Lawmakers approve 'bill of rights' for homeowners facing foreclosure

SACRAMENTO — Seeking to establish a clear set of rules for Californians faced with the prospect of losing their homes to foreclosure, lawmakers on Monday sent to Gov. Jerry Brown legislation that spells out a bill of rights for homeowners in dealing with their lenders.

"Homeowners facing foreclosure will receive fair and reasonable due process," said Sen. Ron Calderon, D-Montebello. "Either their loan-modification will be approved or they will be given a reason why they were denied. No more runaround."

The legislation, modeled largely on the $25 billion national mortgage settlement reached by 49 states with five of the nation's largest lenders, would provide homeowners with four protections once they have applied for a loan modification in an attempt to avoid losing their home:

n It would prohibit lenders from using a practice called "dual-tracking," in which they proceed with plans to foreclose on the home even as the borrower is attempting to work out a modification. Instead, they could proceed with a foreclosure only after they have rejected the borrower's application for a modification and provided a reason for the denial.

n It would require lenders to provide borrowers with a "single point of contact" — a team of bankers who would have access to the borrowers' file and the ability to make decisions about how to proceed with the application.

n It would ban the practice of "robo-signing" by requiring banks to submit only verified documents in the recording and filing of foreclosure papers.

n It would provide homeowners with legal recourse if lenders violate the provisions of the legislation during the foreclosure process.

The legislation drafted by a two-house conference committee was approved by the Assembly and Senate early Monday afternoon. The votes were mostly along party lines, with all Democrats in support. In the Assembly, they were joined by one Republican and an independent.

Brown immediately indicated he will sign the bill.

"The Homeowner Bill of Rights will prevent banks from throwing Californians out of their homes while they are trying, in good faith, to renegotiate their mortgages," Brown said in a statement issued by his office. "This bill establishes important consumer protections that are long overdue."

The legislation has been four years in the making, as attempts to pass similar bills had fallen short each year since the rate of foreclosures began to soar after the 2008 financial meltdown and the collapse of the housing bubble.

From 2008 through 2011, more than 1 million Californians lost their homes to foreclosure, including 16,603 in Ventura County, which represents 1 in every 17 county homes.

Sen. Mark Leno, D-San Francisco, who had authored previously unsuccessful legislation, said the national settlement negotiated largely by California Atty. Gen. Kamala Harris was a "game-changer" because in agreeing to it the nation's biggest lenders admitted they had engaged in these practices and they were unfair.

Harris helped shepherd the bill through the Legislature, saying she sought "to make permanent the reforms that were part of the national settlement."

The bill excludes small lenders, such as community banks and credit unions, which process fewer than 175 foreclosures a year.

The legislation is opposed by most of the state's financial services industry and business organizations, including the California Bankers Association and the California Chamber of Commerce.

The Chamber of Commerce placed the bill on its annual "job-killers" list, describing the measure as legislation that "creates procedural traps to impede the foreclosure process and delay lenders' ability to recover collateral legitimately in foreclosure."

While some Republican lawmakers opposed the bill based on the belief that it could harm the economy by making loans more difficult to obtain and depressing housing values, others endorsed the consumer protections but argued that giving borrowers the ability to sue will result in frivolous litigation against banks.

"It's almost like a poison pill to me," said Sen. Tom Harman, R-Huntington Beach.

Countered Leno: "If they break the law, shouldn't the borrower have his day in court? We've included a right to cure. If there has been a breaking of the law, they can fix it."

Harris said that although the bill, once signed by Brown, will not become law until Jan. 1, she believes that lenders will begin immediately to follow the procedures it prescribes.

She noted that after the national settlement was signed its provisions did not take effect for six months but "institutions started to clean up their act right away."

Harris said there are 700,000 Californians whose homes are now in the foreclosure process and that she expects the bill will provide those who are "informed homeowners and responsible people" with a clear process to work with their lenders.