Almost a year and a half ago California’s Homeowner Bill of Rights went into effect. HBOR, as it’s often called, provides more protections to California homeowners in foreclosure. The goal of the law is to prevent some of the mortgage servicer abuses that plagued homeowners in previous years. But according to recent statistics from RealtyTrac, some banks are dealing with the new protections in HBOR by avoiding them altogether.
The California Homeowners’ Bill of Rights
HBOR, which became effective on January 1, 2013, requires banks and mortgage servicers to follow some new rules in nonjudicial foreclosures. (The nonjudical part is key – more on that later.) A few highlights:
No dual tracking. If the homeowner submits a loan modification application, the servicer cannot start or continue with foreclosure until it’s made a decision on the application. Even if it denies the application, it must wait to foreclose until the appeal deadline has passed.
Single point of contact. Mortgage servicers must assign homeowners who are in foreclosure or seeking a loan modification with a single point of content – one person or team of people who have knowledge about the homeowner’s file and are responsible for the flow of information between the homeowner and servicer decision-makers.
Penalties and damages for violations . If a servicer files unverified documents (the practice of “robosigning” which was a major problem a few years ago), it may be on the hook for a $7,500 civil penalty. And if it violates HBOR, the homeowner can halt the foreclosure, or if it’s already gone through, sue for damages. These rules create more work for the mortgage servicers, slow the process down, and expose the lender to potential liability for missteps. (Learn more about the new requirements of HBOR for California foreclosures.)
Judicial v Nonjudicial Foreclosures in California
Here’s the key to the banks’ recent “workaround” when it comes to HBOR. HBOR rules only apply to nonjudicial foreclosures in California. In a nonjudicial foreclosure, the bank can foreclose on the homeowner without going through the courts. In contrast, in a judicial foreclosure, the bank must file a foreclosure lawsuit in court, follow the required litigation procedures, and get a court judgment before it can sell the home.
Judicial Foreclosures Have Spiked
In the past, most banks in California used the nonjudicial foreclosure process – it was easier and faster. But not so in recent months. According to RealtyTrac, in the first three months of 2013, banks filed just one nonjudicial foreclosure in California. Compare that to one year later (after HBOR had been kicking around): in the first three months of 2014, banks filed 1,396 judicial foreclosures. This is out of a total of 20,228 foreclosure starts during the same period. So while the majority of new foreclosure cases are still nonjudicial, the number of judicial foreclosures has certainly spiked to unprecedented numbers for California.
The judicial foreclosure process takes longer, but some mortgage lenders and servicers feel that avoiding the new HBOR requirements and eliminating the uncertainty of liability for civil penalties and economic damages is worth the extra time.