New California Law Protects Surviving Spouses from Foreclosure | Practical Law

New California Law Protects Surviving Spouses from Foreclosure | Practical Law

The California's Homeowner Survivor Bill of Rights (Senate Bill 1150) recently went into effect, which protects the surviving spouse and certain heirs of deceased homeowners from foreclosure.

New California Law Protects Surviving Spouses from Foreclosure

Practical Law Legal Update w-005-4254 (Approx. 4 pages)

New California Law Protects Surviving Spouses from Foreclosure

by Practical Law Real Estate
Published on 25 Jan 2017 • California
The California's Homeowner Survivor Bill of Rights (Senate Bill 1150) recently went into effect, which protects the surviving spouse and certain heirs of deceased homeowners from foreclosure.
The Homeowner Survivor Bill of Rights (SBOR) was signed into law on September 29, 2016 and became effective on January 1, 2017 (Cal. Civ. Code § 2920.7). California's existing Homeowners Bill of Rights (HBOR)) provide some protection to borrowers in foreclosure, but generally do not apply to the deceased borrower's successors in interest. SBOR extends the same protections of HBOR to certain successors in interest of the deceased borrower.
SBOR only applies to first lien mortgages or deeds of trust that are secured by the principal residence of the deceased borrower. This law protects surviving homeowners that are not a party to the mortgage, deed of trust, or promissory note. Surviving homeowners are most frequently widowed spouses over the age of 65.
The law requires loan servicers to provide successors in interest with:
  • Information about the loan.
  • The ability to apply to:
    • assume the loan; and
    • seek a foreclosure alternative.
SBOR also includes that same prohibition that is in HBOR against dual tracking , which prevents a loan servicer from negotiating to modify a loan while proceeding with foreclosure at the same time.

Successors in Interest

A potential claimant must first notify the loan servicer of the death of the borrower. Once notified by the claimant, the loan servicer cannot record a notice of default until the loan servicer requests from the claimant:
  • The borrower's death certificate or other reasonable documentation of death. The loan servicer must give the claimant at least 30 days to provide the documentation.
  • Evidence of the claimant's ownership interest in the real property. The loan servicer must give the claimant at least 90 days to provide the documentation.
If the claimant fails to submit this information within a reasonable time, then the loan servicer may begin foreclosure proceedings.
To qualify as a successor in interest, the claimant must:
  • Be a natural person who is a spouse, domestic partner, joint tenant, parent, grandparent, adult child, adult grandchild, or adult sibling of the deceased borrower.
  • Occupy the property as its principal place of residence within the last six continuous months before the borrower's death.
  • Currently reside at the property.

Loan Information and Loan Assumption

Within 10 days of a claimant being deemed a successor in interest, the loan servicer must provide the successor, at a minimum, with the following loan information:
  • Loan balance.
  • Monthly payment amount.
  • Interest rate.
  • Interest reset dates.
  • Balloon payments.
  • Prepayment penalties.
  • Default or delinquency status.
  • Payoff amounts.
The successor may then decide whether it wants to apply to assume the loan and also seek a foreclosure prevention alternative. SBOR does not mandate the loan servicer to approve the loan assumption or foreclosure alternative. The loan servicer's approval to either or both is subject to the loan servicer's underwriting guidelines and creditworthiness of the successor in interest.
If there are multiple successors in interest, the lender must satisfy these obligations for each individual.

Remedies

Violations of these rules by loan servicers result in a private right of action with remedies depending on if the foreclosure sale has been completed.
  • Before recording a trustee's deed of sale. If the loan servicer violates the rules before recording a trustee's deed of sale, the successor may seek an injunction against a foreclosure sale until the lender complies. The successor in interest may recover attorney's fees, but may not recover damages.
  • After recording a trustee's deed of sale. If the loan servicer violated the rules and has already recorded the trustee's deed of sale, the successor may recover actual economic damages. If the violation was intentional, willful, or reckless, the successor may recover the greater of:
    • treble actual damages; or
    • $50,000.

Safe Harbor Provisions

The law contains a safe harbor provision that allows a loan servicer to retroactively correct violations to prevent liability, but this provision only applies before a trustee's sale.
A second safe harbor provision protects loan servicers that comply with the successor in interest rules under Regulation X of the Real Estate Settlement Procedures Act (RESPA) (12 CFR § 1024) and Regulation Z of the Truth in Lending Act (TILA) (12 CFR § 1026).

Practical Implications

Loan servicers of home loans should:
  • Anticipate delays in their ability to foreclose on home loans of deceased borrowers.
  • Be cautious before proceeding with foreclosure actions on deceased borrowers' home loans.
Although SBOR does not require loan servicers to identify the existence of any successors in interest, it may be prudent for loan servicers to perform some due diligence to discover the existence of potential claimants. Loan servicers may also want to consider sending preemptive notices to potential claimants requesting for evidence of the borrower's death and the claimant's ownership interest, if any, and their right to apply for a loan assumption and seek foreclosure alternatives.
The law will expire on January 1, 2020 unless amended or extended.