On June 30, California Governor Newsom has signed AB 130, a budget trailer bill related to housing. This legislation includes new requirements for mortgage servicers of subordinate mortgages, defined in the bill, and took effect immediately. The text of the new statute, which comprises a very small portion of the full bill, may be found (here).
The bill outlines unlawful practices for mortgage servicers of subordinate mortgages and provides an affirmative defense for borrowers in foreclosure proceedings. The following are now identified as unlawful practices:
- Not providing written communication to the borrower for at least three years
- Failing to provide a transfer of loan servicing notice as required by the Real Estate Settlement Procedures Act (RESPA) or investor/grantor requirements
- Failing to provide a transfer of loan ownership notice as required by the Truth in Lending Act (TILA) or investor/grantor requirements
- Conducting or threatening to conduct a foreclosure sale after providing a form indicating the debt had been written off or discharged
- Conducting or threatening to conduct a foreclosure after the statute of limitations expired
- Failing to provide a periodic statement as required by TILA or investor/grantor requirements
The loan servicer is now prohibited from commencing a nonjudicial foreclosure upon a junior lien unless the servicer, simultaneously upon recording a notice of default, records a certification under penalty of perjury that the servicer did not engage in any of the unlawful practices described above or listing all unlawful practices committed. The servicer must also, simultaneously with the service of a recorded notice of default, send the borrower a copy of the certification described in the previous sentence, and a notice providing that if the borrower believes the servicer engaged in any of the unlawful practices described above or misrepresented its compliance history, the borrower may petition the court for relief before the foreclosure sale.
Putting It Into Practice: Loan servicers who are servicing junior lien loans in California must now take extra precautions to make sure they do not inadvertently violate these requirements. For example, failing to provide even a single periodic statement required by TILA may now jeopardize an attempt to foreclose nonjudicially upon a delinquent borrower. Also, be prepared for extensive delays in nonjudicial foreclosures.