SB 1137 - New Foreclosure Laws in California

California Governor Schwarzenegger recently signed Senate Bill 1137. It became effective on July 8, 2008. The new law makes changes that impose extensive requirements on lenders prior to a foreclosure being commenced and on the trustee in the processing of the foreclosure.  Because of space limitations, this article will deal only with the effect of the legislation on the activity of the trustee.

The legislation applies to loans made between January 1, 2003 and December 31, 2007 that were secured by residential property and are owner-occupied. This section of the law remains in effect until January 1, 2013 and, as of that date, is repealed unless a later statute is enacted prior to then that deletes or extends that date.

Several new sections were added to the California Civil Code. One section, 2923.5, requires the mortgagee, trustee, beneficiary, or authorized agent to include a declaration in any notice of default recorded after September 6, 2008. The declaration must state that the party has contacted the borrower, tried with due diligence to contact the borrower, or is exempt from the contact provisions. In addition, if a notice of default was recorded prior to the enactment of the new statute, the notice of sale must include a declaration that either: (1) states that the borrower was contacted to assess the borrower’s financial situation and to explore options for the borrower to avoid foreclosure, or (2) lists the efforts made to contact the borrower in the event no contact was made.

Another new section, 2924.8, has been added to the Civil Code and reads as follows:

(a)     Upon posting a notice of sale pursuant to section 2924f, a trustee or authorized agent shall also post the following notice, in the manner required for posting the notice of sale on the property to be sold and a mortgagee, trustee, beneficiary or authorized agent shall mail at the same time in an envelope addressed to the “Resident of property subject to foreclosure sale the following notice in English and the languages described in Section 1632: Foreclosure process has begun on this property, which may affect your right to continue to live in this property. Twenty days or more after the date of this notice, this property may be sold at foreclosure. If you are renting this property, the new property owner may either give you a new lease or rental agreement or provide you with a 60-day eviction notice. However, other laws may prohibit an eviction in this circumstance or provide you with a longer notice before eviction. You may wish to contact a lawyer or your local legal aid or housing counseling agency to discuss any rights you may have.”

The languages referred to are Spanish, Chinese, Vietnamese, Tagalog, and Korean. [Click here to review a form of this notice provided by the state.]

The legislation also imposes many new procedures that servicers must now follow. A complete copy of the legislation can be obtained by going to www.legislature.ca.gov.

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