Section 2923.5 of the California Civil Code went into effect on September 6, 2008. This statute, which applies only to owner-occupied, residential real property, was enacted to help distressed California homeowners. Section 2923.5 requires a lender seeking to foreclose to contact the borrower "in order to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure." The statute applies to all loans made from January 1, 2003 through December 31, 2007.
Section 2923.5 is complicated and sets up a number of requirements that must be satisfied by the foreclosing party or its authorized agent. The contact requirements of section 2923.5 are very specific. The foreclosing party must contact the borrower, in person or by telephone, to assess the borrower's financial situation and explore options to avoid foreclosure. If contact is not made by phone or in person with the borrower, the foreclosing party must send a certified letter to the borrower with a return receipt requested. If the foreclosing party is unable to contact the borrower, it must fulfill certain due-diligence requirements outlined in section 2923.5. In addition, the statute imposes a 30‑day waiting period after the foreclosing party fulfills the contact or due-diligence requirements.
After the foreclosing party has met the requirements of section 2923.5, in order to ensure compliance, the foreclosing party must submit a declaration along with the recording of any notice of default or its notice of sale, if the foreclosure proceedings were initiated prior to September 6, 2008.
The foreclosing party does not have to meet the statutory requirements in certain limited situations: (1) if the borrower surrendered the property; (2) the borrower contracted with an organization, person or entity whose primary business is to advise people who have decided to leave their home and seek to extend the foreclosure process and avoid their contractual obligations; or (3) the borrower filed for bankruptcy and the proceeding has "not been finalized."
A foreclosing party must be well versed in the detailed requirements of section 2923.5 and follow them to the letter to avoid further delays in the foreclosure process. A distressed homeowner should also study the new statute to gain the benefits of its protection. In addition, a distressed homeowner should consult with a CPA about the tax consequences of a foreclosure or loan modification.
