New Rules on Foreclosures as of July 8, 2008

The rules that govern how a lender or an authorized agent of the lender can foreclose on an owner-occupied home have changed. Senate Bill 1137 (Perata) (Chapter 69) became law with Governor Schwarzenegger’s signature on July 8, 2008. It is important for homeowners to know their rights and for anyone who initiates or files foreclosures to become familiar with SB 1137. The following is a summary of the new rules:

Applies only to loans made from January 1, 2003 to December 31, 2007 and is in effect until January 1, 2013 unless extended by law. These rules took effect September 8, 2008.

• A Notice of Default cannot be filed until 30 days after contact is made with the borrower either in person or by telephone to assess the borrower’s financial situation and explore options to avoid foreclosure. The borrower must be advised that he or she has a right to request another meeting within 14 days.
• The borrower must be provided with the toll-free telephone number of the U.S. Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency.
• If a Notice of Default is filed, it must include a declaration that the lender or authorized agent contacted the borrower, tried with due diligence to contact the borrower, or the borrower surrendered the property.
• If a Notice of Default was filed before July 8, 2008, then the lender or authorized agent must include as a part of the notice of sale a declaration that states the borrower was contacted and lists any efforts made to contact the borrower.
• A borrower may designate a HUD-certified counseling agency, attorney or other advisor to discuss with the lender or authorized agent on his or her behalf, options to avoid foreclosure. Any modification or workout plan must be approved by the borrower.
• A Notice of Default may be filed when the borrower has not been contacted if the failure to contact the borrower occurred despite the due diligence of the lender or authorized agent to contact the borrower.
• A lender or authorized agent must 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 person during business hours.
• If the lender or authorized agent has a Web site, certain specified information must be posted to assist borrowers to avoid foreclosure.
• When posting a notice of sale on a property, a trustee or authorized agent must also mail to the “Resident of the Property Subject to Foreclosure Sale” a specified notice in English, Spanish, Vietnamese, Tagalog, Chinese and Korean, stating that the property may be sold at foreclosure and if you are renting the property, the new owner may give a new lease or rental agreement or provide you with a 60-day eviction notice. A copy of this notice is available on the DRE Web site at www.dre.ca.gov/mlb_industry.html

Applies regardless of when the loan was made and is in effect until January 1, 2013 unless extended by law.

• A legal owner must maintain vacant residential properties purchased at a foreclosure sale or acquired through a foreclosure. A government entity can impose a civil fine up to $1,000 per day for violations.
• Tenants or subtenants living in rental housing when a property is sold in foreclosure must be given 60 days written notice before they can be evicted.

The above provides a summary of the major provisions of Senate Bill 1137; however consumers, lenders and their authorized agents and other interested parties should completely review the law available at www.leginfo.ca.gov