By Mark J. Kohler, CPA, JD and Lee Chen, JD
The Housing and Urban Development (“HUD”) Secretary Shaun Donovan, was in Las Vegas this past week to discuss with real estate professionals their clients’ options under the so-called homeowner’s bill of rights.
As some of you know, there was a $25 billion settlement with five banks and mortgage services reached earlier this year and parts of it go into effect October 5th. More information about the National Mortgage Settlement can be found at www.nationalmortgagesettlement.com.
The financial institutions — Ally/GMAC, Bank of America, Citi, JP Morgan Chase and Wells Fargo – are required to create new service standards and provide loan modification relief to homeowners needing assistance.
Secretary Donovan noted that “You have to provide — if you’re a bank — … a single point of contact”. For the homeowner trying to protect themselves, “That means no more, do you call your bank and you get passed between six different people. None of whom, has seen your full file or know what’s going on.” There are numerous other rules similar to this helping homeowners.
Homeowners who suspect they have been mistreated by banks during refinancing may contact federal investigators through HUD’s Office of Mortgage Settlement Oversight.
Some States have taken the lead in passing their own legislation to help homeowners. Earlier this year, in July 2012, California enacted the “Homeowner Bill of Rights,” the first state to enact legislation to expands on the provisions of the National Mortgage Settlement.
The new law in California (and we expect other states to follow), takes effect on January 1, 2013 for five years attempts to regulate some of the unfair foreclosure abuses that have become commonplace during the financial crises. Specific provisions include:
(1) Restriction on Dual Track Foreclosures where a lender forecloses on a borrower despite being in discussions for a loan modification. This provision is intended to ensure that loan modification or other loss mitigation alternatives are explored and/or given full review and consideration, along with requiring documentation of specific reasons warranting denial of a loss mitigation alternative;
(2) Requires a single point of contact with the lender with knowledge of the loan and access to decision makers;
(3) Requires lenders, upon request by homeowners, to document their rights to foreclose. This includes providing copies of the lending documents and assignments;
(4) Allows access to Courts to seek relief for material violations of the Act including injunctive relief to stop foreclosures or recovery of damages, including attorney’s fees, and/or potential imposition of civil penalties for lenders that repeatedly file inaccurate mortgage documents. This was a significant addition that was missing from previous legislation intended to curb mortgage abuses. It remains to be seen how the legislation will be treated by the Courts and what will be sufficient to constitute a “material” violation of the act. Material violations may also subject violators to administrative enforcement by the licensing agency.
The law only applies to first-lien mortgage for owner occupied residential properties of 4 or less units, and only for modifications applications after January 1, 2013. Hence, those California residents that are contemplating a loan modification may want to try to postpone their applications until after the effective date of the law. How this new law will impact the current inventory of underwater properties in California and whether this will somewhat level the foreclosure playing field remains to be seen.
In summary, if you are trying to modify a loan or deal with a potential foreclosure, it is CRITICAL you understand this law and have legal support during the process. It could mean saving thousands of dollars and many many hours if you are dealing with banks not knowing your rights. Lee Chen in our office at KKOS lawyers has been assisting clients around the country with this issue and is available for a consultation. Please give us a call to schedule an appointment at 435-586-9366.