Mortgage Servicers Subject to New California Law
A new California law protects widowed spouses and other survivors – including domestic partners, heirs, siblings, joint tenants and other people who own their homes but are not listed on the mortgage – from foreclosure following the death of a mortgagor.
by Stuart R. Simone and Keyla Ayala
The Homeowner Survivor Bill of Rights (SBOR), California Civil Code § 2920.7, went into effect on January 1, 2017, and requires mortgage lenders and servicers to provide surviving spouses or heirs with information about the loan and grants these surviving persons the right to seek a loan assumption and modification, if needed. The law provides a private right of action against lenders and Servicers that violate the law, including post-foreclosure remedies of $50,000 or treble actual damages.
Homeowner Survivor Bill of Rights–The New Law
While federal law affords successors-in-interest some limited protection from acceleration or foreclosure following the death of a borrower, state laws creating protections for borrowers in foreclosure typically do not extend to successors. Under the SBOR, California is the first state to enact a law providing surviving heirs with protections like those afforded borrowers in foreclosure. Thus, SBOR requires lenders to apply the requirements of the California Homeowners Bill or Rights (HBOR) to successors while they are applying to assume the loan and/or for loss mitigation.
SBOR also attempts to close perceived gaps in the existing federal framework of protection for successors. A Senate Judiciary Committee report about SBOR notes that Garn-St Germain does not require lenders to allow successors to assume a decedent’s mortgage, but merely excludes successor transfers from its preemptive scope (i.e. the due-on-sale clause). The report goes on to explain that “[w]ithout the ability to assume a loan and be added to the mortgage note, a successor in interest lacks lawful authority to exercise rights as a homeowner under HBOR and pursue a mortgage loan modification, should a modification prove necessary. This bill remedies that situation by requiring a mortgage servicer to allow a successor in interest to assume the deceased borrower’s loan, unless such assumption is prohibited by the terms of the loan, at the successor’s election.” It also mandates certain communications with the successor about the loan and loss mitigation options.
SBOR applies to first-lien mortgages on owner-occupied properties in California that serve as the security for the decedent’s mortgage that are transferred to a “successor” upon the borrower’s death. Unfortunately, the SBOR does not apply to reverse mortgages.
A natural person may qualify as a successor in interest by providing documentation establishing that he or she has lived in the property for at least six months prior to the borrower’s death, and is:
1. The personal representative of the borrower’s estate, as defined in Section 58 of the California Probate Code (Probate Code);
2. The devisee, as defined in Section 34 of the Probate Code, or the heir, as defined in Section 44 of the Probate Code, of the real property that secures the mortgage or deed of trust. 3. The beneficiary of a Revocable Transfer on Death Deed, as defined in Section 5608 of the Probate Code;
4. The surviving joint tenant of the borrower;
5. The surviving spouse of the borrower if the real property that secures the mortgage or deed of trust was held as community property with right of survivorship, as specified, or
6. The trustee of the trust that owns the real property that secures the mortgage or deed of trust or the beneficiary of that trust.
Mortgage Servicers’ Duties under SBOR
Upon receiving notification from a person claiming to be a successor in interest to a deceased borrower, a Servicer is precluded from recording a notice of default until it:
- Requests that the claimant submit reasonable documentation of the death of the borrower, such as a death certificate or other written evidence of the death of the borrower, within 30 days;
- Requests that the claimant reasonable documentation regarding his or her status as a successor-in-interest within 90 days.
During these periods, the mortgage servicer may not foreclose. If the claimant fails to provide the necessary documentation by the deadline, the servicer may commence or continue foreclosure proceedings. If the claimant provides reasonable documentation that he or she is a successor in interest, the servicer must provide the claimant with basic loan information, including the loan balance, monthly payment amount, interest rate, interest reset dates and amounts, prepayment penalties if any, default or delinquency status, and the payoff amounts, within ten days of confirming his or her status as a successor.
Private Right of Action– Remedies Afforded Survivors
Neither Garn-St. Domain nor the mortgage servicing rules provide a private right of action to the successor for violations. SBOR does. Patterned after California’s Homeowner’s Bill of Rights (HBOR), if the property has not yet been sold at a trustee’s sale, a successor can seek to stop a foreclosure sale until the Mortgage Servicer complies with the law. The successor is not entitled to damages but may recover the attorney’s fees. If a trustee’s sale has already occurred, the successor may recover “actual economic damages” arising from the violation. If the violation was “intentional, reckless, or resulted from willful misconduct” the successor is entitled to the greater of treble actual damages or statutory damages of $50,000.
Like HBOR, the SBOR does include a safe harbor provision, which allows a mortgage servicer to correct any SBOR violations to avoid liability. However, the safe harbor can only be invoked prior to a trustee’s sale. SBOR also provides a safe harbor for mortgage servicers that adhere to the “successors-in-interest” regulations within Regulations X and Z. A servicer’s compliance with these regulations will be “deemed to comply” with SBOR.
With huge changes in tax law this year, it is more important than ever to consult with your CPA, financial planner and estate planning attorney. G&S Law is always ready to help, so call us at 855-219-3333 for personal legal advice or visit our website for more information about our services.
—————————- By Keyla Ayala and Stuart R. Simone