Foreclosure Protection and Relief for Licensees
Helping California Homeowners
To further support state and federal COVID-19 foreclosure protections and relief efforts, the Department has compiled a list of laws and regulations to help licensees understand their responsibilities in helping Californians avoid foreclosures.
Know the law
Below is information about federal and California laws as well as links to the source information.
What about preemption? More protective California laws and regulations are not preempted by the Consumer Financial Protection Bureau (CFPB) servicing rules (REGX) and more protective CFPB servicing rules preempt the California Homeowner Bill of Rights (HBOR).
Homeowners Assistance Fund
California Mortgage Relief (Cal HFA)
The California Housing Finance Agency (CalHFA) is developing a plan for California’s Mortgage Relief Program, which will be funded by the federal Homeowner Assistance Fund (HAF), established pursuant to the American Rescue Plan Act of 2021. Eligibility guidelines will be issued by CalHFA upon U.S. Treasury approval.
Your Responsibility as a Mortgage Servicer
The Mortgage Relief Program is a foreclosure-prevention option available to borrowers at risk of foreclosure. If contact is made with a borrower prior to starting the foreclosure process, servicers should explore whether the borrower qualifies for the Mortgage Relief Program in addition to other foreclosure-prevention options, including loan modification and forbearance.
The California Homeowner Bill of Rights
The California Homeowner Bill of Rights (HBOR) provides protections to homeowners who are at risk of foreclosure. It generally applies to first-lien mortgages on owner-occupied homes that have no more than four units, and to mortgage servicers that have foreclosed on more than 175 homes in California in the last year. Key HBOR provisions include:
- Notification of foreclosure-prevention options: The mortgage servicer must try to contact the borrower, in person or by phone, at least 30 days before starting the foreclosure process to assess the borrower’s financial situation and explore options to avoid foreclosure. The mortgage servicer must also advise the borrower of certain rights and provide the toll-free number to the U.S. Department of Housing and Urban Development (HUD) to find a HUD-certified housing counseling agency. Once these and other requirements are satisfied, the servicer may then begin the foreclosure process by recording a “notice of default.” Within five days after recording a notice of default, the servicer must generally provide information about other foreclosure-prevention options that may be available to the borrower.
- Required information on servicer’s website: The mortgage servicer must post a prominent link on its website homepage, if any, to: (1) foreclosure-prevention options and instructions advising borrowers of the steps to take to explore these options; (2) a list of financial documents borrowers should prepare to present to the servicer when discussing foreclosure-prevention options; (3) a toll-free number for borrowers who wish to discuss foreclosure-prevention options; and (4) the toll-free number to find a HUD-certified housing counseling agency.
- Guaranteed single point of contact: When a borrower requests a loan modification or other foreclosure-prevention option, the mortgage servicer must promptly establish a single point of contact, which may be an individual or team, and provide at least one direct means of
communications with the contact. This contact is responsible for guiding the borrower through application requirements and deadlines, knowing the facts and status of the borrower’s application (including missing documents or information needed to complete the borrower’s application), and having the authority to stop foreclosure proceedings when necessary.
- Acknowledgment of application: If the borrower applies for a loan modification, the mortgage servicer must notify the borrower within five business days of a description of the loan-modification process, any missing information or other errors, and all deadlines for completing the application.
- Restrictions on fees: The mortgage servicer cannot charge any fees to the borrower for applying for a loan modification or other foreclosure-prevention alternative. The servicer also cannot collect any late fees while the complete loan-modification application is under consideration, an appeal is pending, or the borrower is making timely payments under an approved modification.
- Denial rights: If the mortgage servicer denies a loan-modification application, it must identify the reasons for the denial and, if applicable, other possible foreclosure-prevention options for which the borrower may be eligible in writing. The borrower must also be given an opportunity to appeal the denial. The borrower may submit a new loan-modification application if the borrower has had a material change in his or her financial situation since the last application.
- Verification of documents: Before recording or filing any foreclosure documents, the mortgage servicer must ensure that it reviewed competent and reliable evidence to substantiate the borrower’s default and the right to foreclose, including the borrower’s loan status and loan information.
- Restrictions on “dual tracking”: The mortgage servicer must generally pause the foreclosure process while making a decision on the borrower’s completed loan-modification application and until after the time to appeal has lapsed. The servicer also cannot foreclose on the borrower while the borrower is complying with the terms of an approved loan modification, forbearance, repayment plan, or other foreclosure-prevention option.
- Prohibition on “robosigning”: “Robosigning,” which refers to the practice of signing documents without personal knowledge of the accuracy of their contents, is prohibited. The mortgage servicer may not use third-party document processing companies to sign foreclosure documents when the employees of these companies lack personal knowledge of the statements contained therein.
- Transfer rights: If the mortgage servicer approves a loan modification or other foreclosure-prevention alternative and then sells or transfers the borrower’s loan to another servicer, the subsequent servicer must honor that foreclosure-prevention alternative.
CARES Act Mortgage Forbearance
- Eligibility. A borrower may have a right to a COVID-19 hardship forbearance if:
- The borrower experienced financial hardship directly or indirectly due to the COVID-19 pandemic; and
- The borrower has a federally backed mortgage, which includes loans from HUD/FHA, VA, USDA, Fannie Mae, and Freddie Mac.
- Deadline to apply.
- For mortgages backed by HUD/FHA, USDA, or VA, the deadline for requesting an initial forbearance is September 30, 2021.
- For mortgages backed by Fannie Mae or Freddie Mac, there currently is no set deadline for requesting an initial forbearance.
- Duration of forbearance.
- A borrower’s initial forbearance request typically lasts for three to six months. However, a borrower may request an extension if more time is needed to recover financially. For most loans, extension may be extended up to 12 months. Some loans may be eligible for up to 18 months of forbearance, depending on when the borrower’s initial forbearance started. Other limitations may also apply.
- For mortgages backed by HUD/FHA, USDA, or VA: A borrower may request up to two additional three-month extensions, for a maximum of 18 months total forbearance. To qualify, the borrower must have requested an initial forbearance plan on or before June 30, 2020. Not all borrowers will qualify for the maximum.
- For mortgages backed by Fannie Mae or Freddie Mac: A borrower may request up to two additional three-month extensions, for a maximum of 18 months total forbearance. To qualify, the borrower must have been in an active forbearance plan as of February 28, 2021.
- No lump-sum repayment at the end of forbearance. Servicers for federally backed mortgages cannot require borrowers to make a lump-sum repayment at the end of the CARES Act forbearance.
The California COVID-19 Small Landlord and Homeowner Relief Act
The COVID-19 Small Landlord and Homeowner Relief Act (AB 3088, SB 91) provides additional protections to homeowners by providing borrowers an opportunity to revise and resubmit defective forbearance applications and imposes certain notice requirements on a servicer when it denies a borrower’s COVID-related forbearance request made between Sept. 1, 2020 and Sept. 1, 2021.
These notice requirements apply if all the following conditions are met:
- The borrower was current on mortgage payments as of Feb. 1, 2020.
- The borrower is experiencing financial hardship that prevents the borrower from making timely payments on their mortgage obligation because, directly or indirectly, of the COVID-19 emergency.
- The forbearance request was made between Sept. 1, 2020 and Sept. 1, 2021.
If the conditions above are met, you must provide written notice stating the specific reason or reasons for denying the borrower’s forbearance request. If the written notice identifies any defect in the borrower’s request—including an incomplete application or missing information—that is curable, you must:
- Specifically identify any curable defect in the written notice.
- Provide 21 days to cure any identified defects. The 21-day clock starts on the date the written notice is mailed to the borrower.
- Accept the borrower’s revised forbearance request if submitted before the 21-day period.
- Respond to the borrower’s revised request within five business days of receiving it.
If you deny a forbearance request, you must include the written notice with a statement explaining whether forbearance was or was not subsequently provided in the declaration required by HBOR.
Regulation X (RESPA)
The Consumer Financial Protection Bureau issued the 2021 Mortgage Servicing COVID-19 Rule (2021 Rule) amending certain provisions of Regulation X regarding additional assistance for borrowers experiencing COVID-19-related hardship. The 2021 Rule is effective August 31, 2021.
- Procedural Safeguards. The 2021 Mortgage Servicing COVID-19 Rule establishes temporary special COVID-19 procedural safeguards that must be met for certain mortgages before the servicer can make the first notice or filing required by applicable law for any judicial or nonjudicial foreclosure process because of a delinquency.
- This requirement generally is applicable only if:
- The borrower’s mortgage loan obligation became more than 120 days delinquent on or after March 1, 2020; and
- The statute of limitations applicable to the foreclosure action being taken in the state or municipality where the property securing the mortgage loan is located expires on or after Jan. 1, 2022.
- A procedural safeguard has been met, and the servicer may proceed with foreclosure, if:
- The borrower submitted a completed loss mitigation application and § 1024.41(f)(2) permits the servicer to make the first notice or filing;
- The property securing the mortgage loan is abandoned under state or municipal law; or
- The servicer has conducted specified outreach and the borrower is unresponsive.
- This provision expires on Jan, 1, 2022, meaning that the procedural safeguards are not applicable if a servicer makes the first notice or filing required by applicable law for any judicial or non-judicial foreclosure process on or after Jan. 1, 2022.
- A servicer must maintain records that document actions taken with respect to a borrower’s mortgage loan account until one year after the date a mortgage loan is discharged, or servicing of a mortgage loan is transferred by the servicer to a transferee servicer.
- This requirement generally is applicable only if:
Streamlined Loan Modification. The 2021 rule permits servicers to offer certain streamlined loan modification options made available to borrowers with COVID-19-related hardships based on the evaluation of an incomplete loss mitigation application. Eligible loan modifications must satisfy certain criteria that aim to establish sufficient safeguards to help ensure that a borrower is not harmed if the borrower chooses to accept an offer of an eligible loan modification based on the evaluation of an incomplete application.
Servicers may offer loan modification options based on an incomplete application under the 2021 Rule if the following conditions are met:
- Forty-year limit. The loan modification may not cause the borrower’s monthly required principal and interest payment to increase and may not extend the term of the loan by more than 480 months from the date the loan modification is effective.
- No interest accrual. If the loan modification permits the borrower to delay paying certain amounts until the mortgage loan is refinanced, the mortgaged property is sold, the loan modification matures, or, for a mortgage loan insured by the Federal Housing Administration (FHA), the mortgage insurance terminates, those amounts must not accrue interest.
- COVID-19-related hardship. The loan modification must be made available to borrowers experiencing a COVID-19-related hardship.
- Modification ends preexisting delinquency. The borrower’s acceptance of an offer of the loan modification must end any preexisting delinquency on the mortgage loan or the loan modification must be designed to end any preexisting delinquency on the mortgage loan upon the borrower satisfying the servicer’s requirements for completing a trial loan modification plan and accepting a permanent loan modification.
- No fees in connection with modification and waiver of existing fees. The servicer may not charge any fee in connection with the loan modification and must waive all existing late charges, penalties, stop payment fees, or similar charges that were incurred on or after March 1, 2020, promptly upon the borrower’s acceptance of the loan modification.
- COVID-19-related Reasonable Diligence. If the borrower fails to perform under a trial loan-modification plan offered pursuant to the proposed new exception or requests further assistance, the 2021 rule requires servicers to immediately resume reasonable diligence with regard to any loss mitigation application the borrower submitted prior to the servicer’s offer of the trial loan-modification plan and to provide the borrower with the acknowledgement notice required by §1024.41(b)(2) with regard to the most recent loss mitigation application the borrower submitted prior to the offer that the servicer made under the new exception, unless the servicer has already provided that notice to the borrower.
Live Contact Requirement. Generally, Regulation X requires servicers to make good faith efforts to establish live contact—either by phone or in person – with the borrower no later than the 36th day of a borrower’s delinquency. The servicer must promptly inform a borrower of its determination about whether the availability of loss mitigation options is appropriate under the circumstances, and after live contact is established, the availability of any loss mitigation options orally, in writing, or through electronic communication.
The 2021 rule also includes live contact requirements for borrowers:
- For borrowers not in forbearance. In general, the 2021 rule requires servicers to discuss specific additional COVID-19-related information during live contact with borrowers established under existing § 1024.39(a) in two circumstances: (1) if the borrower is not in a forbearance program and (2) if the borrower is near the end of a forbearance program made available to borrowers experiencing a COVID-19 related hardship. Specifically, if the borrower is not in a forbearance program at the time the servicer establishes live contact with the borrower pursuant to § 1024.39(a) and the owner or assignee of the borrower’s mortgage loan makes a forbearance program available to borrowers experiencing a COVID-19-related hardship, the servicer must inform the borrower that forbearance programs are available for borrowers experiencing such a hardship. Unless the borrower states they are not interested, the servicer must also list and briefly describe to the borrower those forbearance programs made available at that time and the actions the borrower must take to be evaluated. The servicer must also identify at least one way that the borrower can find contact information for homeownership counseling services, such as referencing the borrower’s periodic statement.
- For borrowers in a forbearance program. If the borrower is in a forbearance program made available to borrowers experiencing a COVID-19-related hardship, then during the live contact made pursuant to § 1024.39(a) that occurs at least 10 days and no more than 45 days before the scheduled end of the forbearance program, the servicer must provide certain information to the borrower. The servicer must inform the borrower of the date the borrower’s current forbearance program is scheduled to end. In addition, the servicer must provide a list and brief description of each of the types of forbearance extension, repayment options, and other loss mitigation options made available by the owner or assignee of the borrower’s mortgage loan at that time, and the actions the borrower must take to be evaluated for such loss mitigation options. Finally, the servicer must identify at least one way that the borrower can find contact information for homeownership counseling services, such as referencing the borrower’s periodic statement. This provision is temporary and will end on October 1, 2022.
- Beginning of contact period. The 2021 rule specifies that a servicer must contact the borrower no later than 30 days before the end of the forbearance period if the borrower remains delinquent to determine if the borrower wishes to complete the loss mitigation application and proceed with a full loss mitigation evaluation. If the borrower requests further assistance, the servicer must exercise reasonable diligence to complete the application before the end of the forbearance program.
- “COVID-19-related hardship” defined. The 2021 rule defines “COVID-19-related hardship” to mean a financial hardship due, directly or indirectly, to the national emergency for the COVID-19 pandemic declared in Proclamation 9994 on March 13, 2020 (beginning on March 1, 2020) and continued on February 24, 2021, in accordance with section 202(d) of the National Emergencies Act (50 U.S.C. § 1622(d)).
Make Sure You’re in Compliance
Ensure policies and procedures address all requirements set forth in the various federal and California laws.
Licensees should pay close attention to the following:
Competent and Reliable Information
Ensure Notice of Default (NOD), Notice of Trustee Sale (NTS), assignments, and substitutions of trustee are accurate and complete and supported by competent and reliable evidence. Make sure that the aforementioned documents are only initiated after substantiating the borrower’s default and the servicer’s right to foreclose.
Single Point of Contact (SPOC)
Prompt establishment of a SPOC – SPOC can be a person or team. Ensure to provide SPOC contact information upon request from a borrower who request a foreclosure prevention alternative.
Restrictions on Dual Tracking
NOD, NTS, or actual sale cannot be conducted while a loan modification is under review.
Prohibition on Robosigning
The practice of signing documents without the personal knowledge of the accuracy of their contents is prohibited.
New servicer must honor any modification or foreclosure prevention alternative approved by the prior servicer.
Employ a sufficient number of staff to adequately and timely respond to licensee requests related to forbearance and foreclosure.
Loss Mitigation Resources
Does your homepage include prominent links that provide borrowers with:
- Loss mitigation descriptions and instructions?
- Required documents?
- Servicer contact information?
Have you or your sub-servicer established policies and procedures for:
- Homeowner Bill of Rights (HBOR)?
- AB 3088 and SB91?
- COVID-19 provisions of Regulation X (12 CFR Part 10-24, as amended effective Aug 31, 2021)?
Non-Federal Loan Alternatives
Are there workout plans established for non-federally backed loans?