Gov. Arnold Schwarzenegger has signed SB1177. Changes include:

Adds Cal Civ Code Sec 2923.5. Until January 1, 2013, and as applied to residential mortgage loans made from January 1, 2003, to December 31, 2007, inclusive, that are for owner-occupied residences, this bill would:

• require a mortgagee, trustee, beneficiary, or authorized agent to wait 30 days after contact is made with the borrower, or 30 days after satisfying due diligence requirements to contact the borrower, as specified, before filing a notice of default.
• require contact with the borrower to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure.
• require the mortgagee, beneficiary, or authorized agent to advise the borrower that he or she has the right to request a subsequent meeting within 14 days, and
• provide the borrower the toll-free telephone number made available by the United States Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency.
• require the notice of default to include a specified declaration in Sec 2923.5(c) from the mortgagee, beneficiary, or authorized agent regarding its contact with the borrower or that the borrower has surrendered the property.
• If a notice of default had already been filed prior to the enactment of this act, the bill would instead require the mortgagee, trustee, beneficiary, or authorized agent, as part of the notice of sale, to include a specified declaration regarding contact with the borrower.
• Authorize a borrower to designate a HUD-certified housing counseling agency, attorney, or other advisor to discuss with the mortgagee, beneficiary, or authorized agent, on the borrower's behalf, options for the borrower to avoid foreclosure.The contact and meeting requirements of these provisions would not apply if a borrower has surrendered the property or the borrower has contracted with an organization, as specified.
• A notice of default may be filed pursuant to Section 2924 when a mortgagee, beneficiary, or authorized agent has not contacted a borrower as required by Sec 2923.5(a)(2) provided that the failure to contact the borrower occurred despite the due diligence of the mortgagee, beneficiary, or authorized agent.  Sec 2923.5(g) prescribes the details for such "due diligence."

Adds Cal Civ. Code Sec 2924.8. Also requires specified mailings to the resident of a property that is the subject of a notice of sale, as specified in 22924.8(a). Make it a crime to tear down the notice of sale posted on a property within 72 hours of posting, thereby imposing a state-mandated local program.

Adds Cal Civ Code Sections 2929.3 Until January 1, 2013, this bill would:

• require a legal owner to maintain vacant residential property purchased at a foreclosure sale, or acquired by that owner through foreclosure under a mortgage or deed of trust.
• authorize a governmental entity to impose civil fines and penalties for failure to maintain that property of up to $1,000 per day for a violation.
• require a governmental entity that seeks to impose those fines and penalties to give notice of the claimed violation and an opportunity to correct the violation at least 14 days prior to imposing the fines and penalties, and
• allow a hearing for contesting those fines and penalties.

Adds Sec 1161b to Cal Code of Civ Proc. Until January 1, 2013, this bill would:

• give a tenant or subtenant in possession of a rental housing unit at the time the property is sold in foreclosure, 60 days to remove himself or herself from the property, as specified.
• set forth specified findings and declarations and intent provisions with regard to the above, and would provide that its provisions are severable.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that
reimbursement.

Finally, this bill would:

• provide that no reimbursement is required by this act for a specified reason.  
• declare that it is to take effect immediately as an urgency statute.

California Senate passes mortgage default warning bill

The first major bill designed to help prevent more home foreclosures in California won final passage from the state Senate on Wednesday and was sent to the governor, who was expected to sign the measure into law.

The legislation, which passed on a 32-8 vote, would require lenders to give homeowners more -- and earlier -- warnings that their home loans were heading toward default. The bill, SB1137, would take effect immediately once it had the signature of Gov. Arnold Schwarzenegger.
The bill also gives renters more time to find a new place to live when they are being evicted because their landlord is losing the property.

A third provision authorizes local governments to force lenders to maintain property that is sitting empty after a foreclosure.

"SB1137 will make a difference right away," said the author of the bill, Senate President Pro Tem Don Perata (D-Oakland).

"This legislation is an important piece of the puzzle of how to best protect California homeowners and communities from the fallout from the nation's mortgage crisis," Perata said.

Schwarzenegger, who this year persuaded state-licensed lenders to voluntarily help homeowners get out from under costly adjustable-rate mortgages, welcomed the Perata bill.

"This bipartisan legislation provides one more tool by giving borrowers the critical time needed before a foreclosure to work with their lenders," Schwarzenegger said.

Schwarzenegger's approval became all but certain after protracted negotiations between Perata and his backers -- mainly labor unions, community activists and advocates for fair lending practices -- found common ground with lobbyists for the banking and real estate industries.

The finished product, said Susan DeMars, executive director of the California Mortgage Bankers Assn., provides borrowers with relief "without arbitrarily limiting access to credit or discouraging investments that are needed to restore liquidity to California's housing market."

Passage of the bill came just after the state Department of Corporations released its latest monthly lenders survey, which contained mixed news on the real estate front.

On the positive side, the state reported that the number of loans being modified each month to require lower payments jumped 49% from January to May, when 8,686 so-called workouts of loan terms occurred.

But that progress did little to stem the number of monthly foreclosures, which rose by about 5% to 13,622 during the same five-month period.

Perata and Assembly Speaker Karen Bass (D-Los Angeles) said they hoped that Wednesday's passage of the foreclosure-prevention bill would create momentum to resurrect a handful of related measures that had been killed or watered down in the Senate two weeks ago.

Bass said she was focusing on key portions of AB1830 by Assemblyman Ted Lieu (D-Torrance).

"We are developing an effective package of bills to submit to the governor in August," Bass said.

An earlier version of Lieu's bill addressed three problems linked to sub-prime loans, which were typically made to borrowers with blemished credit who couldn't qualify for traditional fixed-interest-rate loans.

It sought to prohibit stated-income loans, which allow people to qualify for mortgages without proving they have the income to make the monthly payments.

Lieu's bill also would have banned less-than-interest-only loans, whose principal increases with each monthly payment, and pre-payment penalties that make it expensive to pay off loans before they reset to a higher interest rate.

Mortgage bankers contend that negotiations are moving toward an agreement with Lieu and Democratic leaders on AB1830.

California lawmakers, they cautioned, need to be careful that any new law is in harmony with new sub-prime mortgage regulations that are expected to be issued in Washington this summer by the Federal Reserve.

To view the online article, please click here.

To view a copy of the bill, please click here.

To view the Press Release from the Governor's office, please click here.