Ballard Spahr LLP: California’s Residential Foreclosure Overhaul Signed Into Law

Ballard Spahr LLP: California’s Residential Foreclosure Overhaul Signed Into Law

By Alan S. Petlak

On July 11, 2012, California Governor Jerry Brown signed an overhaul to California's foreclosure laws to come into effect on January 1, 2013. The stated purpose of the new legislation is to ensure that, as part of the non-judicial foreclosure process, borrowers are considered for, and have a meaningful opportunity to obtain, available loss mitigation options. Nothing in the new legislation, however, requires a lender to modify a loan.

The major components to the new legislation include the following:

  • Lenders will be prohibited from pursuing foreclosures while a loan modification application is pending ("dual tracking").
  • Lenders will be required to provide a borrower written notice of the new sale date and time after postponement of a foreclosure sale.
  • Borrowers will be permitted to seek injunctions against foreclosures until violations of the statute are corrected and the statute permits the greater of treble damages or $50,000 in statutory damages if a violation of certain provisions of the statute is found to be intentional or reckless or resulted from willful misconduct.
  • Upon the request of a borrower that seeks a foreclosure prevention alternative, a lender must establish a single point of contact and provide the borrower with one or more direct means of communication with that single point of contact.

The new law will apply to mortgages and deeds of trust secured by residential real property not exceeding four dwelling units that is owner occupied, and will generally only apply to lenders that conduct more than 175 foreclosure sales per year on an annual reporting period.

The legislation was backed by California's Attorney General Kamala Harris, who earlier this year helped negotiate the Multistate/National Mortgage Settlement (the Settlement). Not surprisingly, the overhaul in California reflects the reforms to industry default servicing standards that were included in the Settlement, in addition to provisions from the OCC/Fed Consent Orders regarding "robo-signing" concerns and broader default servicing practices. These far-reaching requirements will also be addressed by the CFPB in anticipated proposed rules on mortgage servicing, as well as by other states that have vowed to extend the reforms from the Settlement and the Consent Orders to all mortgage servicers, not just those that were subject to the agreements.

Ballard Spahr's Mortgage Banking Group combines broad regulatory experience with formidable skill in litigation. Clients include financial institutions; mortgage lenders, brokers, and servicers; secondary-market investors; insurance companies; investment bankers; settlement service providers; auction platforms; and homebuilders. Members of the group edited and authored Mortgage Finance Regulation Answer Book 2011-12. For more information, please contact one of the Practice Leaders of the Mortgage Banking GroupRichard J. Andreano, Jr., at 202.661.2271 or; John D. Socknat at 202.661.2253 or; Michael S. Waldron at 202.661.2234 or; or Alan S. Petlak at 424.204.4320 or

Copyright © 2012 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.


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