How California’s New Homeowners’ Bill Of Rights Protects Against Wrongful Foreclosures

California lawmakers yesterday passed legislation that will give homeowners some of the most stringent legal protections in the nation against predatory, aggressive bank lending practices. The legislation passed both the Assembly and state Senate despite opposition from Republicans and the financial industry and is expected to be signed soon by Gov. Jerry Brown (D).

The “Homeowners’ Bill of Rights,” pushed by state Attorney General Kamala Harris (D), aims to extend to the state level many of the protections ensured by the mortgage fraud settlement between six big banks and the federal government and state attorneys general. Unlike the settlement, it will apply to all banks and lenders. California was among the states hardest-hit by the housing crisis and has been the location of some of mortgage lenders’ worst practices — a recent audit of San Francisco foreclosures found that nearly every one had legal issues of some sort.

Here is a breakdown of how the legislation will help California homeowners once it becomes law in January 2013:

“Dual-tracking” will be outlawed. The law bans banks from pursuing foreclosure while a borrower is seeking a loan modification, a process known as “dual-tracking” that led to countless foreclosures even as homeowners were attempting to stay in their homes. Modification departments at banks like Wells Fargo and Bank of America, for instance, often instructed homeowners to stop making payments to help enter the modification process. When borrowers followed those directions, the banks foreclosed on them anyway.


Robo-signing will be prohibited. The law also bans robo-signing, the process through which banks approved often-fraudulent foreclosure documents en masse in order to speed up the process. Under the law, lenders who file unverified documents will face fines and potential recourse from borrowers. Robo-signing, prevalent at big banks, led to fraudulent, wrongful, and mistaken foreclosures and was one of the major subjects of the federal mortgage settlement. Wells Fargo insiders said their robo-signing department was “exactly like an assembly line,” and the bank once put a junior employee it had hired from a pizza restaurant in charge of loan documentation.

Borrowers will have an easier time dealing with their banks. The new law requires the banks to assign borrowers a single point of contact when they discuss their loans. It also requires banks to explicitly approve or deny a modification, verify foreclosure documents, and provide such documentation to homeowners upon request.

Borrowers will be able to sue their banks. California homeowners will now have the right to sue banks for “significant, material” violations of the new laws, a level of recourse that has been valuable for homeowners in other states. A judge in Louisiana, for instance, awarded a homeowner $3.1 million in damages because of “reprehensible actions” from Wells Fargo, which serviced the loan.