The following is an excerpt from the State Bar of California
Bankruptcy e-Bulletin
Governor Schwarzenegger signed legislation on July 8, 2008, effective
immediately, regarding all California residential mortgage foreclosures.
Civil Code sections 2923.5, 2923.6, 2924.8 and 2929.3 and Code of
Civil Procedure section 1161b are added to the California Codes to
address the influx of mortgage foreclosures in California.
Requirements to Contact Borrower re Workout Options Prior to
Foreclosure and to Provide Declaration re Same with Notice of Default
and/or Notice of Sale
Civil Code section 2923.5 applies to loans initiated from January 1, 2003
to December 31, 2007 secured by residential real property for owneroccupied
residences. Owner-occupied means it is the borrower’s principal residence.
The section provides that a mortgagee, beneficiary or authorized agent,
which can be the prospective foreclosure trustee (collectively hereafter
“beneficiary”), may not file a Notice of Default under section 2924 until 30
days after contacting the borrower as prescribed below or a diligent effort
as described below is made to contact the borrower.
The beneficiary shall contact the borrower in person or by telephone to
assess “the borrower’s financial situation and explore options for the
borrower to avoid foreclosure.” During the initial contact, the beneficiary
must:
1. Advise the borrower that he or she has the right to
request a subsequent meeting to be scheduled by the beneficiary within
14 days; and
2. Provide the borrower with the toll free number made
available by the US Dept of Housing and Urban Development to find a
HUD certified housing counseling agency [(800) 569-4287].
The Notice of Default must now include a declaration from the
beneficiary that it has contacted the borrower or conducted due diligence
to do so unless the borrower has surrendered the property to the
beneficiary. If the Notice of Default was recorded before July 8, 2008, a
declaration must accompany the Notice of Sale when it is recorded,
stating that the borrower was contacted to assess the financial situation
and explore options to avoid the foreclosure or list the efforts made to
contact the borrower if no contact was made.
Diligent efforts to contact the borrower shall “require and mean:”
1. Sending a first class letter that includes the toll free
HUD number; and
2. Attempting to contact the borrower, after the letter has
been sent, at least three times by telephone call to the primary number
on file at different times on different days—an automated system is ok so
long as a live representative connects if the borrower answers, and the
telephone requirements are met if after trying the contact, the number is
disconnected; and
3. Two weeks after the telephone contact attempts are
satisfied, if the borrower does not respond, the beneficiary must send a
certified letter that includes a toll free number to contact a live
representative; and
4. The beneficiary has posted a “prominent” link on the
homepage of its internet website, if any, with the following information:
a. Options may be available to borrowers who cannot
afford their mortgage and the instructions on how to
explore the options;
b. A list of financial documents borrowers should collect to
discuss options with the beneficiary;
c. A toll free number to discuss the options; and
d. The HUD toll free counseling number;
Contacting the borrower or diligent efforts to do so are not required if:
1. The borrower surrenders the property by turning over
the keys or by sending a letter to the beneficiary; or
2. The borrower has contracted with a person or
organization whose primary business is advising how to extend the
foreclosure process and how to avoid contractual obligations; or
3. The borrower has filed bankruptcy.
These materials were written by Donna T. Parkinson,
Chair of the Insolvency Law Committee.
