The California Foreclosure Prevention Act

The California Foreclosure Prevention Act, or Assembly Bill X2.7 was signed by Governor Arnold Schwartzenegger in February and took effect on June 15th, 2009. Under the new Act foreclosing on certain loans are prohibited from giving a notice of sale until the lapse of at least 3 months plus 90 days after the filing of the notice of default. A loan servicer can obtain an exemption from this requirement by demonstrating that it has a comprehensive loan modification program.

What is the purpose of this law?

The purpose of this law is to try to stem the tide of foreclosures and their adverse consequences by providing additional time for lenders to work out loan modifications with borrowers as well as creating an incentive for lenders to establish comprehensive loan modification programs.

When will this law be in effect?

This bill, which was enacted into law on February 20, 2009 along with the state budget, will go into effect 90 days there after which will be on or about May 22, 2009. The appropriate commissioners must adopt regulations to carry out this law no more than 10 days after the date this law takes effect. The law becomes operative 14 days after the issuance of such regulations.

This law will stay in effect only until January 1, 2011 at which time it will be repealed, unless it is deleted or extended by statute.

How does this new law affect the foreclosure timeline?

Under preexisting law, a lender who files a notice of default in the foreclosure process must wait at least 3 months before giving a notice of sale. The new law extends that 3-month period by an additional 90 days.

Also under preexisting law, the general rule of thumb is that the entire foreclosure process takes a minimum of 4 months from the filing of a notice of default until the final trustee’s sale. Under the new law, that general rule of thumb is extended by 90 more days for a total of about 7 months, unless the lender is exempt. For more information about the foreclosure process, C.A.R. offers a legal article entitled Foreclosure Timeline.

Under the new law, is the minimum time frame from the filing of a notice of default to the notice of sale a total of 6 months or 180 days?

Neither. The way the law is written, the minimum time frame from the filing of the notice of default to the notice of sale is technically “3 months plus 90 days.”

What type of loan falls under the new law extending the foreclosure process by 90 days?

Unless otherwise exempt, the 90-day extension to the foreclosure process applies to loans that meet all of the following requirements:

• The loan was recorded from January 1, 2003 to January 1, 2008, inclusive;

• The loan is secured by a first deed of trust for residential real property;

• The borrower occupied the property as a principal residence at the time the loan became delinquent; and

• A notice of default has been recorded on the property.

What are the exceptions to the new law extending the foreclosure process by 90 days?

Most notably, a loan servicer is exempt from the 90-day extension to the foreclosure process if the loan servicer has obtained an order of exemption based on the implementation of a comprehensive loan modification program)).
Other exceptions to the 90-day extension include the following:

• Certain state or local public housing agency loans.

• When a borrower has surrendered the property as evidenced by a letter confirming the surrender or delivery of the keys to the property to the lender or authorized agent.

• When a borrower has contracted with any person or entity whose primary business is advising people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual obligations to the lenders.

• When a borrower has filed a bankruptcy case and the court has not entered an order closing or dismissing the case or granting relief from a stay of foreclosure.

What constitutes a comprehensive loan modification program?

A comprehensive loan modification program that may exempt the loan servicer from the 90-day extension to the foreclosure process includes all of the following features:

• The loan modification program is intended to keep borrowers whose principal residences are located in California in those homes when the anticipated recovery under loan modification exceeds the anticipated recovery through foreclosure on a net present value basis.

• It targets a 38 percent or less ratio of the borrower’s housing-related debt to the borrower’s gross income. Housing-related debt is debt that includes loan principal, interest, property taxes, hazard insurance, flood insurance, mortgage insurance and homeowner association fees.

• It includes some combination of loan modifications terms as specified.

• The loan servicer seeks long-term sustainability for the borrower.

What are the loan modification terms that must be included in a comprehensive loan modification program?

A comprehensive loan modification program that may qualify for exemption from the new law extending the foreclosure process by 90 days must include some combination of the following features:

• An interest rate reduction, as needed, for a fixed term of at least five years;

• An extension of the amortization period for the loan term to no more than 40 years from the original date of the loan;

• Deferral of some portion of the unpaid principal balance until loan maturity;

• Principal reduction;

• Compliance with a federally mandated loan modification program; or

• Other factors that the appropriate commissioner determines.



Does a loan servicer have to modify loans to get an exemption from the 90 day extension to the foreclosure process?

No. A loan servicer is not required to modify a loan for a borrower who is not willing or able to pay under the modification. Furthermore, a loan servicer is not required to violate any contractor agreement for investor-owned loans.

How does a loan servicer obtain an order of exemption from the new law extending the foreclosure process by 90 days?

A loan servicer may apply to the appropriate commissioner for an order exempting loans that it services from the new law extending the foreclosure process by 90 days. Upon receipt of an initial application for exemption, the commissioner must issue a temporary order exempting the mortgage loan servicer from the 90-day extension to the foreclosure process. Within 30 days of receipt of the application, the commissioner must make a final determination by issuing a final order exempting the loan servicer or denying the application. If the application is denied, the temporary order of exemption shall expire 30 days after the date of denial.

To which commissioner does a loan servicer apply for exemption?

A lender or loan servicer would apply for an exemption to the following commissioner as appropriate:

• Commissioner of the Department of Financial Institutions for commercial and industrial banks, savings associations, and credit unions organized in California to service mortgage loans;

• Commissioner of the Department of Real Estate for licensed real estate brokers servicing mortgage loans; and

• Commissioner of the Department of Corporations for licensed residential mortgage lenders and servicers, licensed finance lenders and brokers, and any other entities servicing mortgage loans not regulated by the Department of Financial Institutions or Department of Real Estate.


How does a homeowner ascertain whether his or her loan servicer is exempt from the 90-day extension to the foreclosure process?

The Secretary of Business, Transportation and Housing must maintain a publicly-available Internet website disclosing the final orders granting exemptions, the date of each order, and a link to Internet websites describing the loan modification programs.

Does a loan servicer have to inform the borrower as to whether the loan servicer is exempt from the longer foreclosure timeframe?

Yes. A notice of sale must include a declaration from the loan servicer stating both of the following:

• Whether the loan servicer has obtained a final or temporary order of exemption from the 90-day extension to the foreclosure process that is current and valid on the date the notice of sale is filed; and

• Whether the 90-day extension to the foreclosure process under the new law does not apply.

The law requires the loan servicer’s declaration of exemption on the notice of sale, even though it may have been more helpful for the borrower if the declaration was on the notice of default. This requirement will stay in effect only until January 1, 2011 at which time it will be repealed, unless it is deleted or extended by statute.

What is the penalty for violating this law?

Anyone who violates this law shall be deemed to have violated his or her license law as it relates to these provisions.

How can I learn more about this?

http://www.brentsellshomes.com