CFPB Expands Rights of Heirs – So Does California’s SB 1150
Tuesday, August 16, 2016
Consumer Financial Protection Bureau (CFPB) has issued an interpretive rule that will make it possible for heirs to take over mortgages when the borrower dies. The rule also addresses requiring servicers to provide certain borrowers with foreclosure protections more than once over the life of the loan, clarifying borrower protections when the servicing of a loan is transferred, and providing important loan information to borrowers in bankruptcy.
The rule clarifies that when a borrower dies, the heir can be added to the mortgage without triggering the CFPB’s Ability-to-Repay rule. That rule requires lenders to make a “reasonable, good-faith determination” that prospective borrowers have the ability to repay the loan. It does not require a lender to first determine the heir’s ability to repay before formally recognizing them as the borrower. What this means is that heirs who acquire title to a property can step into the shoes of the deceased borrower and be considered for a loan modification to keep the home.
However, the new rules may not go as far as California Senate Bill 1150 (Leno), that extends similar rights to survivors. Under SB 1150, if a trustee's deed upon sale has not been recorded, a successor in interest may bring an action for injunctive relief. Any injunction remains in place and any trustee's sale is enjoined until the court determines that the mortgage servicer has corrected and remedied the violation. On the other hand, if a trustee's deed upon sale has been recorded, a mortgage servicer is liable to a successor in interest for actual economic damages resulting from a material violation. If the material violation is found to be intentional or reckless, or resulted from willful misconduct the court may award the successor in interest the greater of treble actual damages of statutory damages of $50,000.
The remedies under SB 1150 go beyond the federal rules. California Atty. Gen. Kamala D. Harris, who sponsored the California Homeowner Bill of Rights, has been quoted in the Los Angeles Times as saying that the passage of SB 1150 would “provide accountability and an enforcement mechanism that ensures California homeowners reap the benefits from these [new federal] rules.”