Eligibility. The following described new protections only apply to borrowers seeking a loan modification on their primary, or “first-lien,” mortgages on residential units of one to four units that are occupied by the borrower as his or her primary residence. These new protections do not apply to investment properties, strategic defaulters who turn in keys and voluntarily go into foreclosure, or borrowers who have rented out the home.

New Borrower Loan Modification and Foreclosure Protections.

1. Dual Track Foreclosure Banned. Under the new law effective January 1, 2013, if a homeowner submits a loan modification application, the bank is required to halt any pending foreclosure proceedings until the bank not only completes its review of the loan modification request, but also gives the homeowner a letter of acceptance or denial. If a loan modification request is denied, the bank must inform the homeowner the reason for the denial, the borrower’s right to appeal the decision, and provide notice that the foreclosure process will resume. The new law, in effect, ends the banks prior practice of “dual track” foreclosures that occur when a loan servicer continues the foreclosure process while also reviewing a homeowner’s application for a loan modification. With this new law in place, if a loan modification is accepted, the bank will rescind the notice of default or sale, allowing the homeowner to negotiate the loan modification in good faith without being blindsided by a simultaneous foreclosure.
2. Single Point of Contact Required. Under the new law, the bank and/or loan servicer is required to provide each homeowner who submits an application for a loan modification with a “single point of contact” (a single representative) who is is responsible for coordinating the flow of documentation, knowledgeable of the borrower’s status, and has access to decision-makers on the loan. This in effect ends the banks prior practice of forcing borrowers to submit and resubmit loan modification documentation over and over again. Beginning January 1, 2013, borrowers seeking a loan modification will no longer have to speak to a different person at the bank every time they call and resubmit the same mountain of paperwork.

Additional Civil Penalties of up to $50,000.

If the lending institution, or loan servicer, fails to abide by the new rules, the struggling homeowner will be permitted to file a complaint seeking both an injunction against foreclosure until the violations are corrected and civil penalties of up to $50,000 if the borrower can prove that the bank or loan servicer filed multiple, inaccurate mortgage documents, or willfully, intentionally or recklessly violates the new rules once the law goes into effect.

In addition, if the bank or loan servicer records and/or files multiple unverified documents (a practice called “robosigning”), the borrower can file a complaint with one or more of the below mentioned state agencies and the state would be permitted to assess a civil penalty of up to $7,500 per loan. Whether or not a district attorney seeks to prosecute the bank, the borrower can and should file a complaint with the State of California’s Department of Corporations, Department of Real Estate, and Department of Financial Institutions all of which will be permitted to take additional enforcement actions.