The Homeowner Bill of Rights launched in California not only changed hundreds of years of real estate law, it may have turned the West Coast state into a judicial foreclosure state with financial firms on high alert, legal experts claim.
"In California, they just gave trial lawyers a nuclear weapon to use against the industry," said Bob Jackson, president and attorney at Irvine, Calif.-based Jackson & Associates. Jackson spoke at HousingWire's REperform Summit, a mortgage servicing conference under way in Dallas.
"The Homeowner Bill of Rights is the most massive change in the last 100 years of real estate law," he said. "It used to be servicers were in the business of enforcing simple contract law. What the loan servicer did is they enforced the contract, but that is no longer how the game is played."
The bill of rights, which was legislation designed by California Attorney General Kamala Harris, gave borrowers standing to legally address violations of the new foreclosure legislation.
The law bans dual-track foreclosures, requires single point of contacts for distressed borrowers and imposes civil penalties for the filing of multiple unverified documents, otherwise known as robo-signing. The robo-signing provision essentially means a law firm cannot file a notice of default or another foreclosure-related action unless a servicer has reviewed the filings to verify them, Jackson said.
Jackson said the bill created several new areas of concern for servicing shops. The first is the potential to be sued for wrongful denial of a loan modification. Firms also can be sued if a loan modification was denied because of a mistake made in the process.
With any document misstep leading to the possibility of litigation, Jackson said the hedging strategy would be to file judicial foreclosures, bypassing the common practice of nonjudicial foreclosures in California.
"You need to start looking at your foreclosure timelines," Jackson said. "Judicial foreclosures get rid of 80% to 90% of this stuff." He asserted, "[T]he bill will turn California from a nonjudicial foreclosure state to a foreclosure state."
Jackson noted that Arizona and Oregon are currently considering similar legislation.