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By Kenny Tan | Broker in Diamond Bar, CA

The Arrival Of Homeowners Bill Of Rights - Too Late? Not Soon Enough? Or Both?

Governor Jerry Brown signed the new "Homeowners Bill Of Rights", originally AB1278, now codified under Civil Code Section 2924 - too late for millions of homeowners in California that had lost their homes through wrongful foreclosures by the banks and not soon enough for those struggling to keep their homes. The new law will not become effective until January 1, 2013.

The legislature made significant changes to Civil Code 2924. The blaring changes in Civil Code 2924 are new provisions that allow borrowers private right of action to sue for damages for wrongful foreclosure if 2924 is not complied with. There's no mention in the the  revised code about the need for 'tender' which means the borrower must demonstrate ability to cure the default had lender complied with the statute. Will the court imply a tender requirement into the new statute? That remains to be seen. The argument in favor of the tender requirement is that ,"why should it matter if the borrower can't come up with the money to cure the default anyway had the lender followed proper procedures to foreclose?". Of course that seems to be the view taken by the courts for many years even in recent years like 2010 and 2011. 

But if the court is going to interpret 2924 the same way they did Civil Code 2923.5, perhaps they won't make ability to tender a requirement to sue for actual damages under the new 2924. Of course one big difference between 2923.5 and 2924 is that though 2923.5 allows a private cause of action, ie. an individual homeowner may bring suit in his own name, he may not sue for damages (see Mabry v. Superior Court). There's no damages provision in 2923.5. The only remedy available under it is injunction to stop the sale until 2923.5 is complied with, such that if a borrower brings a cause of action under 2923.5 and makes an application for preliminary injunction to stop the sale, that only prevents the trustee's sale from going forward until 2923.5 is complied with which gives the borrower an extra 5 to 6 months - since that's how long a typical trustee's sale may take from beginning to end if 2923.5 were to be complied with. But to take advantage of 2923.5, the borrower has to do something before the sale date. Under Mabry, once the sale is completed, there's nothing that's available under 2923.5 that will give the borrower any form of remedy even if the lender had blatantly violated 2923.5.

2924 is very different. The new statute expressly states that a borrower may still sue for damages even after the sale has occurred. Now that's some statute that has teeth in it which 2923.5 doesn't. And the penalty can be severe for the lender if the violation is wilful or reckless in which case the borrower may sue for actual damages or $50,000, whichever is greater plus reasonable attorney's fees and costs (which is also missing in 2923.5). Finally a statute that empowers a borrower to go after the lender for willfully ignoring the borrower's right to be considered for loan modification or other foreclosure alternatives.  No wonder the new statute is named "Homeowners Bill Of Rights." 

But if a homeowner wishes to save his home between now and January 1, 2013 when the new statute becomes effective, 2923.5 will come in handy - though that option may not be available if the lenders managed to cross all the "Ts" and dot all the "Is" under 2923.5 as many lenders have done recently. You should consult a real estate attorney  to see if that is even an option for you if you wish to save your home between now and January 1, 2013 and the lender is giving you a hard time to get your loan modification. And the best part about it is that you don't have to post bond to get the injunction (see Bardasian v. Superior Court).  Imagine only a handful of borrowers who are qualified to get the bond so that is huge.

Th number of homes in California that are still "underwater" is still in the millions! While real estate prices ticked up a bit the last couple of months, we are not out of the woods yet. Don't forget the shadow inventory of distressed properties yet to hit the pipeline. Nobody really knows when they will hit the pipeline or if they ever will. If the lenders want to unload them, they have until January 1, 2013 to do so or worry about a flood of litigation from consumers throughout the state if they try to do so after January 1, 2013. But with 2923.5 still available as an option, the banks may be running out of time to unload them.

Critics - California Association of Realtors being one of them, say that the new law will slow the recovery of real estate as lenders may tighten credit in weeding out marginal borrowers out of fear of having to deal with litigation under the Homeowners Bill Of Rights. Or will the Homeowners Bill Of Rights actually work to the opposite in preventing the millions of "underwater" homes from hitting the pipeline thereby avoiding the foreclosure tsunami that people dread would come. We will find out in the next few months won't we? 


By John Souerbry,  Wed Jul 18 2012, 06:32
Hopefully this law will be challenged in the courts and found un-Constitutional, as there are already laws on the books that protect homeowners against lender fraud and this law meddles too much in legal lender-borrower contracts. The end result is that it will be harder for California home buyers to get mortgages in the future and fees will go up to cover uneccessarily inflated administrative and legal costs. This is just a bad law for everyone.
By Malibubooks,  Tue Jul 24 2012, 15:16
But if the wrong party brought the action as is what happens in California, then, can a borrower allege that no sale occurred? many times the trustee of the common law trust xxx2006-3 is assigned the property, then the trustee deed upon sale will claim that the trust purchased the property, but the issue is no money ever passed and no tax is paid for the non sale. Thus no sale occurred, right?
By Malibubooks,  Tue Jul 24 2012, 15:19
Hey John we do not hold your hope to our hearts at all.
By Kenny Tan,  Sun Jul 29 2012, 15:25
The earlier version of the bill actually required lenders to "show the note" before they can foreclose but the California Association of Realtors lobbyed heard to defeat that provision and they were successful if I'm not mistaken.

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