California Senate Bill 1150 Steps Up to Protect Residential Mortgage Successors’ Rights
A recent California Senate Bill is making it a whole lot easier for successors to inherit property from their heirs – even when the property is mortgaged and in default. SB 1150 allows heirs to take multiple steps to retain their inheritance and goes a step further than federal protection measures.
Currently, the Consumer Financial Protection Bureau (CFPB) has an interpretative rule in place to address some of the problems successors face when they inherent a mortgaged property rather than one that is owned outright. This rule expanded the rights of successors in two important ways, allowing them to be added to the mortgage without triggering the CFPB’s Ability-to-Repay rule and expanding their foreclosure protections. This rule makes it possible for successors to apply for loan modifications to the new mortgage and affords them additional protections from default.
SB 1150 Goes Still Further
The California Senate Bill extends protection to successors who inherit property that is not just mortgaged but already in arrears. The bill would prohibit a mortgage servicer from recording a notice of default until the successor of interest could produce “reasonable documentation” of the original borrower’s death. The bill would require the mortgage servicer to provide the successor information about the loan within 10 days and allow them either to assume the loan or to apply for foreclosure prevention alternatives. Moreover, if a deed of sale for the property in question has already been recorded, successors would have the right under SB 1150 to collect damages from mortgage servicers in violation of the bill’s provisions.
Implications of SB 1150
Although the bill is conceptually sound, some of the language is potentially problematic. Robert Finlay, writing for Housing Wire, observes that the “biggest concern” with the provision lies in the language “unless assumption [of the mortgage loan by the successor] is prohibited by the terms of the loan.” He foresees the development of paradoxical situations in which SB 1150 would allow successors to make payments but the lender is not required to let them assume the loan. The statute is also unclear about what happens when the mortgage servicers has exercised the provisions of existing foreclosure law in good faith. Must they go through the entire process again to for the successor of interest? Such potential complications need to be addressed.
In the meanwhile, successors would do well to consult a foreclosure expert within the allowable time period to understand the terms of the original mortgages and the steps they need to take in order to maintain control of their inheritance.
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