Two central provisions of the California Homeowner Bill of Rights passed the California State Legislature Monday.
The bills will travel to Gov. Jerry Brown’s desk, where other provisions of the bill also await approval. Brown has not indicated whether he will sign or veto the legislation.
The Assembly, by a vote of 53 to 25, and Senate, 24 to 13, approved the Foreclosure Reduction Act, which restricts the process of dual-tracked foreclosures and the Due Process Rights Act, which guarantees a single point of contact for struggling homeowners to discuss their loan. The latter also imposes civil penalties on the practice of fraudulently signing foreclosure documents without verifying their accuracy.
The Foreclosure Reduction Act bars lenders from filing notices of default, notices of sale, or conducting trustees’ sales while also considering alternatives to foreclosures like loan modifications or short sales.
“These common-sense reforms will require banks to treat California homeowners more fairly and bring more transparency and accountability to their practices in our state,” said California Attorney General Kamala Harris. “Responsible homeowners will have a better shot to keep their homes.”
The bills' passage comes the day after the release of a study authored by research and consulting firm Beacon Economics on behalf of industry groups, concluding that if the Homeowner Bill of Rights were signed into law it would ultimately harm the vast majority of California homeowners.
The bills impose stricter rules on mortgage servicers seeking to nonjudicially foreclose on homes with mortgages in default and expose mortgage servicers to substantial new legal liability, according to Beacon.
Beacon argues the bills could add to the financial burden of distressed homeowners.
“The nonjudicial foreclosure process is more efficient compared to the judicial foreclosure process, and it comes with an important caveat," the study notes. "When using nonjudicial foreclosure, lenders … cannot seek compensation for their mortgage losses out of the borrower’s other assets. If the nonjudicial route is lengthened and made more costly, many lenders may decide to pursue a judicial foreclosure ... and thus pursue remedies like deficiency judgments, ultimately costing the borrower more in the long run,” the study said.
Calling the bills “monumental,” State Sen. Darrell Steinberg, D-Sacramento, said people came together from different points of views over the course of 20 hours.
“This is how the process should work,” Steinberg said. “We achieved a middle ground. Let this be the first of a number of things we get done this week.”