California Update: Running Off In All Directions

Michael Belote, Esq.

By Michael Belote, Esq., California Advocates, UTA California Lobbyist
Written May 29th

Presumably every UTA member doing business in California is aware by now that the legislature is considering unprecedented proposals relating to foreclosures and mortgage modifications. Given the pace of the legislative process, it is next to impossible to describe what is happening in Sacramento without it being out of date by the time the information is distributed to members, the following is a snapshot of events and a description of UTA’s role.

A large package of bills was introduced under the sponsorship of California’s Attorney General, largely designed to codify the national mortgage settlement to which the AG was a signatory.  A number of other bills were introduced by other legislators, also of great interest to UTA but not as significant as the AG package.  In all, more than 20 bills were introduced, covering such disparate topics as mortgage modifications, “single point of contact”, chain of ownership of notes and right to foreclose, “robosigning”, blight, tenants rights, force place insurance, and more.

In the early going, it appeared that the AG package might run into difficulties in the regular policy committee process of the legislature, given the intensity of the opposition, so at the last minute a decision was made by the legislative leadership to form a six-member conference committee (three Senators, three Assembly members) designed to short-circuit the policy committee process.  Incredibly, the conference committee announced an intention to finish work on a package of bills by the end of May.  This would mean completing a process which took eighteen months to negotiate at the federal level in a matter of three or four weeks.  It also means working with a process which could move at lightning speed and change constantly.

The conference committee has now held a number of lengthy, rather contentious hearings. Testifying groups have represented the Attorney General, consumer groups, faith organizations, major lenders and servicers, MERS, UTA and many others. Some of the hearings have been informational, while others have examined the actual language of the two major bills of interest to the conference committee, dealing with modifications, chain of title, single point of contact, robosigning, and remedies for violations.

On May 16, UTA testified for more than three hours in a very exacting hearing dealing with the nonjudicial foreclosure process, ownership of notes and documenting the right to foreclose, robosigning, and the accuracy of foreclosure documents. Testifying along with UTA on these topics were representatives of MERS, and the California Land Title Association.

At this point it is exceedingly difficult to discern exactly where the conference committee is headed.  Such key issues as the following have been discussed: should mortgage modification “solutions” apply to lenders of all sizes equally, or should there be “carve-outs” for small lenders and servicers? Should major lenders and servicers be subject to state requirements beyond the requirements of the national settlement? How should a single point of contact work, and should this apply to all lenders equally? Is documenting ownership of notes and the right to foreclose even a problem?  To what extent has robosigning occurred in California? How do we avoid rewarding “strategic defaulters” who have the ability but not willingness to pay?  Should a lawsuit be available for minor violations of the law and how should those be defined? Who should be permitted to bring these actions?

If four members of the conference committee can agree on bill language, a conference report will be adopted and sent to the floor of each house. Interestingly, each house can only take an “up or down” vote on the conference report.  No amendments can be adopted to a conference report, although they could re-form the conference committee and start the process over again.  But as of this writing, it appears that even Democratic conference committee members cannot agree on some of the fundamental questions, which means that the final product could spin off in a variety of directions.

Even though the stakes are incredibly high, if there is good news it is this:  the basic structure of nonjudicial foreclosure does not seem to be at risk.  Conference committee members seem to agree that policies which would drive lenders to judicial foreclosure would be a mistake, especially in light of the crowded condition of California courts.  Expect something to happen quickly, however, so stay tuned!