By: David M. Newman
The Homeowners Bill of Rights (“HBOR”), Civil Code § 2923.5 et seq, was enacted in 2013 to codify various legal protections for borrowers and homeowners in the face of increasing residential foreclosures in California. In the ensuing years, California courts have narrowed and refined certain issues pertinent to HBOR and the Legislature has revised the language of key HBOR provisions with the benefit of experience and hindsight. In January 2017, AFRCT attorney David Newman authored the cover article and lead story in Los Angeles Lawyer magazine discussing HBOR and suggesting some possible revisions. Some of those suggestions were enacted by the Legislature and courts have addressed some of the key issues identified in his article. This note briefly discusses some of those developments.
Civil Code Section 2923.6 And “Dual-Tracking”
One of the key aspects of HBOR was the prohibition on “dual-tracking.” That is the term for the practice by which mortgage lenders/servicers proceed with the foreclosure process while concurrently considering foreclosure-avoidance alternatives requested by borrowers. Under HBOR, dual-tracking was effectively prohibited: once a foreclosure-avoidance alternative (such as a loan modification application) was requested or submitted by a borrower, the foreclosure process had to be halted until it was reviewed and a decision was rendered by the lender/servicer. Notably absent from HBOR was any specific deadline by which borrowers must submit loan modification applications prior to foreclosure sales in order to compel a review and halt the foreclosure process. The absence of any deadline meant that borrowers could theoretically submit applications just minutes before a scheduled foreclosure sale in order to invoke the dual-tracking protections of HBOR.
One suggested revision noted in the 2017 article was to avoid this last minute problem. A suggestion was made to “impose a deadline by which applications must be submitted in order to halt the foreclosure process…. The HBOR could be revised to include a provision that applications must be submitted no later than five business days before a scheduled sale in order to invoke the dual-tracking prohibition.” This recommendation was made with the goal of preventing eleventh-hour applications that had no real merit from holding up legitimate foreclosure sales.
Understanding the depth of this problem, the Legislature took this recommendation to heart when it revised Civil Code § 2923.6(c) effective January 1, 2019. The newly-revised statute included this five-day limitation for loan modification applications. The pertinent language in the current version of Civil Code § 2923.6(c) now reads:
If a borrower submits a complete application for a first lien loan modification offered by, or through, the borrower’s mortgage servicer at least five business days before a scheduled foreclosure sale, a mortgage servicer, mortgagee, trustee, beneficiary, or authorized agent shall not record a notice of default or notice of sale, or conduct a trustee’s sale, while the complete first lien loan modification application is pending.
Although this revision to HBOR will not deter all frivolous loan modification applications, at the very least it will hopefully prevent the chaos that ensued under the old HBOR regime when foreclosure sales would have to be halted due to last-minute – even last-second – loan modification applications.
Another problem identified in the Article was the lack of a definition of what it means for borrowers to submit a “complete application” in order to invoke the dual-tracking prohibition under Civil Code § 2923.6. Even Civil Code § 2923.6(h), which is intended as a pseudo-definition of the term, has been of little help to courts. It reads: “[A]n application shall be deemed ‘complete’ when a borrower has supplied the mortgage servicer with all documents required by the mortgage servicer.” Despite the lack of a specific definition in the statute, California courts have increasingly heightened and tightened the requirement for what constitutes a “complete application” in the HBOR context. Over the last few years, courts have held that it is insufficient for borrowers to merely state that an application is complete. Instead, in order to show “completeness,” courts are requiring that borrowers demonstrate that the loan servicer agreed that the application was complete. Thus, in the HBOR context, borrowers do not get to determine when an application is “complete” and therefore unilaterally impose the dual-tracking prohibition simply by claiming that they have submitted a ‘complete’ application. An application is complete only when the mortgage lender or servicer confirms that it has all required documents and information to make a decision. Absent allegations in a lawsuit of that type of “complete application,” courts are not included to find that HBOR applies.
HBOR Violations Must Be “Material”
Another are of pushback from courts concerns lawsuits based on hyper-technical yet “non-material” violations of HBOR. When it was enacted in 2013, HBOR imposed an entirely new regulatory regime on the non-judicial foreclosure process in California. That new regulatory regime had very specific requirements concerning the timing of events and the language used in various notices to borrowers. Where mortgage lenders and servicers have violated the strict requirements of HBOR, many borrowers have seen a basis to sue. But courts, faced with an increasing number of HBOR lawsuits based on technicalities, have increasingly focused on a “materiality” requirement. If the alleged HBOR violation(s) occurred but was not “material,” courts are willing to dismiss such a lawsuit. As a recently-published Eastern District opinion noted: “A material violation is one where ‘the alleged violation affected a plaintiff’s loan obligations or the modification process.’” Other courts have followed that reasoning and held that alleged HBOR violations are not actionable if they did not cause monetary damages. Thus, in recent years, alleged violations of HBOR must cause economic damages to the borrower or cause the mortgage lender/servicer to deny a request for a loan modification in order to be actionable. Absent a “material” violation of HBOR, these lawsuits are increasingly being dismissed.
Most of the original HBOR provisions were reenacted in 2019.As HBOR continues to govern the non-judicial foreclosure process in California, the Legislature and the courts will hopefully maintain their work to streamline the laws for the benefit of all parties.
Click here to read David N. Newman’s original feature article in Los Angeles Lawyer in January 2017.
 Stokes v. CitiMortgage, Inc., 2014 U.S. Dist. LEXIS 125655, at *21 (C.D. Cal. Sept. 3, 2014).
 Massett v. Bank of Am., N.A., 2013 U.S. Dist. LEXIS 129651, at *2 (C.D. Cal. Sept. 10, 2013) (plaintiffs submitted a “complete” loan modification application where they attached to the complaint an email from defendant confirming receipt of “all of the financial documents required in order to have a speedy review for modification”); Salazar v. U.S. Bank N.A., 2015 U.S. Dist. LEXIS 49172, at *13 (C.D. Cal. Apr. 6, 2015) (borrower must show, with detail, that there was a (1) “complete” application that (2) showed a “material change in financial circumstances” and (3) was sufficiently “documented”).
 Saridakis v. J.P. Morgan Chase Bank, 2015 U.S. Dist. LEXIS 16751, *5 (C.D. Cal. Feb. 11, 2015) (in granting the lender’s motion to dismiss, the court rejected the allegation that “‘Plaintiff submitted a completed, legible and satisfactory loan modification application’ to Chase”, explaining that “[a]lone, that conclusory allegation is insufficient to plead a claim”).
 Shupe v. Nationstar Mortg. LLC, 231 F. Supp. 3d 597, 603 (E.D. Cal. 2017); Cardenas v. Caliber Home Loans, Inc., 281 F. Supp. 3d 862, 869-70 (N.D. Cal. 2017); Cornejo v. Ocwen Loan Servicing, LLC, 151 F. Supp. 3d 1102, 1113 (E.D. Cal. 2015); see also Rockridge Trust v. Wells Fargo, N.A., 2014 U.S. LEXIS 22234, *78-79 (N.D. Cal. Feb. 19, 2014) (“a plaintiff must allege that a violation of the provision was the cause of actual economic damages.”)
 Heflebower v. JPMorgan Chase Bank, NA, 2014 U.S. Dist. LEXIS 29777 (E.D. Cal. Mar. 3, 2014); Colbert v. Sage Point Lender Servs., LLC, 2014 U.S. Dist. LEXIS 178468, at *15 (E.D. Cal. Dec. 29, 2014) (granting motion to dismiss; “The Court cannot assume Plaintiff suffered actual damages from the violations of the Homeowners Bill of Rights”).