UTA eNews
February 24, 2009

California Foreclosure Legislation Signed Into Law As Part of Budget Agreement
- Law Includes a Potential 90-Day Delay -
Summary of ABx2 7 and SBx2 7

By Michael Belote, California Advocates, UTA California Lobbyist

On February 20, 2009, Governor Schwarzenegger signed both ABx2 7 and SBx2 7, relating to foreclosures. The bills are identical; the only possible reason to send identical Assembly and Senate bills to the Governor is to provide both houses with “credit” for responding to the foreclosure crisis.

Both bills were adopted in the 2nd Extraordinary Session of the legislature—hence the unusual AB and SB “x2” designation. In other words, the bills are AB and SB 7, in the 2nd extraordinary session. Under the state constitution, the bills become effective 90 days following the close of the special session, which occurred on the morning of February 19. It is our understanding, therefore, that the bills become effective on approximately May 21, 2009. Other time frames are incorporated in the bill and discussed below.

Space does not permit an exhaustive description of the bills, so it is critical that members consult the actual chaptered versions for more detail. In summary, however, the bills provide the following:

• New Section 2923.52 is added to the Civil Code, adding 90 days to the existing 90 days which must elapse between the notice of default and the notice of sale, applicable to loans recorded between January 1, 2003 and January 1, 2008, representing first liens on owner-occupied principal residences on which NODs have been recorded;

• This same Section 2923.52 exempts from the 90-day provision loans on which the servicer has obtained an exemption from a state regulator. The standards for an exemption from the 90-day provision are laid out in new Section 2923.53. These standards are very detailed, but in general the servicer must have demonstrated the existence of a comprehensive loan modification program. The program must be designed to keep homeowners in their homes when the anticipated recovery under the modification program exceeds the recovery under foreclosure, and when the program targets a 38% debt-to-income ratio for borrowers. In order to reach the 38% standard, the program is to utilize some combination of interest rate reductions, term extensions, and principal reductions.

• All lenders are covered. State-chartered lenders are to apply for exemptions from the 90-day rule to their state regulators, while others (i.e. federally-chartered lenders) are to apply to the state Commissioner of Corporations;

• The bill requires the state regulators to develop regulations within 10 days after the effective date of the bills, and then gives lenders 14 days after the promulgation of regulations to for the provisions to become operative. Thus, it appears that the actual implementation of the bill will be delayed until early June (90 days after the adjournment of the special session, plus 10 days to promulgate regulations, plus 14 days after that date);

• The bill contains extensive provisions relating to the process of applying for the exemption from the 90-day rule, as well as re-applying or appealing a decision, not summarized here.

Again, it is critical that members review the actual text of the legislation. We will be meeting with lender and other real estate groups in the coming days and weeks, and will have more information as it becomes available.

Read the bill as passed (Senate Version)

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