John The Data Man

What is the California Foreclosure Prevention Act (CFPA)?

The CFPA was signed into law by Governor Arnold Schwarzenegger on February 20, 2009. The CFPA was created to address the problem of increasing foreclosures in California during the economic downturn.

 

What does the CFPA do?

It extends the foreclosure process by 90 days (except when a lender or mortgage loan servicer obtains an exemption with a state department. If the lender or mortgage servicer can demonstrate that it has a comprehensive loan modification program designed to keep borrowers in their homes, the lender or mortgage loan servicer is exempt from the 90 day delay of foreclosure.) CFPA encourages more loan modifications that help keep borrowers in their homes.

 

What borrowers are eligible for the additional 90 days in the foreclosure process?

This Act is directed at mortgage loan servicers, not borrowers. In general, a borrower is eligible for the additional time if:

  • The relevant lender/servicer has not obtained an order of exemption from the state.
  • The borrower obtained the loan between January 1, 2003, and January 1, 2008.
  • The loan in default is the first mortgage/ deed of trust on the property.
  • The property is the principal residence for the borrower.
  • The borrower has not surrendered the property to the mortgage loan servicer.
  • The borrower has not contracted with a business advising those who decide to leave their homes regarding how to extend the foreclosure process.
  • The borrower has not filed for bankruptcy.

 

If the borrower and loan qualify, what type of modification will the borrower receive?

The CFPA provides a general framework for types of modifications. In general, a mortgage loan servicer must attempt to reduce monthly payments to make modified payments affordable for the borrower. Typically, affordability is met if the lender/servicer’s program targets a housing-related debt-to-income ratio of 38%. While a sustainable loan modification may be different for different borrowers, the potential ways a loan may be modified include any of the following:

  • Interest rate reduction, as needed, for a fixed term of 5 years minimum
  • Extension of amortization period for the term of the loan, for up to 40 years from the original date
  • Deferral of a portion of the principal amount of the unpaid principal balance until maturity of the loan
  • Reduction of principal.

 

Must a mortgage loan servicer with a comprehensive loan modification program modify every loan?

Not every home can be saved from foreclosure, and not every loan can be modified. However, the CFPA is can help prevent unnecessary foreclosures for those borrowers whose loans can be modified.

 

What if a loan servicer delays acting on a modification request and causes a home to go to sale?

The CFPA stipulates that a servicer may not harm a borrower by failing to act on a request for a loan modification.

 

If a servicer does not receive an order of exemption until a time after the borrower was issued a notice of default, is the borrower entitled to an additional 90 days in the foreclosure process?

No. The Civil Code provides that the servicer is exempt from the requirement that it provide an additional 90 days in the foreclosure process upon the receipt of a temporary (or final) order, and therefore a borrower would no longer receive the additional 90 days.

 

Where are the legal provisions of the CFPA found?

The Governor signed ABX2 7 and SBX2 7 on February 20, 2009, which established the CFPA in the Civil Code. On June 1, 2009, Subchapter 14 was added to Chapter 3, Title 10 of the California Code of Regulations (CCR). These emergency regulations clarify the application of Sections 2923.52 and 2923.53 of the Civil Code. The law and rules are available at www.legalinfo.ca.gov and www.oal.ca.gov

 

What is the operative date of the CFPA?

Beginning June 15, 2009, all mortgage loan servicers who have not applied for an exemption are required to wait an additional 90 day period before filing a Notice of Sale during the foreclosure on a residential mortgage loan meeting the criteria established in Civil Code Section 2923.52(a). However, a mortgage loan servicer may implement a comprehensive loan modification program and obtain an exemption at any time.

 

Who is subject to the CFPA?

All entities servicing residential mortgage loans on properties located in California are subject to the CFPA. This includes companies licensed by the California Department of Business Oversight, the Department of Real Estate and any other entity that services loans on properties located in California, such as national banks.

 

How can a borrower find out if his mortgage loan servicer has obtained an exemption under CFPA?

A list of mortgage loan servicers that have obtained an exemption under the CFPA can be found on the California Department of Business Oversight website at http://www.dbo.ca.gov/

 

How can someone assert violations or lack of compliance with CFPA?

The public may contact the California Department of Business Oversight website at http://www.dbo.ca.gov/ to report complaints about compliance with the CFPA, and the department can assist the public in determining which state department is responsible for a particular lender or mortgage loan servicer.

Additional information may be received by contacting the California Department of Business Oversight.

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