California Lawmakers Pass Historic Foreclosure Protections

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California lawmakers recently have passed legislation that would provide homeowners with some of the nation’s strongest protections from foreclosure and practices such as seizing a home while the owner is negotiating to lower mortgage payments.

The legislation would make California the first state to prohibit lenders from “dual tracking,” the practice of negotiating with clients to modify a mortgage so that payments become more affordable while simultaneously pursuing foreclosure. In such cases, homeowners can wind up being evicted even though they had been working with the bank to modify their loans.

Here are key provisions in California’s homeowner protection bill, which writes into state law the national mortgage settlement reached with five top lenders, and expands it to all mortgages:

  • ¬†Lets homeowners sue mortgage providers if they violate state law, but only if there is a significant violation. Homeowners could ask judges to halt pending foreclosures but could collect monetary damages only if the foreclosure took place.
  • Requires lenders to provide a single point of contact for borrowers who want to discuss foreclosures or refinancing, with an exemption for lenders that process fewer than 175 foreclosures per year.
  • Bans what are known as “dual-track foreclosures” by barring lenders from filing notices of default, notices of sale, or conducting trustees’ sales while they are also considering alternatives to foreclosures like loan modifications or short sales.
  • Increases penalties for banks that sign off on foreclosures without properly reviewing the documentation, a process known as robo-signing.

The new California could have national implications.¬† It is expected to become a catalyst not only for a recovery of California’s real estate market, but a catalyst across the nation as borrowers everywhere begin to demand the same protections given to California borrowers.

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