Wells Fargo & Co said yesterday that an internal underwriting error had caused it to reject home loan modifications, resulting in the bank foreclosing more homes than expected. The bank said that an expanded review found that 870 customers were incorrectly denied mortgage changes, leading to 545 of them losing their homes. “We’re very sorry that the errors occurred…” Tell that to your kids!
“Sorry” doesn’t cut it when you lose your homestead, displace your family and are forced to pay ever-rising rents. While California, federal and bankruptcy laws provide some level of protection, navigating these laws and understanding their pros, cons and costs is likely beyond your level of knowledge and expertise. The Banks have droves of attorneys; you need an advocate and advisor to level the playing field and maximize your chances of saving your home. Trusting your loan servicer to follow the law is crazy!
The Notice of Default (“NOD”) filing may have violated one of several laws…but how would you know? Here are a few legal tips to consider:
- Watch for RESPA violations: Under federal mortgage servicing laws that went into effect January 10, 2014, the servicer must generally wait until you are more than 120 days delinquent on payments before making the first official notice or filing for any judicial or non-judicial foreclosure under state law. (12 C.F.R. § 1024.41). RESPA allows you to sue the lender if they violated provisions of Regulation X.
- Californians don’t really have “mortgages”: When you took out the loan to purchase or refinance real estate, you likely signed a promissory note and a deed of trust. A promissory note is your promise to repay the loan terms of repayment to which you agreed (like an IOU); including changes in the interest rate or principal repayment. You deed of trust attaches the note to your home as collateral: so if you filed bankruptcy or died, the home still “owes” the debt, not you personally. A deed of trust typically contains a “power of sale” clause; your authorization for the sale of the home by “non-judicial foreclosure” (public auction) so the lender can recover the balance of the loan if you default. With a power of sale foreclosure, the lender can foreclose without court oversight.
- That Notice of Default is the start of the “nonjudicial” foreclosure process. The Notice of Default (“NOD”) includes information like the nature of the breach and how to cure it. Within ten days of recording, the trustee should mail a copy of the NOD to the borrowers and anyone requesting such notice. Within one month, the trustee should mail a copy of the Notice of Default to any other interested parties, such as the borrower’s successor in interest and junior mortgage holders, among others. The NOD gives you three months to cure the default. (Cal. Civ. Code § 2924) before the auction can be scheduled
- Violations of California law are common: Your servicer is required to personally contact you by phone or in person 30 days before recording a Notice of Default (“NOD”), to assess your financial situation and explore options to avoid foreclosure (first mortgages only, owner occupied, 1-4 units) pursuant to Cal. Civ. Code § 2923.5. During the initial contact, the servicer must advise you that:
- you have the right to request a subsequent meeting, and
- if requested, the mortgage servicer will schedule the meeting—which can be over the phone—to occur within 14 days.
- the assessment of your financial situation and discussion of options may occur during the first contact or at the subsequent meeting; either way, the servicer must also provide you with the toll-free telephone number to find a HUD-certified housing counseling agency.
- If the servicer cannot get in contact with you, it can’t record the Notice of Default until 30 days after it has done all of the following:
- Sent a first-class letter that includes the toll-free telephone number made available by HUD to find a HUD-certified housing counseling agency.
- Attempted to contact you by telephone at least three times at different hours and on different days at the primary telephone number on file. This requirement is deemed satisfied if the servicer determines that the primary telephone number, secondary telephone number, or any other numbers on file have been disconnected.
- Sent a certified letter two weeks after the telephone requirements are met that provides a way for you to contact it in a timely manner, including a toll-free telephone number that will provide access to a live representative during business hours.
- Posted a prominent link on its website homepage with information about options to avoid foreclosure, financial documents borrowers should collect if they want to discuss such options, a toll-free telephone number to call to discuss alternatives to foreclosure, and the toll-free telephone number to find a HUD-certified housing counseling agency.
- Contractual violations are common: most California deeds of trust contain a clause that requires the lender to send a notification letter informing you that your loan is in default before it can accelerate the loan and proceed with foreclosure. The letter must specify:
- the default
- the action required to cure the default
- a date (not less than 30 days from the date the notice is given) by which the default must be cured, and
- that failure to cure the default on or before the date specified in the notice may result in acceleration of the debt and sale of the property.
- “Dual tracking” violations are common: A loan servicer violates the law when it simultaneously evaluates you for a loan modification and pursues a foreclosure of the property. If you submit a complete first lien loan modification application at least five business days before any scheduled foreclosure sale, the servicer can’t proceed by recording a notice of default or notice of sale, or conducting a trustee’s sale until:
- it makes a written determination that you’re not eligible (and the appeal period has expired)
- you don’t accept an offer within 14 days, or
- you accept an offer but default or breach the modification. (Cal. Civ. Code § 2923.6).
- Have a “Plan B” ready if the auction is scheduled: If you do not cure the default, a Notice of Sale (“NTS”) can be recorded. You may consider suing or filing bankruptcy to avoid foreclosure. The NTS will contain the time and place of the sale and other info. The foreclosure sale date must be at least 20 days after the end of the 90 day period. California Law requires the NTS will be:
- posted at the property and in a public place where the property is to be sold at least 20 days before the sale date
- published once a week for three consecutive weeks with the initial publication occurring at least 20 days before the auction, and
- mailed to the borrower, anyone who requested notice, and any successor in interest (and other parties) at least 20 days before the auction. (Cal. Civ. Code § 2924b, § 2924f).
- The borrower can reinstate at any time until five business days prior to the sale date in a nonjudicial foreclosure. (Cal. Civ. Code § 2924c).
- The auction winner has the right to evict you. After a Trustee auction, you no longer own your home. Title is vested in the winning bidder (the lender or a third party). If you don’t vacate the property following the foreclosure sale, the new owner will probably:
- offer you a cash-for-keys deal, or
- take steps to evict you.
- The eviction process starts with a three-day Notice to Quit. If you still don’t leave after three days, the new owner will go through the court system to evict you and obtain possession of the property.
Foreclosure is a journey with many forks in the road. Homestead SPC is a one-stop shop: a Social Purpose law and real estate firm that represents California homeowners before, during and after the hard times. Your lender filed a Notice of Default (“NOD”); the countdown to a public auction of your home has begun. Your home may be sold to the highest bidder and your family could be evicted. Since 1993, Attorney Joe Roberts has helped thousands of California homeowners in financial distress. What you don’t know, can hurt you. Call (714) 374-3500 and request a consultation: you need to fully understand your rights to maximize your chances for saving your homestead.