It is official – today California passed the controversial Homeowner Bill of Rights. The controversial bill, which actually consists of a series of bills, was created to protect the rights of mortgage borrowers and those caught in the foreclosure process. The law will take effect January 1, 2013, and focuses on the following:
Single point of contact with lenders: The bill will ease borrower access to their lenders by guaranteeing them a single point of contact in their communications throughout the pre-foreclosure process. Oftentimes borrowers (and agents alike) get the runaround and speak with a different person every time they communicate with the lender. One person may provide information, but on the next call a different person may say something opposite. A single point of contact with the lender could be beneficial.
Dual track foreclosures prohibited: Banks will not be allowed to foreclose on a property while the borrower is attempting to seek a loan modification. Oftentimes, borrowers who have been attempting loan modifications find their home is sold at auction while they are waiting to see if they will qualify. This is due in part to the lack of communication between the different bank departments – the right hand not knowing what the left hand is doing. Many see this as unfair to the homeowner, who is trying to do the right thing to avoid foreclosure.
Homeowner right to sue banks: The bill will allow homeowners to sue their banks under certain circumstances for wrongful foreclosure. This is the most controversial part of the legislation. Many feel it will create frivolous lawsuits, which will lengthen the foreclosure crisis and in turn prevent the housing market from recovering.
Rescue money for blighted neighborhoods: The bill also will provide money to local governments and receivers to fight blight, which resulted from numerous foreclosures and abandoned homes. This is meant to increase property values in these neighborhoods, which in turn will improve local real estate markets.
Protection for renters: The bill will offer protection to renters who live in homes that have been foreclosed upon. Purchasers of these rented homes will be required to honor existing leases, and will be required to give renters 90 days to find a new rental property. Under the current law buyers of tenant-occupied foreclosed homes can refuse to honor leases and even kick out the tenants.
Extension of National Mortgage Settlement provisions: The new bills will extend coverage beyond the 5 lender servicers who were named in the National Mortgage Settlement – if your loan is not covered under the settlement because it is not serviced by one of these 5, the new law will ensure that many of the main provisions of the settlement will apply to your loan.
Despite the controversy, the Homeowner Bill of Rights has noble goals and may actually benefit many borrowers. The lawsuit provision could be disastrous, and it remains to be seen how effective it would be even if used appropriately. All eyes will be on California after January 1 to see how these new laws play out.
Photos courtesy of Dreamstime