”.
• SB 1178 (Corbett): Deficiency Judgments.  Prohibits deficiency judgments on refinancing if the proceeds of the refinance were used to acquire, construct, or substantially improve the property.
• SB 1221 (Calderon): Notices of Sale.  Based upon discussions between UTA and the author and staff, would permit recordation of notices of sale 85 days after the notice of default, rather than after the expiration of three months as provided in current law.
• SB 1427 (Price): Notices of Default.  Would require notices of default to include contact information for the person or entity “designated” by the lender to maintain the property.