On January 1, 2018, certain provisions of the HBOR expired. However, the expiration date did not apply to all of the HBOR’s provisions and many provisions have been replaced by new regulations. We’ve prepared the below summary of some of the substantial changes to the law and how they will affect HBOR litigation in the future.

1. The new HBOR removes many of the distinctions between servicers conducting more or less than 175 annual foreclosures. Going forward, servicers will be treated the same in most cases.

2. The HBOR still grants a private right of action for material violations of:

1. • Section 2923.5 Pre-Notice of Default (NOD) Notice Requirements (Previously under Section 2323.55),
   • Section 2923.7 Single Point Of Contact Requirement,
   • Section 2924.11 Prohibition of Dual Tracking (Previously under Section 2923.6):
   • Section 2924.17 Accuracy of NOD Declaration; Substantiate Right To Foreclose.

3. Under 2924.11, the new law is more broad because while the old version applied only to loan modification applications, loan servicers are now prohibited from recording a NOD or conducting a foreclosure sale upon receipt of a “complete application for a foreclosure prevention alternative.”  This will include short sales and repayment agreements.

4. The statute does not directly address what happens when a servicer receives last-minute complete loan modification applications. As long as the modification is “complete,” a servicer should probably review it even if submitted the day of the foreclosure sale. It is uncertain how courts will treat these types of last-minute applications, and this is bound to be a ripe area for litigation. It is possible, for example, that courts might find that a servicer can immediately reject the completed application based on internal underwriting guidelines for not allowing sufficient time for review.

5. There is no longer a required appeal period following a written denial. If the borrower does try to appeal though, it is not clear whether the servicer is required to consider the appeal. While the statute does not appear to require it, it is possible that courts could find a common law duty to review.

6. Section 2923.6(g), which previously allowed mortgage servicers to disregard a subsequent loan modification application if a previous application was already evaluated or “afforded a fair opportunity to be evaluated,” was repealed. This means that a servicer must technically review multiple applications regardless of whether there has been a change in circumstances. However, because there is no mandatory appeal period, presumably borrowers will not be allowed to submit applications indefinitely. As soon as an application is denied, a foreclosure sale can occur.

7. Servicers are no longer prohibited from collecting late fees while a loan modification application is under review.

8. Injunctive relief is available prior to the recording of a trustee’s deed. After a trustee’s deed is recorded, a servicer may be liable for actual economic damage and the greater of treble or actual damages for material violations that are intentional or reckless. Attorney’s fees are still available if the borrower prevails.

9. There is no longer a $7,500 penalty for mortgage servicers who have engaged in “multiple and repeated uncorrected violations” of section 2924.17.

10. The new Section 2923.5 has replaced the pre-NOD contact requirements of Section 2923.55. The loan servicer is now not required to provide a written notice regarding special rights of military service members or a statement that the borrower may request a copy of the note, deed of trust, assignment, or payment history.

11. Section 2924(a)(5) expired, meaning that servicers/trustees no longer have to provide written notice to a borrower when a sale is postponed more than 10 business days.

12. Section 2924.9 expired, meaning that servicers are no longer required to contact borrowers in writing within 5 business days of recording a notice of default to describe possible foreclosure prevention alternatives.

In sum, mortgage servicers with California foreclosures need to adjust their foreclosure process and loss mitigation policies in accordance with the revised statutes. In terms of litigation, these changes are unlikely to impact any current litigation or new lawsuits in the short term, as such cases will likely implicate the pre-January 1, 2018 statute. Moving forward, however, we may see an increase in cases because the new statute extends the dual tracking restrictions to all foreclosure prevention alternatives and does away with the safe harbor for loans that have been previously modified.

Notably, on January 3, 2018, the California Senate introduced a new bill that would largely put the HBOR back to the way it was prior to January 1, 2018. We will continue to monitor that bill and any other relevant legislation that is introduced.

By Aleksandr Beyzer, January 29, 2018