Real Estate Update- Foreclosure Laws that affect homeowners in 2013
A new year means new laws go into effect. The great news is that there are new laws that help all homeowners, including us here in Santa Clarita, who face foreclosure and offer more protection than ever before. Most California foreclosure laws that are set to expire in 2013 are being extended while new updated foreclosure laws are being put in place. There are a few Real Estate laws that are still in the process of being signed off with the senate and have not yet been announced as extended or as a new law. Check back for more updates through out the beginning of the new year!
Helping Distressed Homeowners Keep Their Homes–Dual Tracking
The California Homeowner Bill of Rights helps homeowners avoid foreclosure where possible and prevent the other negative effects of foreclosures on families, communities, and the economy. Newly prohibits lenders from engaging in dual tracking. For short sales, a mortgage servicer or lender cannot record a notice of default or notice of sale, or conduct a trustee’s sale, if a foreclosure prevention alternative has been approved in writing by all parties (e.g., first lien investor, junior lienholder, and mortgage insurer as applicable), and proof of funds or financing has been provided to the servicer. The California Homeowner Bill of Rights other provisions of this law prohibit dual tracking for loan modifications, require a single point of contact for borrowers seeking foreclosure prevention alternatives, provide borrowers with certain safeguards during the foreclosure process, and provide borrowers with the right to sue lenders for material violations of this law. This law generally pertains to owner-occupied properties with one-to-four residential units, with certain exceptions.
Assembly Bill 278 and Senate Bill 900 (codified as Cal. Civil Code §§ 2923.5 et seq.) (effective January 1, 2013).
Anti-Deficiency Protection for Refinance Loans
Homeowners who default on their refinance loans are protected against personal liability for any deficiency following foreclosure. Under existing anti-deficiency law, a borrower is protected from personal liability for a purchase money loan secured by an owner-occupied property with one-to-four residential units. The new law extends that anti-deficiency protection to include any loan used to refinance the purchase money loan, plus any loan fees, costs, and related expenses for the refinance. The anti-deficiency protection, however, does not extend to any cash out in a refinance. This new law only applies to refinance loans or other credit transactions used to refinance a purchase money loan, or subsequent refinances of a purchase money loan, that are executed on or after January 1, 2013. For purposes of this law, any payment of principal shall be deemed to be applied first to the principal balance of the purchase money loan, and then to the principal balance of any new advance and interest payments shall be applied to any interest due and owing.
Senate Bill 1069 (codified as Cal. Code of Civ. Proc. § 580b(c)) (effective January 1, 2013).
Requiring 90-Day Notice to Terminate After Foreclosure
A month-to-month tenant or subtenant in possession of a rental housing unit at the time the property is foreclosed must be given a 90-day written notice to terminate under California law. For a fixed-term residential tenancy, the tenant or subtenant can generally remain until the end of the lease term, and all rights and obligations under the lease shall survive foreclosure, including the tenant’s obligation to pay rent. However, four exceptions allow a 90-day written notice to terminate a fixed-term lease after foreclosure as follows: (1) the purchaser or successor-in-interest will occupy the property as a primary residence; (2) the tenant is the borrower or the borrower’s child, spouse, or parent; (3) the lease was not the result of an arms’ length transaction; or (4) the lease requires rent that is substantially below fair market rent (except if under rent control or government subsidy). The purchaser or successor-in-interest bears the burden of proving that one of the 4 exceptions has been met. Additionally, this law does not apply if a borrower stays in the property as a tenant, subtenant, or occupant, or if the property is subject to just cause rent control. This law will expire on December 31, 2019. This new California law is similar, but not identical, to the 90-day termination notice requirement under the federal Protecting Tenants at Foreclosure Act (12 U.S.C. § 5201, et seq.) as extended by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is set to expire on December 31, 2014.
Assembly Bill 2610 (codified as Cal. Code of Civ. Proc. § 1161b) (effective January 1, 2013).
Extending Post-Foreclosure Protection for Tenants
Existing law requiring a statutory notice when terminating a residential tenant after foreclosure, which was set to expire on January 1, 2013, has been extended to December 31, 2019. Under this requirement, any immediate successor-in-interest in a residential property must, for one year after a foreclosure sale, provide a specific notice when terminating a residential tenant. This notice explaining the tenant’s rights must be on a separate cover sheet or, for a 90-day termination, incorporated into the notice to terminate. The notice is not required in the following situations: (1) the tenant is guilty of unlawful detainer; (2) the tenant and successor-in-interest have entered into a rental agreement; or (3) the tenant who will be receiving the notice was not a tenant at the time of foreclosure.
Senate Bill 825 (codified as Cal. Code of Civil Proc. § 1161c) (effective January 1, 2013).
Extending Prohibition Against Advance Fees for Loan Modifications
Set to expire on January 1, 2013, and now extended, is the prohibition against real estate licensees, attorneys, and others from claiming or collecting any compensation for a loan modification or other form of mortgage loan forbearance until after the licensee fully performs each and every service as promised. A licensee engaging in loan modification activity as defined is also prohibited from taking any wage assignment, lien, or power of attorney from the borrower. These prohibitions only pertain to mortgage loans secured by residential properties with one-to-four units. A violation of this law is punishable by one year imprisonment, plus a $10,000 fine for individuals or a $50,000 fine for businesses. The statute of limitations to prosecute a violation of this law has been extended from one year under existing law to three years after discovery of the offense or completion of the offense, whichever is later. This law is extended until at least January 1, 2017 according to Senate Bill 980, if not indefinitely according to Assembly Bill 1950 (both bills were signed into law on September 25, 2012).
Assembly Bill 1950 and Senate Bill 980 (codified as Cal. Bus. & Prof. Code § 10085.6, Cal. Civil Code § 2944.7, and Penal Code § 802) (effective January 1, 2013).
Protecting Military Service Members From Foreclosure
The existing California protection for a military service member against foreclosure by a mortgage lender during the period of military service or within three months thereafter, has been extended to nine months thereafter. Exceptions apply to sales made by agreement or court order. This law applies to mortgage loans originated before a service member’s period of military service for which the service member is still obligated. The nine-month period mirrors the foreclosure protection under the federal Servicemembers Civil Relief Act. However, President Obama recently signed into law the federal Honoring America’s Veterans and Caring for Camp Lejeune Families Act which extends, from February 2, 2013 to December 31, 2014, the foreclosure protection to one year after the period of active duty.
Assembly Bill 2475 and H.R. 1627.
All these Real Estate laws will have a large impact on helping you decide whether or not it is the right decision for you to do a short sale, foreclose, or a loan modification.
For more updates or detailed information that may affect the outcome of your financial future please contact us for a private consultation.
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