As many of you are aware, Sacramento Legislature is currently entertaining some potentially devastating bills to the loan origination and servicing industries. Thanks to the efforts of the California Mortgage Association (CMA), and many other Real Estate Industry Trade Associations, who spoke up, AB 2501 did NOT pass the Assembly on June 15th, 2020.
This treacherous Foreclosure Prevention Bill will be reconsidered on Thurs., June 18th in the Sacramento State Assembly. The Assembly has one more day, on Thursday, to pass the bill. If you live in California and like the rest of us, do NOT want this bill to pass, please let your Assembly members know – either by calling, emailing or using the link below to contact your local Assemblyperson.. The vote is going to be VERY close on Thursday.
AB 2501 is an exceedingly expansive measure affecting mortgages, car loans, and payday lending. CMA is participating in avery broad coalition of groups opposed to the mortgage portion of the bill. AB 2501 will grant an automatic right to a mortgage forbearance based only upon a self-attestation from the borrower that the ability to pay has been affected by the coronavirus. When the bill is evaluated carefully, it is apparent that borrowers could avoid paying on their mortgage obligations for more than two years
In general, this Bill violates Contract Law, rewrites Loan Agreements by Fiat and would severely cripple the Private Money Lending and Trust Deed Investment industry in California. If you are not familiar with AB 2501, please see the short summary below:
- Regardless of the reason or nature of the default (i.e., pre-COVID, maturity, fraud, waste, unauthorized transfer, or other non-monetary default), Servicers are prohibited from commencing or continuing a judicial or non-judicial foreclosure, recording a Notice of Default or evicting post-foreclosure during the “covered” period, which is 12 months from the enactment of the Bill
- The restriction applies to ALL residential properties with 1-4 units unless the property is vacant or abandoned (almost impossible to prove). There is currently no exception for business purpose, construction, reverse, seller carry-back or any other types of loans.
- A borrower (BR) experiencing a financial hardship during the “covered” period (12 months) may request a forbearance (FB), regardless of delinquency status (i.e., even if the BR was in default well before COVID).
- The BR must now “attest”, either orally or in writing, to his or her income being impacted by COVID, but still does not have to provide any documentation supporting the hardship
- Servicer must grant the FB for a period of not less than 180 days plus, another 180 days.
- Servicer cannot mislead BR as to his or her rights.
- BR receiving a FB, must provide any tenants with rent relief for the same duration of time.
- 2 years potential prohibition = 12 months + 180 FB (1st FB) + 180 FB (2nd FB)
- 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.
- Upon the completion of the FB period, the Servicer must evaluate the BR’s ability to resume normal monthly payments and, if not, a possible loan mod or other foreclosure prevention alternatives.
- Severe monetary, licensing, and injunctive Penalties for violating any of the new provisions,
There are a lot more provisions to the proposed Bill, but this summary should give you a flavor. Please contact your local CA Assembly representative today and urge them to Vote NO on AB 2501.