Client Alert: From the Scheer Law Group: CA Survivors Bill of Rights Passed.

To All SLG Clients and Affiliates.

From: Spencer Scheer
Date: October 10, 2016
Client Alert: From the Scheer Law Group:

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Subject: California SB 1150 (Survivors Bill of Rights) Passed.

As if you did not have enough regulatory concerns, you can now add another to the “pile”. On September 29, 2016, SB 1150 was chaptered and signed into law. The law goes into effect in January of 2017.

In essence the Bill is designed to facilitate the ability of successors to a deceased borrower (hence the reference to the Bill as the “Survivors Bill of Rights”) and lender/servicers to communicate. In addition, and in appropriate circumstance the Bill will allow a successor to assume a loan, obtain foreclosure prevention alternatives, and/or sue under  the CA HOBR.

The following is a recap of the highlights of the legislation with some comments and questions. Please note the footnotes.

California SB 1150 (Survivor Bill of Rights): Passed 9.29.16, effective January 2017.

• General:
• SB 1150 clarifies the responsibilities of a mortgage servicer when a borrower dies and leaves a surviving homeowner who is not on the loan.
• The enacted statute applies to a first lien mortgage that is secured by an owner occupied residential 1-4 unit property that was the principal residence of the deceased borrower. The statute does not apply to a “smaller lender” that forecloses on 175 or fewer 1-4 residential properties during its preceding annual reporting period (Civ. Code §2920.7(j)).
• SB 1150 does not require a lender/servicer to allow assumption of a loan or obtain a modification, but requires that the lender/servicer provide information about loan assumption and foreclosure avoidance options.
• Particular Provisions:
• Restrictions on Recording NOD to Allow Successors Time to Provide Proof of Status: Civ. Code § 2920.7(a) provides that the servicer cannot record a NOD until it does both of the following: (1) provides the claimant a reasonable period of time, not less than 30 days, to provide proof of the borrower’s death; and (2) provides the claimant with a reasonable period of time, not less than 90 days, to provide proof of that person’s interest in the real property.
• Note: This could add at least 90 days to the pre-foreclosure process if the borrower’s death occurs during the pre-foreclosure contact period under the CA HOBR.
• Who can be a Successor? Civ. Code §2920.7(i) (4), defines who can be a successor. The statute requires a “natural person” and one of the enumerated persons described in the statute, who must also have occupied the property within the last six continuous months prior to deceased’s death, and who currently resides on the property. [1]
• Documentation required of a Successor: Civ. Code § 2920.7 (i) (3), defines what “reasonable documentation” is required to establish successor status [2] and if specified documents listed are not available, “what is deemed sufficient by the mortgage servicer.”
• Becoming a Successor on the Loan and Loan Assumption: Civ. Code §2920.7(b)(1) and (2) provide that, once the claimant provides the required proof, he or she is defined as a “successor in interest”  The statute specifically states that there can be more than one successor (Civ. Code § 2920.7(a)(2).
• Note: This can result in inconsistent rights e.g. if not all successors will assume the loan. The statute provides that applicable state and federal laws govern assumption rights and that where multiple successors will not agree to proceed as co-borrowers or applicants, the servicer can require that any non-applicant consent to the application for loan assumption (Civ. Code  §2920.7(b)(2).
• Note: No time to for the successor to assume the loan or apply for loss mitigation is specified, which can lead to disputes.
• Providing Information to Successors and Assumption of Loan: Civ. Code §2920.7(c) provides that, within 10 days of the claimant becoming a successor, the servicer must provide the successor with key information on the loan. The statute does not address the fact that providing some of that information could violate applicable Federal privacy law.
• Successor rights to Assume Loan or Qualify for Foreclosure Prevention Rights: Civ. Code §2920.7(d) provides that the servicer  shall allow a successor to: (1) Apply to assume the loan (subject to applicable investor requirements and guidelines), or; (2) Where the successor of an assumable loan also wants a foreclosure prevention alternative, simultaneously apply for both.
• Note: Loan assumption is dependent on the creditworthiness of the successor, subject to applicable investor requirements and guidelines (Civ. Code §292.7(d) (1)).  However, the statute does not provide any guidance on how long the servicer must give the successor to assume the loan or apply for loss mitigation.
• A Qualified Successor has Borrower HOBR Rights: Civ. Code §2920.7(e) (1), gives a qualifying  successor the rights as a borrower under HOBR.
• Note: The statute does not address a scenario where the servicer had already complied with the provisions of HOBR as to the borrower and then the borrower dies prior to the recording of the NOD. Will this require a restart of the HOBR pre-foreclosure time clock?
• A Qualified Successor has Rights to Assert Injunctive and Damage Claims under CA HOBR: 2920.7(e)(2) through (4) give the successor the same private right of action afforded to a former borrower under the CA HOBR, including the right to an injunction (pre-sale), damages (post-recording of the TDUS) and attorneys’ fees.
• When Statute Conflicts with Federal Law: Civ. Code §2920.7 (k) resolves problems with potential with federal [CFPB] servicing guidelines , by providing that compliance with successor provisions in 12 CFR part 1024 and 1026 will be deemed compliance with the requirements of this statute.
• A Successor who Has Filed a Legal Action re the Property is not Covered by the Statute: Civ. Code §2920.7(l).

One thing is certain: Every lender and servicer should coordinate the requirements of the Bill with corresponding federal regulations on successor status, and state and federal regulations re loan assumption. Also, CA HOBR procedures should be expanded to include mandated  review and communications when a successor claim is raised and a successor is confirmed. If not, you are inviting more litigation and delay.

Please call me if you would like to discuss:

Spencer Scheer

[1] Civ. Code §2920.7(i)(3) (4): “Successor in interest” means a natural person who provides the mortgage servicer with notification of the death of the mortgagor or trustor and reasonable documentation showing that the person is the spouse, domestic partner, joint tenant as evidenced by grant deed, parent, grandparent, adult child, adult grandchild, or adult sibling of the deceased borrower, who occupied the property as his or her principal residence within the last six continuous months prior to the deceased borrower’s death and who currently resides in the property
[2] Civ. Code §2920.7(i)(3) “Reasonable documentation” means copies of the following documents, as may be applicable, or, if the relevant documentation listed is not available, other written evidence of the person’s status as successor in interest to the real property that secures the mortgage or deed of trust deemed sufficient by the mortgage servicer:
(A) In the case of a personal representative, letters as defined in Section 52 of the Probate Code.
(B) In the case of devisee or an heir, a copy of the relevant will or trust document.
(C) In the case of a beneficiary of a revocable transfer on death deed, a copy of that deed.
(D) In the case of a surviving joint tenant, an affidavit of death of the joint tenant or a grant deed showing joint tenancy.
(E) In the case of a surviving spouse where the real property was held as community property with right of survivorship, an affidavit of death of the spouse or a deed showing community property with right of survivorship.
(F) In the case of a trustee of a trust, a certification of trust pursuant to Section 18100.5 of the Probate Code.
(G) In the case of a beneficiary of a trust, relevant trust documents related to the beneficiary’s interest.