SB 729 Fails – California Homeowners Get Banked but not Kissed Once Again

California Senate Bill 729 failed to pass in the Senate Banking Committee for the second time in the last two weeks.  In a related story, it seems that the rights of chickens have suffered yet another blow, with the Chicken Rights Bill failing garner the votes it needed to pass in the Colonel Sanders’s Committee, as well.

Well, now that certainly is some “breaking news” right there, wouldn’t you say?

Senate Bill 729 was just one more feeble attempt to bring reason to the foreclosure process, but it’s now quite clear that the mortgage bankers industry is just flat out too stupid to support anything that might change their little world today, even if it might just save their lives tomorrow.  Yes, you read me correctly… I said stupid… as in, stupid is as stupid does.

Here’s what SB 729 would have accomplished:

1. This bill would prohibit a mortgagee, trustee, beneficiary, or authorized agent from recording a notice of default unless that party makes reasonable and good faith efforts to evaluate the borrower for all available loss mitigation options to avoid foreclosure.

I was under the impression that servicers were supposed to be doing that already.  The federal government thought so too, I’m pretty sure..

2. The bill would prohibit a mortgagee, trustee, beneficiary, or authorized agent from recording a notice of default on residential mortgages and deeds of trust, as defined, until various notice requirements and other requirements regarding loan modifications are fulfilled.

The bill would include among these requirements informing the borrower of the deadline for applying for a loan modification, which would be prohibited from being earlier than a specified date.

Oh gee… now there’s a classic deal killer.  Some people might call that fairness, or even common decency.

3. The bill would prohibit a mortgagee, trustee, or beneficiary from recording a notice of default on a residential mortgage or deed of trust if a borrower who is eligible for a loan modification submits an application, as specified, unless the mortgagee, trustee, or beneficiary has, in good faith, reviewed the application, rendered a decision on the application, and sent the borrower a denial explanation letter.

Again, the goal is to modify loans, banker-people… are you with me on this?

4. The bill would provide a process for reviewing a mortgage loan modification application, which would depend, in part, on whether the mortgage servicer, as defined, is participating in the federal Making Home Affordable Modification Program.

Oh, good Lord no… not a “process.”  I’m not entirely sure the rest of the world would recognize mortgage servicers were they to start using even one single process.

5. The bill would require that a borrower who requests a loan modification and is denied receive a denial explanation letter stating the reason or reasons for the denial, as specified.

Don’t tell me you can’t handle this one, banker-people, because you send out denial letters better that any industry in history.  They’re often incorrect and guaranteed to be rude, but you send them out just fine.

6. The bill would require a mortgage servicer to whom the provisions described above apply, to perform specified actions as part of foreclosing on a residential mortgage or deed of trust, including compiling a record documenting compliance with those provisions, which would be signed, certified, and transmitted to the foreclosure trustee or authorized agent.

The bill would require the declaration of compliance to be included or attached to every notice of default recorded, as specified, and a notice of default recorded without the compliance declaration would be void.

This is another one that I just can’t imagine banker-people getting too hinkey about, because for one, “compiling a record documenting compliance,” isn’t exactly moving Mt. Everest.  And for another, in light of the problems in this area, such as selling homes while homeowners are under consideration for a loan modification, which is bordering on being considered a common practice, as opposed to an exception to the rule, I would think this would be seen as a reasonable request going forward as it would also protect the servicer in the event of legal action brought under the new law.

Is it headache sort of thing… okay, yes… perhaps it is.  But viewed in light of the larger picture problems, and recognizing that maintaining the status quo is not an option, I think servicers would be better severed to acknowledge and accept such “record keeping” changes as being a win.

7. The bill would prescribe a form for the declaration and would require that the declaration substantially comply with it.

The only thing I have to say about any objection to that is: YAWN.

8. The bill would permit an eligible borrower to enjoin a trustee sale if provisions of the bill are not satisfied, and would authorize a borrower to recover damages, attorneys fees, and costs, as specified, if the property is sold without compliance with the bills requirements.

Well, well, well… now let’s be honest about this one… this one’s the problem for you banker-people, isn’t that right?  You don’t so much care about the rest of the bill’s provisions were this one not included, right?  Yeah, I’m right.

You see, this provision is what’s know as “a private right of action with a provision for attorneys fees,” and it means that if a homeowner were damaged by a servicer’s failing to comply with the law as stated above, the homeowner would have the right to sue the servicer to recover the damages involved.  And not only that, but the lawyer hired by the homeowner would be able to send his or her bill for legal services to the servicer, assuming a victory in court, of course.

And that means that if a homeowner had a really good case, there would be many attorneys willing to take the case without charging the homeowner an arm or a leg… and maybe even not charge the homeowner at all.

I just learned about this private right of action issue this past year, and frankly I was shocked at what I learned.  It seems that there are instances where our legislators pass laws that sound like they have been passed for our protection, but because no private right of action is included, even if we are damaged when the law is broken, we can’t do anything about it.  Nice… isn’t it?

The HAMP rules are example of this… if servicers fail to follow them, and we lose homes as a result… tough luck pal… HAMP does not offer a private right of action.  And in California, Civil Code 2923.6, which basically says that a bank must modify a loan if it would be financially advantageous when compared with foreclosure.  A lovely sentiment, but no private right of action, so good luck showing up in court claiming it was violated.

In my opinion, failing to include a private right of action and provision for attorneys fees in a bill that impacts homeowners is irresponsible at the very least.  By including such provisions, you allow those who believe they have been damaged to have access to the judicial system, and the ability for an attorney to recoup his or her legal fees from the defendant means that high quality cases will find representation… as they should.

This past year, in the State of New York, a bill was introduced basically saying that whenever a mortgage on residential property allows the bank to recover attorney’s fees in a foreclosure proceeding, the mortgage must also allow the borrower the same right when the foreclosure is unsuccessful.  (I wrote about the bill at the time in my article titled: BANKERS: Count on them to be petty and offensive every single time.)

The reason I chose that headline, as opposed to one more neutral, was that the banking lobby was vigorously opposing the bill’s passage… and even once it passed, the financial industry’s lobbyists were reportedly still trying to convince the governor not to sign it.  Their points included the same sort or arguments the California Association of Mortgage Bankers made to kill this bill, SB 729, things like “a blizzard of litigation,” that its passage would be certain to unleash.

CMBA Member Alert – SB 729 Fails Passage in Committee Vote

SB 729 (Leno & Steinberg) failed passage in the Senate Banking & Financial Institutions Committee hearing today.  The bill also failed passage in the committee last week, but was granted reconsideration.  Among many problematic provisions, the bill would create a number of procedural traps in servicing/modification efforts, and would create a new private right of action (which would result in a blizzard of new lawsuits) that would extend for a year after the foreclosure sale.  A nearly identical bill was defeated last year.

CMBA has led the opposition to this problematic bill and will continue to closely monitor the situation.

Now, let’s face facts here… the bill in New York advocated what should be thought of as fundamental fairness.  To oppose what the New York bill was proposing, to my way of thinking, is like coming out against handicapped parking spaces, or brail on elevators.

After months of political wrangling, the governor did finally sign the bill, as reported by Peter R. Scribner, writing in Mortgages and Mortgage Foreclosures. And I’m still waiting patiently for the “litigation blizzard” to begin as a result.

New York Governor Patterson signed a new law on October 20, the “Access to Justice in Lending Act” (Chapter 550 of the Laws of 2010), which allows defendants who are successful in defending against foreclosures to have the bank pay their attorney fees. Bill A01239 (also known as S2614b), passed the New York State Assembly and Senate in June.

The bill states that if a mortgage document contains a provision that the lender may recover attorney fees and expenses in a foreclosure, then there shall be an “implied covenant” that the borrower may also recover attorney fees and expenses “in the successful defense of any action or proceeding” commenced by the lender against the borrower arising out of the mortgage contract.

Attempting to prevent homeowners in this country from being able to fight for their rights and their homes is like trying to stop the tide from coming in, or if you’d prefer, the dyke from bursting by telling the little boy to hold his finger in the first hole that appears.  It’ll never work, and all the mortgage bankers are doing is pulling the pendulum way far over to their side… watch out when they’re forced to let go and swings in the other direction.

The mortgage bankers would be well-served to read Hawaii’s new foreclosure law, signed by the governor today as a matter of fact, and they’ll see what legislation of the future looks like if they continue on their current path.

9. The bill would permit the Attorney General to enforce these provisions.

The mortgage bankers couldn’t be worried about this, California’s AG doesn’t prosecute banks for anything, ever… right?  I mean she did fine Mozilo something like $1.95, but so what?

10. The bill would also establish other penalties for certain acts, including for a false declaration of a lost note representing a mortgage or deed of trust.

I know, banker-people… you don’t like this one either, but look… you couldn’t have possibly believed that you’d be able to just continue lying to the courts forever.  You got away with it a few million times, and I think that should be enough.

11. The bill would provide that any person licensed by the State of California who violates the bills provisions is deemed to have violated the licensing law applicable to that person. Because the violation of certain licensing laws, including those regulating mortgage services, are punishable as crimes, this bill would impose a state-mandated local program.

I don’t even know what this one means, but it can’t be a reason to freak out and throw all your weight at killing a bill in committee.  I mean, modify a bill that affects foreclosures… okay.  But kill the thing completely?  Really?  Like this state doesn’t need anything to change as far as the foreclosure crisis is concerned?  Is that really your position?  Because that’s just insane.

Keep it up, banker-people… keep it up.

I’ve warned you guys for some time now that you may think you’re in the lead on this sort of thing, but have you noticed how over this past year, things are starting to crack… courts are going with homeowners more and more… and now both Hawaii and Arkansas have laws that are going to make foreclosing a real bear?

Do yourselves a favor and take my advice for once… start looking at the situation more objectively… you’re not really winning anything here.  Homes are all going back as REOs, they’re not selling.  Home prices are continuing to fall, and the federal government can’t just continue funneling you cash indefinitely.  And you’re becoming less popular than in this country than North Korea.

Save yourselves while you still can and get reasonable… become part of the solution instead of being 100% of the problem.  If you don’t… pretty soon, the people will start solving things without your input and you won’t like that one bit.

Remember Hawaii!

Mandelman out.

Sb 729 Senate Bill – Introduced