A new California law, SB 1150, requires mortgage lenders to communicate with surviving spouses and other heirs if the borrower passes away. California’s Homeowner’s Bill of Rights, enacted in 2013, expanded the rights of homeowners during the foreclosure process, but failed to provide relief for surviving family members if the decease’s mortgage lender initiates foreclosure proceedings. SB 1150 closes this loophole in California's Homeowner's Bill of Rights and cuts through red tape for grieving family members.
The Homeowner's Bill of Rights
During the housing crisis, there were approximately 4 million foreclosures nationwide. A foreclosure is the process where mortgage lenders claim possession of property after the borrower ceases to make payments. California’s Homeowner's Bill of Rights was enacted in response to this crisis, creating additional fairness and transparency during the foreclosure process.
The Homeowner's Bill of Rights provides several protections for homeowners during foreclosure proceedings. One of the most important protections is the guarantee of a single point of contact during the foreclosure process. One person or a team of people are assigned to the homeowner’s case. The person or team handles the paperwork and works to obtain loan modification decisions. The Homeowner’s Bill of Rights also restricts dual track foreclosures. In other words, while the homeowner is trying to secure a loan modification the foreclosure process is put on hold and the mortgage lender cannot take further action to foreclose.
The Homeowner’s Bill of Rights also helps redress mortgage fraud crimes. The law expanded the attorney general’s power to prosecute and investigate crimes related to mortgage fraud. Moreover, the law extends the statute of limitations from one to three years, giving prosecutors more time to address these complex crimes.
While the Homeowner Bill of Rights provided much relief to loved ones, it did not extend these rights to surviving family members, and thus, the California legislature enacted SB 1150
SB 1150 aims to provide further protection for surviving family members facing foreclosure and closes a loophole in the Homeowner Bill of Rights. Normally, new widowed spouses and/or other heirs take on home ownership responsibilities when the mortgage holder passes away. This new law primarily helps seniors, particularly women, as women tend to outlive men by 7 years. Before the law was enacted, surviving family members, not listed on the mortgage, would have difficulties contacting mortgage lenders. There were many instances where mortgage lenders would refuse to speak with the family member without a Power of Attorney from the deceased relative or would request to speak to the deceased directly.
With the enactment of SB 1150, mortgage servicers are required to communicate basic information about the mortgage to surviving family members and also explain options for mortgage term modification. Surviving family members can also enjoy other protections laid out in the Homeowner’s Bill of Rights, such as the single point of contact guarantee. The family members are also able to assume the mortgage and modify it. Without this new law, it would often take several years for a surviving family member complete the loan modification process, during which the mortgage lender was advancing the foreclosure process. This red tape led to many preventable foreclosures for grieving family members.
Is SB 1150 a Good Idea?
There is no doubt that SB 1150 significantly helps surviving family members, but many opponents of the new law argue that it will have a negative impact on the economy. These critics contend that SB 1150 creates more risk for lenders, since it allows parties that are not on the original mortgage loan to interfere with foreclosures. This increased risk could affect the availability of credit and increase the cost of mortgage loans. Moreover, many lenders might leave the mortgage lending market, leading to job losses.
Despite these criticisms, the potential problems created by SB 1150 are overshadowed by the benefits. Homeownership is one of the primary methods families build wealth in the United States. The law reduces only unnecessary foreclosures by allowing grieving families that are able to assume the mortgage a chance the prevent foreclosure.
Authored by Robin Sheehan, LegalMatch Legal Writer