SB 1150 (Leno; D-San Francisco) increases liability risk and the cost of residential loans by allowing a party not on the mortgage loan to interfere with appropriate foreclosures and creates a private right of action for violations of overly complex and burdensome requirements.
The bill’s provisions will likely delay the foreclosure process by additional months, if not years, if a property is involved in probate following a borrower’s death and include a new minimum 90-day mandated statutory timeframe to provide proof of the borrower’s death and proof of successor in interest status.
Of great concern is that the bill establishes new, lopsided, private rights of action with draconian penalties, injunctive relief and attorney’s fees only for the prevailing successor in interest.
Pending Federal Regulations
SB 1150 is premature given pending federal regulations that attempt to address the same underlying issue advanced by SB 1150.
Some amendments, sought by the Consumer Financial Protection Bureau (CFPB), relate to successors in interest and propose to: 1) apply all the mortgage servicing rules to successors in interest once a servicer confirms the successor in interest’s identity and ownership interest in the property; 2) adopt rules for how a mortgage servicer confirms a successor in interest’s status; and 3) ensure that to the extent the mortgage servicing rules apply to successors in interest, that the rules apply to all successors in interest who acquire an ownership interest in a transfer protected from acceleration and foreclosure based on a due-on-sale clause.
These regulations, according to the CFPB, will be published around the middle of this year. The CalChamber firmly believes that these regulations must be finalized before advancing state legislation. If there are deficiencies in the published regulations, the CalChamber welcomes a legislative opportunity to discuss further refinements, if necessary.
SB 1150 will be heard in the Senate Banking and Financial Institutions Committee on April 20. An easy-to-edit sample letter is available online at www.calchambervotes.com.