County of Los Angeles Department of Consumer Affairs New Consumer Laws 2010

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FORECLOSURE PREVENTION

ABX2 7 and SBX2 7 (Chap. 5) amends, repeals, and adds CC section 2924 and adds and repeals CC sections 2923.52, 2923.53, 2923.54, and 2923.55

Background: Starting June 15, 2009, a new law went into effect which put a 90-day moratorium on foreclosures. This law prohibits loan companies from foreclosing on a mortgage without either renegotiating the loan or giving the homeowner 90 days notice. This law also requires mortgage lenders to take certain steps to help homeowners facing foreclosure, including:

• Before filing a Notice of Default, lenders must call homeowners on the telephone or try to reach them in person. Once they reach the homeowner, lenders are to discuss the homeowner’s financial situation and explore options to avoid foreclosure. During such conversation, lenders must offer to set up a meeting with the homeowner within 14 days to discuss their financial situation and ways to avoid foreclosure.
• The meeting can be in person or on the telephone. The homeowner can have a representative discuss the pending foreclosure with the lender. The representative may be a HUD-approved counseling agency, an attorney or another person.
• If the lender doesn’t reach the homeowner by telephone or in person, they must send the homeowner a letter that includes a toll-free number for a HUD-approved counselor. If the homeowner does not respond to the letter, the lender must then (a) make at least one telephone call on three different days at three different times; (b) if the lender can’t reach the homeowner by phone, the lender must send him or her a certified letter that includes a toll-free number for the lender.

The new law: Extends the 3-month moratorium to 6 months for the year 2010. The law applies only to first trust deeds (mortgage loans) on owner-occupied homes for which the first loan was recorded during the years 2003-2007.

The law does not apply to loans in which the lender has a “comprehensive loan modification program.” Many lenders have such programs. A major purpose of the new law is to encourage all lenders to adopt such programs designed to:

• Attempt to keep borrowers in their homes through a loan modification which exceeds the recovery through foreclosure, on a net present value basis. This is not an exact test. Regulations are supposed to clarify this.
• Target a debt-to-income ratio of 38 % or less. If the new monthly mortgage payment is 40% of present income, the loan is not considered to be safe.
• Include some combination of the following features:
  • Interest rate reduction for at least five years;
  • Extension of loan term to no more than 40 years;
  • Deferral of some portion of the unpaid principal balance;
  • Reduction of principal;
  • Compliance with a federally mandated loan modification program; or
  • Other factors the Department of Corporations, the Department of Financial Institutions, and the Department of Real Estate determine are appropriate.
• Seek to achieve long-term sustainability for the borrower when determining a loan modification solution.

Note: The lender does not have to agree to loan modification even if the consumer would seem to qualify.

For more information:
County of Los Angeles Department of Consumer Affairs
B-96 Kenneth Hahn Hall of Administration
500 W. Temple Street * Los Angeles, CA 90012-2706
Telephone (800) 593-8222 (within the County) * (213) 974-1452
Web site: dca.lacounty.gov