DeAun Tollefson protests foreclosures
DeAun Tollefson, whose home is in foreclosure, marches with others in Sacramento to protest home foreclosures. (Rich Pedroncelli / Associated Press / June 25, 2012)
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By Marc Lifsher and Alejandro Lazo, Los Angeles Times
July 2, 2012, 3:00 p.m.
SACRAMENTO — California lawmakers have passed historic legislation that would provide homeowners with some of the nation's strongest protections from foreclosure and aggressive bank practices, such as when a lender tries to seize a home even as the resident negotiates to lower mortgage payments.
After years of housing and mortgage market distress during which lenders seized nearly a million California houses, legislators on Monday sent a pair of Assembly and Senate bills to the governor designed to help financially distressed borrowers stay in their homes.
The legislation would make California the first state to prohibit "dual tracking," when lenders pursue foreclosures and simultaneously negotiate with clients to modify their mortgages so that payments become more affordable. Homeowners complain that they often wind up being evicted even though they had been working with the bank to modify their loans in order to avoid foreclosure.
The measures outlaw so-called robo-signing, the use of false signatures on foreclosure documents, and allow state agencies and private citizens to sue financial institutions, under limited conditions, for economic damages and for additional civil damages of up to $50,000 if lenders willfully, intentionally or recklessly violate the law. No lawsuit can go forward if the bank or servicer first fixes the alleged problem with documentation or procedures, according to the bills.
The legislation also would simplify dealings between homeowners and their banks or loan servicers by requiring that clients be given a single point of contact, helping to avoid common bureaucratic snafus.
"This has been an incredibly long and tortuous process to get the kinds of basic protections that borrowers have long needed throughout this six-year crisis," said Paul Leonard, California director of the Center for Responsible Lending in Oakland.
The banking and real estate industries oppose the foreclosure-prevention bills, calling them well-meaning but overly complicated and so legally ambiguous that they would spur frivolous lawsuits.
It is critical that "we don't give borrowers and enterprising attorneys an opportunity to delayforeclosures at will," said Dustin Hobbs, a spokesman for the California Mortgage Bankers Assn.
Bankers also warned that the new law would increase real estate transaction costs, slow the housing recovery, tighten credit and lower home values.
A two-house conference committee took a number of amendments in an effort to address some of the criticisms by the banks.
Conferees narrowed the measures to apply only to modifications on first-lien mortgages. The compromises also limited the protections to only owner-occupied residential properties with fewer than four living units. Mortgage holders who bought property for investments and so-called strategic defaulters, who turn in keys and voluntary go into foreclosure, are not covered by the proposed law.
On Monday, the Assembly voted 53-25 in favor of the pair of bills that came out of the conference committee; the Senate passed the bills on a 25-13 vote.
The bills are the most controversial part of a Homeowner Bill of Rights legislative package, sponsored by California Atty. Gen.Kamala D. Harris. The package is modeled on a multi-state, $25-billion settlement of a foreclosure lawsuit against five large banks but would extend protections to more homeowners and would lock the provisions into state statutes.
The proposed state law, Harris said, is "fair and transparent" and noted that it only applies to people living in their homes.
Gov. Jerry Brown hasn't said whether he supports the two bills, written by 10 Democratic lawmakers, including the Senate and Assembly leaders. Those lawmakers, however, said they couldn't foresee any circumstances in which Brown might use his veto powers.
If the bills had been law a few years ago, they would have saved many homeowners much time, anxiety and heartache, said Rose Gudiel, who knows the problems all too well. The state worker from La Puente ran into unexpected financial difficulties in 2009 and fell slightly behind on her mortgage payments.
For three years, she tried to get a loan modification but said she couldn't get a straight answer on her status. She received a foreclosure notice in early 2011 but refused to vacate her home. The bank granted new terms only after Gudiel, 35, backed by activists with the Alliance of Californians for Community Empowerment, made the news by getting arrested during a protest.
Gudiel said she can afford to stay in her three-bedroom house, where she lives with her mother, father and brother, now that her monthly mortgage payment has dropped to $1,800 from $2,400.
"It's a good thing, because at least you're able to get an answer and don't have to go through the extremes that I had to do," she said.
Lifsher reported from Sacramento and Lazo from Los Angeles.