Shared from Marco
The CEO of one of my loan servicing companies shared this. Many of my friends / FB contacts know I invest in real estate and focus heavily on buying existing loans secured by real estate. Although I live in California, I don’t invest here. For those who wonder why, what I’m sharing below is a perfect example. There are so many landlords and private lenders who depend on rent and loan payments for their livelihood. I speak with “Mom and Pop” note holders every day who live off their note payments. Why should they be asked to take the financial fall any more than tenants or borrowers should? As for the servicers and larger lenders who service and/or own this paper, they have employees and investors for whom this trickles down to. If something like this were to pass I’m sure there will be lawsuits and rightfully so. It’s simply not fair. Lease agreements and promissory notes are private contracts. Why should the legislature have a say in an agreement like that?
The California Legislature is at it again – this time seeking to essentially prevent all foreclosure on residential properties, regardless of how many units, for up to 18 months. While Assembly Bill 2501 has not yet passed, it is close to getting over its first hurdle – the Assembly Banking Committee, which it is expected to easily pass next week. It will then be up for vote before the House and then, if approved, on to the Senate. The California Mortgage Association, California Mortgage Bankers Association, United Trustees Association and other industry groups are aggressively opposing the bill, refusing to even discuss amendments because the Bill is “that bad”.
Below is a summary of the Bill’s major points. For a more detailed review, please feel free to contact me at firstname.lastname@example.org to discuss.
• Regardless of the reason or nature of the default (i.e., maturity, fraud, waste, unauthorized transfer, etc.), Servicers are prohibited from commencing or continuing a judicial or non-judicial foreclosure, recording a Notice of Default or evicting post-foreclosure for the duration of the COVID declared emergency plus 180 days (“COVID+180”).
• The restriction applies to ALL residential properties with 1-4 units (we think), unless the property is vacant or abandoned (almost impossible to prove).
• A borrower (BR) experiencing a financial hardship during COVID+180 may request a forbearance (FB), regardless of delinquency status (i.e., even if the BR was in default well before COVID).
o The BR does not have to provide any documentation supporting the hardship.
o Request can be made orally or in writing.
o Servicer must grant the FB for a period of not less than 180 days plus, if requested, another 180 days.
o Servicer cannot mislead BR as to his or her rights.
o BR receiving a FB, must provide any tenants with rent relief for the same duration of time.
o Over 18 month potential prohibition = COVID Emergency + 180 days + 180 FB (1st FB) + 180 FB (2nd FB)
• Even if BR doesn’t request a FB, the Servicer shall automatically give the BR a 180 day FB once the BR becomes 60 days delinquent, which the BR can extend for another 180 days.
• Servicer must provide the BR with notice of the FB terms and right to extend.
• No fees, late charges, additional interest (including default interest) can be charged.
• If the BR has an impound account for taxes or insurance, Servicer must timely advance the money to make those payments.
• Upon the completion of the FB period, the Servicer must evaluate the BR’s ability to resume normal monthly payments.
o If the BR can resume normal monthly payments, the Servicer “shall”:
Modify the loan to extend the term, such that the missed payments are due at the end of the loan at the same amounts and on the same schedule as originally required;
If the BR elects, modify the loan to capitalize the missed payments; or
If the Servicer claims that the Investor Guidelines prevent either option, notify the Commissioner of Business Oversight of this fact and, ironically, provide documentation to prove it.
o If the BR cannot resume normal monthly payments, that Servicer shall:
Evaluate the BR for all loan mod options (LM), without regard to whether the BR previously requested, was offered or was given a LM and without requiring that the BR bring the loan current first.
If the BR does not qualify for a LM, the Servicer must consider all nonhome retention alternatives before even “considering” foreclosure options.
• All notices must be provided in the 5 language already required under CC 1632 and Servicer must communicate in the BR’s preferred language if that has been done in the past.
• Penalties for violating any of the new provisions, include, but are not limited to:
o Injunctive relief;
o Actual economic damages;
o Attorneys’ fees and costs;
o If the conduct is intentional, reckless or willful, the greater of treble (triple) actual damages or $50,000;
o Violations can be deemed an Unfair Business Practice under B&P section 17200; and
o Impact your license.
• It is the “intent” of the Legislature that the Servicer offer a BR a FB and LM if such a plan is consistent with the Servicer’s contractual or other authority.
• On Multifamily loans (5 or more units):
o Upon receipt of a request for FB due to financial hardship, the Servicer shall request documentation of the financial hardship, provide a 180 FB with the option of another 180 FB. Note – since the Servicer must provide the FB, its ability to request documentation of the hardship seems pointless.
o BR receiving a FB, must provide rent relief to tenants for the same duration.
o After the FB expires, the BR must bring the loan current the earlier of 12 months or within 10 days of receiving any business interruption insurance proceeds.
There are a lot more provisions to the proposed Bill, but this should give you a flavor. To oppose the Bill, please reach out to any industry groups that you belong to and, if you are a California resident, to your local Assembly person.
Thanks again and please let me know if you have any questions about the Bill or as it progresses through the Legislature.