Q1. -- When does this bill take effect and become law?

A1.- SB 1137 passed the California Senate and Assembly as urgency legislation to take effect upon execution by Governor Schwarzenegger in an effort to help California homeowners prevent foreclosure with a loan modification.. The Governor signed the bill on July 8,2008 and the statute took effect immediately. However, the new requirements in Section2 for Notices of Default and Notice of Sale and Section 4 for Notices of Sale become operative 60 days after the effective date, or September 8, 2008.

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Q2.- If I already have a Notice of Default recorded, do I have to start over?

A2.- No. You can proceed as before the enactment of SB 1137 as long as your Notice of Sale is not posted and published after September 8, 2008. Beware of documents prepared in advance.

Q3.- What if I have an existing Notice of Default and the Notice of Sale will be after September 8, 2008?

A3- If your security is (1) residential owner occupied property on a loan made from January1, 2003 to December 31, 2007, and the Notice of Sale will be after September 8, 2008,you will need to comply with the Section 2 requirements adding CC §2923.5 for a Notice of Sale declaration of contact or list the efforts made at contact, or (2) if your security is residential property and if the billing address “for the note” is different from the property address, you will need to comply with the Section 4 requirements adding CC §2824.8 for the posting and mailing of the Notice to Residents, regardless if the loan was made between January 1, 2003 and December 31, 2007.

Q4.- If on September 8, 2009 I already have a Notice of Sale posted and published, can I proceed. with my sale?

A4.- Yes. Although not specifically addressed in the bill, we are advised that there will be a letter lodged in the Senate Journal stating that the provisions of the bill do not affect a foreclosure subject to an existing Notice of Sale when Section 2 and Section 4 become effective on September 8, 2008. UTA plans to obtain a copy of the exact language of the Senate Journal when available.Q5.- If the billing address is different from the property address, where does the trustee get the Spanish, Chinese, Tagalog, Vietnamese and Korean language translations of the

Q5. Notice to Residents required to be posted and mailed to the resident of the property with the Notice of Sale if the billing address is different from the property address’s?

A5.- The State of California is to provide these translations. The UTA will advise its membership upon the state making these translations available.

Q6.- Is there any harm in treating all residential loans assigned for foreclosure as being a non-owner occupied loan made from January 1, 2003 to December 31, 2007 and complying with the Section 2 requirements adding CC §2923.5, rather than making that determination for each residential loan going into foreclosure?

A6.- Probably not, however the Section 2 requirements are only for owner-occupied residential properties. You would still have to comply with the new Section 4requirements of posting and mailing the Notice to Residents in all six languages for loans where the “note address” is different from the mailing address, and the Section 4 notice is regardless of the date when the loan was made.

Q7.- Is there any harm in treating all foreclosures of loans secured by residential properties as having a “note address” different from the mailing address and complying with the Section 4 Notice to Residences requirement to avoid differentiating between loans?

A7.Again, probably not. The statute places different foreclosure requirements in Section 2 on owner occupied residential properties with loans made within a certain period than in Section 4 on a residential property with a different billing address regardless of when the loan was made, which can be problematic. It would seem understandable to want as a standardized process.

Q8.- Who is to sign the declaration re Contact, Due Diligence, or Surrender to be included in a Notice of Default filed after September 8, 2008?

A8.- The beneficiary or their authorized agent. Since all the requirements are to be made at least 30 days prior to initiating foreclosure, the beneficiary or servicer will usually be performing these requirements as part of their pre-foreclosure loss mitigation program.  However, this is a complicated question that may require that the trustee consult with experienced legal counsel to integrate this new declaration procedure into its policies, practices and forms. Different trustee’s and beneficiaries have different systems relating to who actually signs notices of default, etc and passage of SB 1137 should trigger a review of those policies, practices and forms prior to the September 8, 2008 effective date.

Q9.- If the trustee-to-be is requested to execute the Section 2 Notice of Default declaration reContact, Due Diligence, or Surrender as the authorized agent, similar to the execution of many current Notices of Default, will it affect the trustee’s ability to claim the protections of Civil Code §2924l to file a Declaration of Nonmonetary Status in a subsequent civil action?

A9.- Not by merely executing the declaration. Civil Code §294l protects the trustee and the acts of an authorized agent performing duties within CC §2924, et. seq. and named in a civil action. However, the authorized agent would be relying upon the beneficiary or their servicer as to the validity of the declaration and any authorized agent should review their power of attorney or agency documents and may wish to consult their legal counsel regarding indemnification.

Q10. -- Can the Section 2 declaration required re Contact, Due Diligence, or Surrender to be included in the Notice of Default be added to the language of the Notice of Default or does it have to be a separate declaration?

A10. There is no requirement in SB 3711 that the Notice of Default declaration re Contact, Due Diligence, or Surrender be a separate document, or that it be notarized

Alexendria Craig is about to lose her home after taking out a series of high rate mortgage loans that left her deep in debt. She says the home loans “helped balance out what she fell behind on with her delinquent mortgage payments. Her salary as a paralegal for Los Angeles County was not enough to make ends meet. Desperate to hold onto her house, she responded to a slick advertisement that turned out to be too good to be true.  Craig agreed to pay $30,000 and to share title on her home to a foreclosure rescue company. The mortgage relief company promised they would use home equity in her house to pay off her high rate debts and that they would make sure that her credit would be repaired. After a year she believed that she would get her property back.

The foreclosure prevention company’s agreement promises that clients have “sufficient equity in your home” for “paying off debt liability,” “repairing your current credit,” and most importantly that they’ll “remain in your home without further concerns or worries.”   It’s a classic foreclosure rescue scam, says attorney Debra Zimmerman.   “There should be a huge red flag for anybody who offers to do this for money, because there is no reason to pay for help,” said Zimmerman, of Bet Tzedek Legal Services. She said “loan modifications could be done for free,” but Loan Modification Buzz reminds you that “you get what you pay for.”  If you seek formal mortgage relief, seek legal advice from an attorney-backed loan modification company.  Seek counsel from foreclosure lawyers who understand state laws regarding foreclosure, debt relief and loan workouts.

In the typical scam, the homeowner transfers title to a third party who promises to secure a lower interest rate on the mortgage. But what often happens is the third party cashes out the home’s equity, leaving the homeowner as a renter.   “This is the American dream, and they’re losing it. And somebody is coming and they’re going to rescue them,” Zimmerman said.

In California so many people have fallen for these foreclosure prevention scams the attorney general has issued a consumer alert. But that warning came too late for Alexandria Craig. Her house is in foreclosure, and next week she’s facing eviction. Both the foreclosure rescue company and the bank foreclosing on her house deny any wrongdoing.  “You feel like you’re drowning and you feel like there’s nobody sending you a life raft,” said Craig, sobbing.  Barring a miracle, Craig says she’ll be moving into her car on next week, losing family memories and her American dream.

Faced with the 90-day freeze on foreclosures, lenders will be more inclined to provide loan work-outs with delinquent borrowers, California Department of Corporations Director Preston DuFauchard said during an afternoon teleconference with reporters.  The proposed freeze “is designed to be a stick to get people to have a more aggressive modification program,” DuFauchard said. “ . . . The time value of money creates a real strong incentive to take this modification approach.”

Highlights  Foreclosures: Impose a 90-day stay for owner-occupied homes on which a notice of default has been filed.  Loan modifications: Exempt lenders from the 90-day stay if they have an “aggressive” program to ease mortgage terms for distressed homeowners.  New loans: Implement various steps to prevent lenders from making unsustainable loans in the future.  While many lenders already are doing voluntary loan modifications, they aren’t being nearly aggressive enough to resolve the foreclosure problem, said David Crane, the governor’s special adviser for jobs and economic growth.  Paul Leonard, director of the California office of the Center for Responsible Lending, noted that an increase in loan modification efforts nationwide began over the summer, when the Federal Deposit Insurance Corp. took over failed lender IndyMac Bancorp. The governor’s plan follows that example.  “The goal is to encourage loan servicers to adopt a more streamlined, systematic approach to mortgage  loan modifications,” Leonard said. “The governor is trying to use leverage to move servicers in a positive direction.” 

Mark Goldman, a real estate finance instructor at San Diego State University, said the 90-day stay may give delinquent borrowers more time to remain in their homes, but ultimately it will place greater financial pressures on lending companies and banks.  “The lender is going to just have to wait that much longer to get the collateral, and that may have some negative impacts on the pricing of loans,” Goldman said.  A new California law that requires mortgage lenders to work harder to help distressed borrowers led to a steep drop in September default notices in San Diego County, and foreclosures also declined. In many instances, Senate Bill 1137 calls for lenders to try to contact distressed homeowners then wait 30 days before filing a default notice.

A total of 1,206 county homes received notices of default, which mark the beginning of the foreclosure process. That marked a 58 percent decline from August and a 35 percent drop from September 2007. Around the state, mortgage servicers recorded 94,240 notices of default on homes during the third quarter. That was down 23 percent from a record of 121,673 in the second quarter and up 30 percent from third-quarter 2007, according to the MDA DataQuick research firm.

In his proposal to help distressed borrowers, Schwarzenegger suggested that loan modifications be based on a 38 percent monthly housing debt payment-to-income ratio, so that revamped loans are more sustainable. To achieve that, he suggested that lenders temporarily reduce interest rates, increase loan repayment periods, or defer part of the unpaid principal balance to the end of the loan term.

He called for the Department of Real Estate and Department of Corporations to enforce federal laws and regulations, such as the Truth in Lending Act, and discipline real estate licensees who violate such laws and regulations.  To avoid future mortgage market meltdowns, lending practices should be reformed to protect borrowers by expanding fiduciary responsibilities for mortgage brokers, Schwarzenegger said. He also called for increasing and standardizing licensing requirements for loan originators. Counseling may be desirable for borrowers entering into risky mortgages, to make sure they understand terms and obligations, he said.

Turning to underwriting, the governor urged the federal government to require loan originators to retain a portion of their loan risks to encourage better practices. Kevin Stein, associate director of the California Reinvestment Coalition, said the success of the plan will depend on the details of implementation.  “It is good that the governor is engaged, good that he has called for a special session,” Stein said. “We don’t want it to be another good-sounding program that doesn’t meaningfully help people stop foreclosure.”