Recent California Law Turns Tables on Mortgage Lenders
California’s groundbreaking Homeowner Bill of Rights took effect just six months ago, and the courts are already rescuing homeowners from situations that would have been hopeless in 2012.
In May, Sacramento resident Kevin Singh became one of the first homeowners to use the new law to stop a foreclosure on his home. Singh fell behind on his mortgage payments when his house painting business suffered in the recession. He applied for a loan modification with Bank of America, but while his application was pending, he received notice that his home was scheduled for foreclosure auction.
The practice of pursuing a foreclosure against a homeowner who is negotiating a loan modification is called dual tracking, and it’s prohibited under the Homeowner Bill of Rights.
Singh explained his predicament to one of his house painting clients, civil rights attorney Aldon Bolanos. Bolanos immediately sought a temporary restraining order, which was granted just before Singh’s home was set to be auctioned. Days later, U.S. District Court Judge Morrison England Jr. issued a preliminary injunction that put Singh’s foreclosure on indefinite hold.
England wrote in his opinion that “an injunction is in the public’s interest as it enforces a recently enacted law designed to protect the public.”
Bolanos told Lawyers.com that the threat of a preliminary injunction should make the banks think twice before engaging in dual tracking, but lenders have an even bigger incentive to follow the law because of the steep legal cost of defending violations.
“The real teeth to the HOBR from a litigation perspective is that we can now freeze the title to the house by obtaining an injunction against a foreclosure sale, and then we can hit the bank with an immediate motion for all fees and costs incurred in obtaining the injunction,” Bolanos said.
Singh’s case involved separate motions and court appearances for both the restraining order and the injunction, plus extensive legal research and document preparation. “Throw in the potential necessity for having to actually attend the sale on the courthouse steps to prevent it, as we did in the Singh case, and attorneys’ fees can easily escalate into the twenty to thirty thousand dollar range,” Bolanos said.
“Look, banks only speak one language: the language of money. What the new law allows us to do is to finally compel banks to deal fairly with their homeowners by hitting them in the one area where they understand: their own pocketbook.”
Turning Point for Homeowners
In addition to outlawing dual track foreclosure, the Homeowner Bill of Rights guarantees homeowners a single point of contact with their lenders, preventing bank staff from playing hot potato with customer requests. It also grants a 90-day eviction warning to tenants in foreclosed homes, extends the statute of limitations on mortgage-related crimes and requires lenders to verify the accuracy of mortgage and foreclosure documents.
San Diego real estate attorney Eric Townsend said the law represents a clear turning point for the rights of California homeowners.
“Historically, the laws have always been on the side of the lenders,” Townsend said. “The writing was already on the wall the way the higher courts decided most of these cases, so prior to the Homeowner Bill of Rights, it was really difficult [to prevail in court].”
“Based on what I hear from the lenders I talk to, it sounds like almost all the cases they have right now are Homeowner Bill of Rights cases,” Townsend said.
The new law is a major part of California Attorney General Kamala Harris’ effort to address the foreclosure crisis. Last year, Harris secured an $18 billion settlement with the nation’s five largest banks to provide relief to California homeowners harmed in the robosigning scandal. In 2011, Harris spearheaded the creation of a Mortgage Fraud Strike Force to investigate and prosecute lenders who break the law.
The idea is catching on. On May 24th, Minnesota became the second state to pass its own Homeowner Bill of Rights, and similar laws are circulating through capitols in several other states.
What do you think of California’s Homeowner Bill of Rights? Do you think a similar law would help your state? Share your thoughts in the comments section below.