7/16/08

Margaret Camp Portfolio Manager/Senior Counsel, Wolters Kluwer Financial Services

On July 8, 2008, California Governor Arnold Schwarzenegger signed California SB 1137, a foreclosure relief bill designed to provide relief to California homeowners facing the current foreclosure crisis. Certain provisions of the bill affect owner-occupied residences and other provisions apply to rental properties. This article discusses only the provisions applicable to owner-occupied residential real estate. Commercial real estate or non-owner occupied residential real estate is beyond the scope of this article. 

California SB 1137 creates new Cal. Civ. Code §2923.5 applicable to loans made from January 1, 2003 to December 31, 2007, inclusive, that are secured by owner-occupied, residential real property. The provision is effective July 8, 2008, operative on September 6, 2008, and expires on January 1, 2013 unless another statute is enacted that deletes or extends the January 1, 2013 expiration date. 

New Cal. Civ. Code §2923.5 requires a mortgagee, trustee, beneficiary, or authorized agent to contact the borrower, in person or by telephone, to assess the borrower’s financial situation and explore options to avoid foreclosure. During the initial contact, the mortgagee, beneficiary, or authorized agent must advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the mortgagee, beneficiary, or authorized agent must schedule the meeting to occur within 14 days. The assessment of the borrower’s financial condition and discussion of options may occur during the first contact, or at the subsequent meeting scheduled for that purpose. In either case, the borrower must be provided with a toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. 

A mortgagee, trustee, beneficiary, or authorized agent must wait 30 days after contact is made with the borrower or 30 days after satisfying due diligence requirements before filing a Notice of Default. What constitutes “due diligence” is specifically described in new Cal. Civ. Code §2923.5. 

A Notice of Default must:  (1) include a declaration that the mortgagee, beneficiary, or authorized agent contacted the borrower or tried with due diligence to contact the borrower; or (2) indicate that the borrower surrendered the property to the mortgagee, trustee, beneficiary, or authorized agent. 

If the mortgagee, trustee, beneficiary, or authorized agent already filed the Notice of Default prior to July 8, 2008, the bill specifies certain information that must be contained in the Notice of Sale. 

The mortgagee, trustee, beneficiary, or authorized agent has no duty to contact the borrower prior to filing a Notice of Default if any of the following applies:  (1) the borrower surrendered the property; (2) the borrower contracted with an organization, person, or entity whose primary business is advising people who have decided to leave their home on how to extend the foreclosure process and avoid their contractual obligations to mortgagees or beneficiaries; or (3) the borrower filed bankruptcy and the proceedings have not been finalized. 

New California Civ. Code §2929.3 is effective and operative on July 8, 2008, applies to residential real property, and expires on January 1, 2013 unless another statute is enacted that deletes or extends the January 1, 2013 expiration date. Unlike new Cal. Civ. Code §2923.5 discussed above, new California Civ. Code §2929.3 is applicable to all loans secured by residential real property regardless of loan origination date. 

Cal. Civ. Code §2929.3 imposes large fines upon the legal owner for “failing to maintain” vacant residential property purchased by that owner at a foreclosure sale or acquired by that owner through foreclosure under a mortgage or deed of trust. Generally, the governmental entity that imposes a civil fine must provide the legal owner with notice of the violation, provide the legal owner with 30 days to remedy the violation (unless the condition threatens public health or safety), and allow for a hearing and an opportunity to contest any fine imposed. “Failure to maintain” includes failing to care for the exterior of the property, including, but not limited to, permitting excessive foliage growth that diminishes the value of the surrounding properties, failing to take action to prevent trespassers or squatters from remaining on the property, or failing to take action to prevent mosquito larvae from growing in standing water, or other conditions that create a public nuisance. A governmental entity may impose a civil fine of up to $1,000 per day for a violation.

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