The California Foreclosure Prevention Act

The California Foreclosure Prevention Act (CFPA) is designed to increase affordable loan modifications and preclude servicers from filing notices of sale.  The goal of this 90 day extension of the foreclosure process is to keep families in their homes longer and encourage residential mortgage servicers to modify more loans.

How Does the CFPA Work?

The CFPA is a compliance mechanism - loans must comply with an approved comprehensive loan modification program.  Roughly defined, such a program should result in a 38% debt-to-income ratio for the borrower.

The CFPA’s primary beneficiaries are distressed homeowners, but the act has tremendous impact on mortgage loan servicers.  Loan servicers must respond to all requests for loan modifications with certain exemptions for borrowers who had already received notices of sale by June 15, 2009 or were otherwise ineligible (as outlined below).

The loan modification may be achieved by some combination of adjustments to interest rates of at least five years, principal reductions or deferrals until the maturity of the loan or modification to the amortization schedule of up to 40 years from the original loan date.

What are the Eligibility Requirements?

Because the CFPA focuses on mortgage loan servicers rather than borrowers, borrower eligibility is simplified.

• The lender/servicer did not received an exemption from the state (explained below);
• The borrower must have obtained the loan between January 1, 2003 and January 1, 2008;
• The loan in default is a first deed of trust or mortgage on the property;
• The borrower occupies the property as his or her principal residence;
• The borrower has not surrendered the property to the mortgage loan servicer;
• The borrower has not contracted with a business advising people who have decided to leave their homes regarding how to extend the foreclosure process, and
• The borrower has not filed for bankruptcy.

State Exemptions from CFPA

All entities who service residential mortgages loans on properties in California are subject to the CFPA.  Loan servicers who have implemented a comprehensive loan modification program and filed for an exemption with the Department of Corporations by June 15, 2009 may be exempt from granting the additional 90 days.

Conclusion

The CFPA recognizes that not every home can be saved from foreclosure.   The act does not require every mortgage that is in default to be modified.  The act seeks to provide additional time for borrowers and lenders to work out loan modifications and thereby prevent unnecessary losses of homes.

• The content of this article is provided for informational purposes only. If you need advice regarding foreclosure, click here to talk to Elizabeth Du Par or a Foreclosure Attorney near you.

*From the California Department of Corporations (http://www.corp.ca.gov/FSD/faq/CFPAConsumer.asp#1) August 24, 2009