agenda: may 15,2012 - santa cruz county,...

COUNTY OF SANTA CRUZ

OFFICE OF THE COUNTY COUNSEL 0221

701 OCEAN STREET, SUITE 505, SANTA CRUZ, CA95060-4068 (831) 454-2040 FAX: (831) 454-2115

DANA McRAE, COUNTY COUNSELRAHN GARCIA, CHIEF DEPUlY

AssistantsMarie Costa Tamyra Rice jason M. Heath Betsy L. Allen jessica C. Espinozajane M. Scott Shannon M. Sullivan Christopher R. Cheleden Sharon Carey-Stronck

Special CounselDwight L. Herr

May 3, 2012

Agenda: May 15,2012

Board of SupervisorsCounty of Santa Cruz701 Ocean StreetSanta Cruz, CA 95060

Report Regarding California Foreclosure Law and the Role of theCounty

Dear Members of the Board:

This letter responds to your Board's request for information on Californiaforeclosure law and what possible role the County may play in easing the impactof the housing meltdown on County residents. The letter first provides a basicoverview of California foreclosure law with brief forays into some of the practicesdeveloped by financial engineers that have greatly complicated mortgage lendingand, in some instances, contributed to the crisis. The last part of the letterexamines the extent that federal and State law preempt this area, severely limitingthe regulatory role your Board can play.

California Foreclosure Law - Judicial and Statutory

There are two types of foreclosures in California: "judicial" foreclosure inwhich a lender fies a lawsuit seeking a court order to foreclose on a property; andnon-judicial or statutory foreclosure in which a property is sold in a trustee's saledue to a power of sale clause in the deed of trust. In states like California thatallow both types of foreclosure, it is usually the document used to secure the loanthat determines whether a lender wil seek judicial or statutory foreclosure.

Typically, a deed of trust contains a power to sell clause which allows forstatutory foreclosure. A mortgage usually requires ajudicial foreclosure.

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0-' ') ')_ L" L Report Regarding California Foreclosure Law and the Role of the County

Judicial Foreclosure

A judicial foreclosure begins when the lender fies a court action (lispendens) against the homeowner who has defaulted on the loan. In such an action,the homeowner is allowed to assert any and all defenses he or she may haveagainst the lender including whether the foreclosure paperwork has beencompleted correctly. If the court rules against the homeowner, the court wil orderthe property sold at a public sale.

There are two main reasons a lender would seek a judicial foreclosure inCalifornia: the loan is secured by a mortgage that does not contain a power of saleclause; or the lender wants to try to recover a deficiency judgment against thedefaulted homeowner. A deficiency judgment is the difference between the loanbalance and the actual sale price of the home (or its fair market value). In otherwords, a lender could win a court order to sell the home and stil obtain ajudgment against the defaulted homeowner for the amount the lender lost on thetransaction. Judicial foreclosures are not common in California.

Statutory Foreclosure

California's statutory foreclosure scheme is set forth in California CivilCode sections 2923.5 through 29241, which provides a "comprehensive frameworkfor the regulations of a nonjudicial foreclosure sale pursuant to a power of salecontained in the deed of trust". Moeller v. Lien (1994) 25 Cal.App.4th 822, 830.

The purposes of this comprehensive scheme are threefold: (1)to provide the creditor/beneficiary with a quick, inexpensive andefficient remedy against a defaulting debtor/trustor; (2) toprotect the debtor/trustor from wrongful loss of the property;and (3) to ensure that a properly conducted sale is final betweenthe parties and conclusive as to a bona fide purchaser.

¡d. at 830.

In a statutory foreclosure, there is no opportunity for the homeowner topresent defenses against the foreclosure unless the homeowner fies a lawsuitattempting to stop the foreclosure. Because the vast majority of foreclosures inCalifornia are conducted outside of court and based on the statutory scheme, thesteps in the process are explained more fully below.

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Report Regarding California Foreclosure Law and the Role of the County

The Statutory Foreclosure Process

The first step in a statutory foreclosure after a homeowner has missed apayment is for the lender to attempt to contact the homeowner pursuant toCalifornia Civil Code section 2923.5. Passed in 2008 in response to theforeclosure crisis, section 2923.5 requires, before a notice of default may be filed,that a lender contact the borrower in person or by phone to "assess" the borrower'sfinancial situation and "explore" options to prevent foreclosure. A lender may fiea notice of default if they have exercised due dilgence in attempting to makecontact with the homeowner. Those actions constituting due diligence aredescribed in the statute. The provisions of section 2923.5 wil expire on January1, 2013 if not extended by the legislature.

A notice of default stating the amount of the default and the date by whichthe borrower must pay off the default is then recorded at the county recorder'soffice.

1 The notice is mailed to the homeowner and any other affected parties. If

the default is not cured, and the lender wishes to proceed to sell the house, thelender must post a notice on the property and in one local public location, at leasttwenty (20) days prior to the trustee's sale. The notice is also published once aweek for three weeks in a local newspaper, starting at least twenty (20) days priorto the sale. The notice must contain the date, time and location of the sale, theproperty address and the trustee's contact information. The notice must also berecorded by the County recorder's office at least fourteen (14) days prior to thesale.

The trustee's sale is a public auction and the property is sold to the highestbidder. The opening bid is set by the foreclosing party and is usually the amountof the outstanding loan balance, interest accrued and any fees and costs associatedwith the trustee sale. If no bids are received equal to or higher than the openingbid, the sale may be postponed up to three times before a new notice of sale mustbe issued. If a property is purchased at auction, all junior liens other than propertytaxes are extinguished. Anyone may bid at the sale including the homeowner, thelender and any junior lien holders. Typically, the trustee requires the full amountof the winning bid to be paid in cash or cashier's check at the end of the auction.

After the sale is complete, the trustee transfers ownership to the winning bidder.The homeowner does not have the right to redeem the property after the sale.

i It has been suggested that a county recorder should examine foreclosure documents for legal sufficiency

and refuse recording if errors are found, Recorders are legally bound to record documents that meet certainminimum standards and are expressly prohibited from refusing to record based on lack of legal suffciency.California Government Code sections 27201, 27203, and 27203.5.

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Report Regarding California Foreclosure Law and the Role of the County:) ¿ 24

Because many properties in this market are worth less than what is owed onthe loan securing the property, it is often the case that no bids are received thatequal or exceed the opening bid. In that case, a representative of the lender wilpurchase the property on the lender's behalf. This results in the properties beingdeemed "Real Estate Owned" or "REO".

Real Estate Owned

An REO property goes back to the mortgage company, often a bank, afteran unsuccessful foreclosure auction. The bank then owns the property and theloan is extinguished.

Foreclosures and California Eviction Law

If an REO property is occupied, the bank typically wil fie a court action tohave the occupants evicted from the property. This action is called an unlawfuldetainer and is a summary court procedure which means it moves forward veryquickly. In most cases, the occupant only has five days to respond to the bank'saction and normally the court wil hear and decide within twenty (20) days ofsetting the case for triaL. The court does not have jurisdiction to look into theparticulars of the foreclosure during an unlawful detainer action. The court canonly consider evidence regarding whether or not the former homeowner has thelegal right to possess the property. If the court decides in favor of the bank, thecourt issues a writ of possession. This gives the occupant five days after service ofthe writ to voluntarily vacate the property. If the occupant does not do so, the writof possession directs the Sheriff to physically remove and lock the formerhomeowner out of the property. At that point, the bank has the right to possess theproperty.

The writ of possession is a court order and California law requires thesheriff to execute court orders. California Code of Civil Procedure section 262.1;Vallndras v. Massachusetts Bonding & Ins. Co. (1954) 42 Ca1.2nd 149 (a sheriffis a ministerial or executive, not a judicial, officer and it is his or her duty toexecute orders of court unless they are patently irregular or void).

Housing Finance - Mortgage-Backed Securities

Mortgage lending is the primary mechanism used to finance privateownership of residential property. In simple terms, a mortgage is a loan in whicha house functions as the collateraL. The bank or mortgage lender loans money(typically eighty (80) per cent of

the price of the home), which must be paid back,with interest, over a set period of time, typically fifteen (15) to thirty (30) years. If

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Report Regarding California Foreclosure Law and the Role of the County'J?25

the borrower fails to make payments on the loan, the lender can take the homethrough foreclosure.

For decades, the only type of mortgage available was a fixed-interest loanrepaid over thirty (30) years. Such loans offer the stability of regular - andrelatively low - monthly payments. In the 1980s came adjustable rate mortgages,loans with an even lower initial interest rate that adjusts or "resets" at varioustimes during the life of the loan.

The federal government regulates many aspects of mortgage lending, eitherdirectly (through legal requirements, for example) or indirectly (through regulationof the participants or the financial markets, such as the banking industry).

Mortgage-backed securities are debt obligations that represent claims to thecash flows from pools of mortgage loans, most commonly on residential property.Mortgage loans are purchased from banks, mortgage companies and otheroriginators and then assembled into pools by a governmental, quasi-governmentalor private entity. The entity then issues securities that represent claims on theprincipal and interest payments made by borrowers on the loans in the pool, aprocess known as securitization.

The first mortgage-backed securities arose from the secondary mortgagemarket in 1970. Investors had traded whole loans, or unsecuritized mortgages, foryears before the Government National Mortgage Association (GNMA or GinnieMae) guaranteed the first mortgage pass-through securities that pass the principaland interest payment on mortgages through to investors. Ginnie Mae wasfollowed by Fannie Mae, a private corporation chartered by the federalgovernment along with Freddie Mac to promote homeownership by fostering asecondary market in home mortgages.

The whole loan market was relatively iliquid with a high cost due to reamsof paperwork. With mortgage-backed securities, similar loans were combined intopools, and government agencies were able to pass the mortgage payments throughto the certificate holders of investors. This one change made the secondarymortgage market more attractive to investors and lenders alike. It also allowedbanks to offer financing to homebuyers, turn around and sell the bundledmortgages for cash, and then be in a position to immediately fund another round ofmortgages to new homebuyers with the money the bank had just made. This led toa huge increase in mortgage lending and a wilingness to lend to high-riskborrowers.

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Report Regarding California Foreclosure Law and the Role of the County ;,'26

Mortgage Electronic Registration Systems, Inc. (MERS)

This bundling of mortgages led to the need for a clearinghouse of sorts tokeep track of the transfer of ownership and servicing rights in mortgage loans.The Mortgage Electronic Registration Systems, Inc. or MERS was born. MERS isa private corporation that administers a national electronic registry of ownershipinterests and servicing rights in mortgage loans. Through the MERS system,MERS becomes the mortgagee of record for participating members throughassignment of the members' interest to MERS. MERS is listed as the grantee inthe official records maintained at county recorder's offices. The lenders retain thepromissory notes, as well as the rights to service the mortgages. The lenders canthen sell these interests to investors without having to record the transaction in thepublic record. MERS members pay a fee to MERS for these services. The deedsof trust used in this system include a provision that the borrower understands andagrees that MERS holds only legal title to the interests granted by the Borrower inthis Security Instrument, but, if necessary to comply with law or custom, MERS(as nominee for lender and lender's successors and assigns) has the right toexercise any or all of those interests, including, but not limited to, the right toforeclose and sell the Property.

Since the mortgage crisis began, courts in several states have taken up theissue of whether or not this system of holding title and conferring the right toforeclose is lawfuL. While some courts in other states have held that MERS doesnot have the right to initiate foreclosures against homeowners, courts in Californiahave held that MERS, based on the language in the deed of trust, does have theright to initiate and carr out foreclosures. Gomes v. Countrywide Home Loans,Inc. (201 1) 192 Cal.App.4th 1149, petition for review denied.

Is There a Role for the County to Help in this Crisis?

Throughout the course of this economic recession and related foreclosurecrisis, the County has played its traditional role of providing essential health andsocial services to those families devastated by its effects. At the same time, theCounty has itself struggled to maintain these services in the face of decliningrevenues.

Local governments in California and across the nation have searched forways to more directly address the root causes of these problems, recognizing thepreeminent role that the federal and State governments play. Your Board hasinitiated several actions, most recently declaring support for the "CaliforniaHomeowners Bil of Rights", a package of State legislation designed to protecthomeowners from unfair practices by banks and mortgage companies. Your

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Report Regarding California Foreclosure Law and the Role of the County - ?27

Board has also provided an information forum on the foreclosure crisis through apresentation by the Central Coast Foreclosure Collaborative.

As described above, the residential mortgage system and the foreclosurecrisis itself are national in scope and the financial institutions involved subject tooversight and regulation, such as it is, by the State and federal governments. As aresult of the roles that the State and federal governments play, there are constraintson the actions your Board may take, most notably, the limits placed by State andfederal preemption.

Federal Preemption

The federal preemption doctrine derives from the Supremacy Clause of theConstitution which states that the "Constitution and the laws of the UnitedStates...shall be the supreme law of the land...anything in the constitutions or lawsof any State to the contrary notwithstanding." This means of course, that anyfederal law - even a regulation of a federal agency - trumps any conflicting statelaw.

Preemption can be either express or implied. When Congress chooses toexpressly preempt state law, the only question for courts becomes determiningwhether the challenged state law is one that the federal law is intended topreempt. Implied preemption presents more difficult issues, at least when the statelaw in question does not directly conflct with federal law. The court then looksbeyond the express language of federal statutes to determine whether Congress has"occupied the field" in which the state is attempting to regulate, or whether a statelaw directly conflicts with federal law, or whether enforcement of the state lawmight frustrate federal purposes.

Federal "occupation of the field" occurs, according to the Court inPennsylvania v. Nelson (1956) 350 U.S. 497, when there is "no room" left for stateregulation. Courts are to look to the pervasiveness of the federal scheme ofregulation, the federal interest at stake, and the danger of frustration of federalgoals in making the determination as to whether a challenged state law can stand.

State Preemption

Similarly, cities and counties are not allowed to pass regulations in an areawhere the State of California has "occupied the field". Any piece of legislation acounty drafts must be analyzed for both federal and state preemption. Because ofpreemption issues, the only attempts made by local governments in California toaddress the foreclosure crisis have been to force banks to maintain the properties

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Report Regarding California Foreclosure Law and the Role of the County .:'228

they own due to foreclosure, and to encourage lenders to make contact withhomeowners prior to initiating foreclosure proceedings.

Because of the limits placed on your Board's jurisdiction due to State andfederal preemption, there are very few opportunities for your Board to directlyaddress the impacts of the foreclosure crisis. The ideas listed below are for yourBoard's consideration.

Upkeep Ordinances

There is no federal or State law that deals with securing and maintainingREO properties. Many California cities hardest hit by the financial crisis havepassed laws requiring REO property owners to maintain the appearance of thesehouses. They have done so because many REO properties are not maintained,further reducing values in already hard hit neighborhoods. Failure to comply withthese laws usually brings a monetary fine.

Mediation Ordinances

Several cities in states other than California have passed mediationordinances requiring lenders to meet with homeowners prior to initiatingforeclosure proceedings. Because California has enacted Civil Code section2923.5 regarding contacting homeowners prior to foreclosure, the state has"occupied the field" and your Board is preempted from passing a strongerordinance along these lines. (Ironically, one court has held that Civil Code section2923.5 is preempted by federal law to the extent that the loan in question wasissued by a federally chartered savings bank.) This provision expires on January1, 2013 unless extended by the legislature. If the provision is not extended, yourBoard could consider a mediation requirement at that time.

San Francisco's Resolution

Recently, your Board was informed that the City and County of SanFrancisco had just passed a resolution to, among other things, urge city contractorsand all mortgage and banking institutions to voluntarily suspend foreclosureactivities and related auctions until State and federal measures to protecthomeowners from unfair and unlawful practices and provisions for principalreductions are in place. Attached to this letter is a similar resolution for yourBoard to consider. The attached resolution also urges the California legislature toconsider amending the statutory foreclosure law to require verification that theclaimed beneficiary of a deed of trust is lawfully authorized to be grantedownership of property at a foreclosure sale.

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Report Regarding California Foreclosure Law and the Role of the County1'229

Educate the Public Regarding Efforts to Assist in the Crisis

The Board of Realtors of Santa Cruz County is currently investigatingopportunities to effectively engage banks prior to foreclosure on behalf ofhomeowners. In addition, the Central Coast Foreclosure Collaborative hostseducational forums on the foreclosure process. The Watsonvile Law Center andthe Women's International League for Peace and Freedom are also activelyengaging with homeowners facing foreclosure. Recently, Supervisor Leopold hasmet with leaders from both COP A and Occupy Santa Cruz to consider a programwhereby trained volunteers would be assigned to defaulting homeowners to helpthem identify and stop any unlawful or fraudulent practices during the foreclosureprocess.

Attached to this report are the following documents:

Resolution Urging County Officials and Departments to ProtectHomeowners from Unlawful Foreclosures; and Urging County Contractors andAll Mortgage and Banking Institutions to Suspend Foreclosure Activities andRelated Auctions and Evictions Until the State and Federal Measures to ProtectHomeowners from Unfair and Unlawful Practices and Provisions for PrincipalReductions are in Place and Urging New Legislation Protecting AgainstFraudulent Transfers at Foreclosure Sales;

Foreclosure in California, a Crisis of Compliance - a report prepared for theSan Francisco Office of Assessor-Recorder by AEQUITAS documenting the mostcommon errors lenders make in the foreclosure process;

Blueprint for a Comprehensive Housing Counseling & Education Programin Santa Cruz County; and

What Local Government Can Do to Address Foreclosures - a reportprepared by the Minnesota Foreclosure Prevention Council and Greater MinnesotaHousing Fund.

Very truly yours,

QM~~DANA McRA, County Counsel~ED:

~~Susan A. Maur~County Administrative Officer

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CJ 230

BEFORE THE BOARD OF SUPERVISORSOF THE COUNTY OF SANTA CRUZ, STATE OF CALIFORNIA

RESOLUTION NO.

On the motion of SupervisorDuly seconded by SupervisorThe following resolution is adopted.

RESOLUTION URGING COUNTY OFFICIALS AND DEPARTMENTSTO PROTECT HOMEOWNERS FROM UNLAWFUL FORECLOSURES;

AND URGING CITY CONTRACTORS AND ALL MORTGAGE ANDBANKING INSTITUTIONS TO SUSPEND FORECLOSURE ACTIVITIESAND RELATED AUCTIONS AND EVICTIONS UNTIL THE STATE ANDFEDERAL MEASURES TO PROTECT HOMEOWNERS FROM UNFAIR

AND UNLAWFUL PRACTICES AND PROVISIONS FOR PRINCIPALREDUCTIONS ARE IN PLACE AND URGING NEW LEGISLATION

PROTECTING AGAINST FRADULENT TRANSFERS ATFORECLOSURE SALES

WHEREAS, the United States Department of Justice (DOJ) recentlyentered into a $26 bilion settlement with five (5) major banks, including WellsFargo, over findings of misconduct in foreclosure activities serving as a first steptowards ensuring broader investigation, due process, principal reduction, and morecomprehensive restitution for borrowers who have lost their homes unjustly; and

WHEREAS, in light of mounting investigations into alleged malfeasanceby banking institutions and mortgage and trustee companies, state legislators haveintroduced a package of bils know as the California Homeowner Bil of Rights, as

encompassed in Senate bils 1470, 1471, 1472, and 1473, to help protecthomeowners from unlawful foreclosure actions and ensure due process andaccountability from the mortgage industry; and

WHEREAS, on March 20, 2012, the Santa Cruz County Board ofSupervisors adopted Resolution No. 55-2012, supporting the passage of theCalifornia Homeowner Bil of Rights; and

WHEREAS, despite the DOJ settlement and mounting evidence ofnefarious banking and mortgage industry practices and filing of legislativemeasures to protect homeowners and tenants, there is stil no immediate protectionand relief for milions of homeowners who are struggling to pay their mortgagesand homes are underwater or currently facing foreclosure; and

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0231

WHEREAS, many of these foreclosures can be attributed to predatorybanking practices that disproportionately target racial and ethnic minoritycommunities, especially working-class African-Americans and Latinos; and

WHEREAS, a report prepared for the San Francisco Assessor-Recorderentitled Foreclosure in California: A Crisis of Compliance (The Report), releasedin February 2012, provided an audit of 382 foreclosures in the City of SanFrancisco, a statistically significant sample of homes that went through foreclosureduring the period of January 2009 through October 2011; and

WHEREAS, The Report revealed that 84 percent of the foreclosuressampled had at least one clear violation of law such as substitutions executed byan entity other than the beneficiary, false claims of beneficiary status, and back-dated documents; and

WHEREAS, according to The Report, mortgage companies perpetuate 82percent of fraudulent practices, including fabricating documents and submittingthem as evidence to foreclose on homeowners and back-dating documents androbo-signing documents (i.e., using fake signatures to accelerate foreclosuredocuments); and

WHEREAS, similar to circumstances evaluated in The Report, the non-judicial foreclosure process in the County of Santa Cruz may have beencompromised by recorded documents that do not meet due process and chain oftitle standards, and that based on The Report, our County has no choice but to relyon recorded foreclosure documents that may be legally insufficient; and

WHEREAS, a recent survey of75 Housing and Urban Developmentcertified housing counselors conducted by the California Reinvestment Coalitionfound clear evidence of Dual-Tracking, a process whereby borrowers worked withtheir banks on loan modification, but, at the same time, were tracked forforeclosure, and, in some cases, had their homes sold out from under them; and

WHEREAS, a recent survey of260 consumer attorneys by the NationalAssociation of Consumer Advocates, the National Association of ConsumerBankruptcy Attorneys, and the National Consumer Law Center found that 90% ofrespondents reported representing a homeowner placed in foreclosure whileawaiting a Government Sponsored Enterprise (GSE) loan and/or Home AffordableModification Program (HAMP) loan; and

WHEREAS, California State Attorney General Kamala Harris has askedfor a suspension of foreclosures on loans controlled by Fannie Mae and Freddie

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02)2

Mac and has made similar requests of the major banks pending an investigationand proposals for principal reduction;

NOW, THEREFORE BE IT RESOLVED, that the Board of Supervisors ofthe County of Santa Cruz urges all County officials and contractors of the Countyof Santa Cruz, including, but not limited to, the County Administrative Office, theAssessor-Recorder, the County Counsel, the District Attorney, and the Sheriff-Coroner, to take proactive steps and measures to ensure that the County preventsand protects its residents from ilegal foreclosures, auctions, and evictions; and

BE IT FURTHER RESOLVED, that the Board of Supervisors maintains itssupport for the passage of the California Homeowner Bil of Rights State Bils;

and urges modification of the bils' effective dates so that they expeditiously takeeffect upon passage; and

BE IT FURTHER RESOLVED, the Santa Cruz County Board ofSupervisors urges the Legislature to consider additional legislation requiringverification that the claimed Beneficiary of a Deed of Trust is lawfully authorizedto be granted ownership of property at a foreclosure sale; and

BE IT FURTHER RESOLVED, that the Board of Supervisors supportsnearly 100 organizations and calls on our representatives in Washington, D.C. tourge Edward DeMarco, Acting Director of the Federal Housing and FinanceAgency (FHF A), to suspend all foreclosure activities until such time as FHF A hasin place policies to:

1. Reduce Principal - Allow Fannie Mae and Freddie Mac to offer loanmodifications containing principal reduction down to market value, at least wherethis passes the net present value test which wil often be the case;

2. Stop Dual-Tracking - Prevent Fannie Mae and Freddie Mac servicers

from continuing the foreclosure process while borrowers are negotiating for a loanmodification;

3. Offer Tenants Long-Term Leases - Require Fannie Mae and Freddie

Mac to offer tenants residing in foreclosed properties the option of a two-yearlease if they wish to remain in their homes; and

BE IT FURTHER RESOLVED, that the Board of Supervisors urges allbanks to immediately suspend foreclosure activities and evictions until a fullinvestigation of irregularities and legal violations is conducted;' and until state andfederal reforms to protect homeowners from unfair and unlawful practices and apathway to due process and principal reduction are in place.

:iij,3

PASSED AND ADOPTED by the Board of Supervisors of the County ofSanta Cruz, State of California, this day of ,2012, by thefollowing vote:

AYES:NOES:ABSENT:ABSTAIN:

SUPERVISORSSUPERVISORSSUPERVISORSSUPERVISORS

Chair of the Board of Supervisors

ATTEST:CLERK OF THE BOARD

APPROVED A~~ORM:~Cr=.Office of the County Counsel

CC: County Administrative OfficerDistrict AttorneySheriff-CoronerAssessor- RecorderCounty Counsel

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86

OFFICE OF THEASSESSOR-RECORDER

SAN FRANCISCO

FORECLOSUREIN CALIFORNIAA CRISIS OF COMPLIANCE

SAN FRANCISCO I FEBRUARY 2012

PREPARED BY

AEC2ITAS

023,tPHIL TING

ASSESSOR-RECORDER

Aequitas Compliance Solutions, Inc. 1422 31st Street, Newport Beach, CA 92663 I Phone 949.272.3955 I aequitasaudit.com

36

CONTENTS

1. Introduction............................................................:.......................................,......................1

2. A California Prinier.............................................................................................................22.1 Understanding Residential Lending in California .........".."""."""......"..."............,,"...,,......,, 22,2 Understanding Foreclosure in California............".."............."".."...."..........".".".........,,"..... 2

3. Why This Is Important.......................................................................................................3

4. How This Relates to the Foreclosure Settlement .................................................... 5

5. Presentation of Findings .................................................................................................. 65.1 Assignments ."...........".....,.......,.................,........,.,...............".......,........,..,",................,...,....65.2 Notice of Default..,............."..,...,,,.,,.,...,.,',,.,,.....,,.........,..........,.,..................,.............."....,...85.3 Substitution of Trustee.".........".."...........,.....................,........,.,,,,. .....~...,....".".,....".....,.....," 8

5.4 Notice of Trustee Sale ......".."................."..........."...."......""......"..,,,.....,,,,.,,........,,.........".105.5 Suspicious Activity and Other Issues ""..........."...."........."............"...................."............... 115.6 MERS Conflicts and Results ......,............................,.............."....."..."".."....."................."... 12

6. Conclusion..........................................................................................................................14

Appendix A - Understanding Securitization ................................................................ 16

Appendix B - Methodology ................................................................................................ 18

NOTICE: The information contained herein is for informational purposes only and is not legal advice or a substitute for legalcounsel. As legal advice must be tailored to the specific circumstances of each case, nothing provided herein should be usedas a substitute for the advice of competent counseL.

023'--

36

fORECLOSURE IN CAlIFORN!A I A CRISIS OF COMPLIANCE

1. IntroductionThe City and County of San Francisco'sOffice of the Assessor-Recorder retained

Aequitas Compliance Solutions, Inc. toreview 382 residential mortgage loantransactions (the "subject loans") thatresulted in foreclosure sales that occurred

from January 2009 through October 2011.1

Over this period, there were 2,405

foreclosure sales. The subject loans thus

represent approximately 16% of the total.(See Appendix B - Methodology.)

We analyzed the subject loans to determinethe mortgage industry's compliance withapplicable laws. Specifically, we focused ouranalysis on important topics relating to sixSubject Areas:

AssignmentsNotice of DefaultSubstitution of TrusteeNotice of Trustee Sale

Suspicious Activities Indicative ofPotential FraudConflicts Relating to MERS

Our Subject Ar'eas and the topics weexplore therein may not be exhaustive.

Nonetheless, we believe our analysispresents an accurate picture of the natureand frequency of the mortgage industrY'sperformance respecting compliance withimportant aspects of California's non-judicial foreclosure laws.

Overall, we identified one or moreirregularities in 99% of the subject loans. In84% of the loans, we identified what appearto be one or more clear violations of law.

1 Throughout this paper, we are offering no opinion on the

merits of various legal arguments put forth by the industryor those representing homeowners. We simply report theexceptions found based on publicly available facts and ourunderstanding of applicable regulations, We explain ourunderstanding of such regulations in the discussions

alongside the specific exception rates presented herein, It isour goal to present oniy objective findings of facts,

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0236

(In this report, weirregularities and

"exceptions").

refer to

violations asboth

As Figure 1.1 shows, we found significantexception rates across all Subject Areas.

Figure 1.1 Loans Exceptions by Subject Area

85% 82%

50%

25%

,,~R~

~rS..'

. .to'V .~.è~o~,""

~:§

::e. .4,::4-~o iJ_o..,,'r

"'16

r..;.s~

.p~'ò

Figure 1.2 illustrates the volume ofexceptions. The y-axis represents thepercentage of the subject loans with variousexception counts. For instance, "~1" showsthe percentage of subject loans with one ormore compliance exceptions. Likewise,"~5" shows the percentage of subject loanswith five or more compliance exceptions.

The bars show both exceptionsrepresenting clear violations of law andthose where the facts identify likely orpotential violations.

Figure 1.2 Loans with One or More Exceptions

~5

~4

~3

~2

~1

0% 25% 50% 100%75%

Ciear Violations Likely or Potential Violations

Figure 1.3 shows the percentages of loanswith multiple exceptions across different

AEQUfTAS COMPLIANCE SOLUTiONS, INC. 1

FORECLOSURE !N CAUFORNU\ 11\ CRISIS OF Cord PLlí\NCE ? 3 ï

Subject Areas. The x-axis indicates thenumber of Subject Areas within which aloan had one or more exceptions. Forinstance, if a loan had exceptions relating toboth Assignments and Substitutions, itwould fall into the "2 Areas" category.

Figure 1.3 Loans With Issues Across Subject Areas

35% 32%

30%

15%

0%

""o~e \. \'le-ø'1 \,ie-ø\ \'ie-øs Il \,ie-ø\ \'ie'òs I'

35% of the loans had exceptions in threeSubject Areas and 32% of loans hadexceptions in four Subject Areas.' A loan

was almost as likely to have no exceptionsas it was to have issues in every Subject

Area.

Each of these Subject Areas is addressed

more fully below. In the Appendices, we

provide a brief overview of thesecuritization process, as well as describe

our methodology for performing our

analysis.

2. A California PrinierIn order to understand the findings of thisreport and to fully appreciate itssignificance it is helpful first to have somebasic knowledge of residential mortgagelending and the foreclosure process inCalifornia.

2.1 Understan.ding ResidentialLending in CaliforniaLenders in California rely almost exclusivelyon "Deeds of Trust" to secure home loans.The Deed of Trust takes the place andserves the use of a mortgage. A Deed ofTrust (or "Trust Deed") is an instrument

that secures repayment of a loan and

customarily contains a Power of Salereposing in the Trustee in the event of

default. Deeds of Trust are three-party

instruments. The borrower (the 'Trustor")grants title to the Trustee for the benefit ofthe lender (the "Beneficiary"). Technically,

the title to the real property passes to the'Trustee," usually a title company, whosejob it is to hold the bare legal title as well asto foreclose in the event of a default,pursuant to the Beneficiary's instructions, inthe underlying obligation. The Trustee

reconveys the title to borrower once theloan is paid in fulL.

!n the event of a default, the Trustee files aNotice of Default; however, in many

instances, the Beneficiary will substitute

another, new Trustee to handlethe foreclosure under a Substitution ofTrustee.

2.2 Understanding

In California, lenders can use either thejudicial or non-judicial foreclosure process.

Judicial foreclosures require the lender filea civil complaint and record a notice of LisPendens. The judicial foreclosure process ismuch lengthier and requires a courtproceeding to be concluded. Further

complicating this option, a foreclosed

borrower reserves the right to reinstatetheir loan after the foreclosure sale up to

one year after a judicial foreclosureproceeding is completed.

Hence, lenders in California almostexclusively utilize the statutory non-judicialforeclosure process on residential homeloans. Also known as a statutoryforeclosure, non-judicial foreclosures are

processed without court intervention, areeffectively agreed to by borrowers via thepower of sale clause found in the trust deed

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and governed by California Civil Code§2924. Generally, lenders begin theforeclosure process by giving the defaultingborrower a "Notice of Default" or "NOD."

This is the first document that must berecorded as part of the non-judicialforeclosure process. If the borrower isunable to make payment after threemonths, the trustee can begin the auctionof property by filing and mailing to theborrower a "Notice of Trustee's Sale."

One of the most important differencesbetween a judicial and non-judicialforeclosure is the amount of judicialoversight: in the former the lender sues theborrower while in the latter it is theborrower who has to involve the courts.Furthermore, under the non-judicialforeclosure process homes are sold withoutcourt approvaL. Therefore, the expedited

non-judicial foreclosure process frequentlyresults in little, if any oversight.

Indeed, since most foreclosures in Californiaare non-judicial, the borrower has to be theparty that brings court oversight to the

foreclosure process, if a court is to be

involved at alL.

3. Why This Is ImportantWe hope this report will achieve two goals.The first is to illustrate and explain

foreclosure processing issues in a way thatallows everyone-no matter their mortgageknowledge or association with the crisis-tounderstand them. Second, we hope toopen a dialogue on the importance of

ensuring compliance with these laws so thatcorrective action can take place. Thismeans both working productively with themortgage industry to improve compliance

and effecting legislative change so that thelaw more accurately reflects California'smodern mortgage market.

36

t)? 3 8

For the most part, CaL. Civ. Code §2924 andCalifornia's foreclosure laws generally areconcerned with imposing proceduralobligations on foreclosing Beneficiaries andproviding due process rights tohomeowners in order to ensure that thestreamlined non-judicial foreclosure

process is not abused. Because non-judicialforeclosure is a "drastic sanction" and a,"draconian remedy," courts have generallyrequired strict compliance with statutoryrequirements.2

It is worth noting that the process wascreated long before things such as thesecondary market and mortgage brokersexisted. When the la~s were first enacted,lenders "originated-to-hold" loans for theirportfolio and rarely sold mortgage loans.

Many mortgage industry advocatescorrectly point out that much of CaL. Civ.

Code §2924 deals with technicalrequirements and that inadvertentviolations should not provide windfallremedies to reckless borrowers.

While there is much merit to this argument,it ignores legitimate victims for whom CaL.Civ. Code §2924 serves as a last check onabusive lending practices and illegalforeclosures.

Reckless borrowing notwithstanding, muchpublicly available evidence suggests thatthere are indeed many legitimate victims ofabusive lending and servicing practices.

For example, a remarkable report publishedby the inspector general for the FDIC

reveals that at the peak of subprime

originations approximately 83% of FDIC-

,regulated institutions were cited. forpatterns of "significant compliance

violations." 3 26% of were violations of the

, Miller v. Cote, 127 CaL, App, 3d 888, 894 (1982),, FDIC, Report No, 06-024, September, 2006

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FOREClOSURE IN CAliFORNiA I !I CRISIS OF COMPlI\NCE

Truth In Lending Act (TILA) violations. TILAis the cornerstone federal regulation

intended to protect consumers from

inaccurate and unfair disclosure of the costof a credit transaction, such as the interestrate and payment schedule of a mortgage

loan.

In other words, FDIC-regulated lenders

were struggling to accurately and fairlypresent to borrowers the amount and

timing of their required loan payments.

Presumably, then, at least somehomeowners who suddenly andunexpectedly saw their mortgage paymentsspike 10% had cause to complain.

We presume these violations were evenhigher for lenders oiJtside the FDIC's

purview. These include the state-licensed,non-depository lenders-such asAmeriquest and New Century-who wereresponsible for originating 52% of subprimemortgages.4 News accounts are replete withformer employees acknowledging they

routinely hid fees, fabricated data and

forged documents. There is, for instance,the infamous story of how loan officers forone such lender used "a brightly lightedCoke machine as a tracing board, copyingborrowers' signatures on an unsigned piece

of paper."s

These widespread, though certainly notuniversal, practices did not stop at the

origination stage. In fact, the securitization-spurred boom in originations ultimatelymade it infeasible to carry out large-scaleforeclosures once the market turned.

Evidence of this can found in an April 2011Interagency Review 6 by the Federal

4 Source: Federal Reserve Board based on Home Mortgage

Disclosure Act data5 "Workers Say Lender Ran 'Boiler Rooms"', Los Angeles

Times (February 4, 200S)6 Interagency Review of Foreclosure Policies and Practices,

April 2011

íJ;: '.9

Reserve, OCC and OTS of servicers, whichfound critical weaknesses in servicers'foreclosure processes and oversight and

monitoring of third-party vendors, including

foreclosure attorneys. These weaknesses

resulted in unsafe and unsound practicesand violations of applicable federal andstate laws, elevating the agencies' concern

that "widespread risks may be presented-to consumers, communities, various marketparticipants, and the overall mortgage

market." The servicers included in thisreview represented more than two-thirds ofthe servicing market.

Given these well-documented andwidespread origination and servicing issues,it is not implausible that there are

homeowners who are alleged to havedefaulted on loans to which they never fullyagreed to and, further, are being foreclosed

upon by lenders that might not even ownsuch loans. The fact that thesehomeowners borrowed something, onsome terms, from someone should not beenough to rob them of their due processright.

Importantly, we are not asserting that everydistressed borrower is a victim and that themortgage industry is collectively guilty ofdefrauding homeowners. Certainly manyborrowers knowingly and recklesslyoverextended themselves. Furthermore,

the remarkable growth of the U.S. housing

markets is a consequence of, and its futurestabilization depends heavily upon, theresponsible actions of many of theindustry's leading participants.

Rather, we can deduce from the publicevidence that there are indeed legitimatevictims in the mortgage crisis. Whetherthese homeowners are systematically beingdeprived of legal safeguards and due

process rights is an important question.

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FORECLOSURE IN CALIFORNIA I /\ CRISIS OF COMPLI¡\NCE

Civ. Code §2924 affords those homeownerscèrtain rights, including in some cases theright to stop or slow foreclosure

proceedings. Furthermore, as we shall see,violations of Civ. Code §2924 andCalifornia's other foreclosure requirementsare sometimes indicative of broader,substantive consumer protection issues.

Therefore, widespread non-compliance

with such regulations is a matter thatwarrants the serious attention of thelegislature and the courts.

4. How This Relates to theForeclosure SettlementThis report is being published within a weekof the announcement that 49 state

attorneys general and the federalgovernment have reached agreement on ajoint state-federal settlement with the

country's five largest loan servicers

regarding some aspects of the servicer'sforeclosure practices. It is worth briefly'discussing how this report relates to thatsettlement.

As of the date of this publishing, federal andstate officials have not yet made public theagreement and its final wording is still beingdrafted. However, the general principles areknown. The agreement settles only someaspects of the lender misconduct relating tothe foreclosure crisis and, with respect tothose, does not resolve all legal claims.Consequently, based on our understanding,the settlement does not resolve most of the

issues this report identifies, nor immunizeslenders and servicers from a host ofpotential liabilities arising therefrom.

State and federal authorities can pursue

criminal actions and also punish wrongfulconduct related to the bundling and sale ofmortgage loans into investment securities,among other things. For instance, the

86

,)?40

settlement would not release lenders from

charges arising under California Penal Code§llS, which states that any person who

"knowingly procures or offers any falseor forged instrument to be filed, registered,or recorded in any public office within thisstate, which instrument, if genuine, mightbe filed, règistered, or recorded under anylaw of this state or of the United States, isguilty of a felony."

Moreover, the settlement does not providea release for any private claims by

individuals or any class action claims.

All this notwithstanding, if nothing else, thisreport provides a fuller context forunderstanding the general nature and

extent of the problems precipitatingCalifornia's participation in the settlement.To our knowledge, this is the first publicstudy to provide a rigorous, quantifiableanalysis of foreclosure practices in

California.

Until now, public information in Californiaregarding the variety and frequency of

improper foreclosures has been largelyanecdotaL. This is because, as we discussedin Section 3, California's expedited non-

judicial foreclosure process results in little,if any, oversight of foreclosing entities. In

contrast, states with more rigorous judicialforeclosure requirements have uncovered

and exposed patterns of servicermisconduct.

7 The results of this report,

therefore, provide the transparency to

better understand this important and

timely development.

7 See: Office of the Attorney General of the State of Florida,

Economic Crimes Division, "Unfair, Deceptive andUnconscionable Acts in Foreclosure Cases: Presentation tothe Florida Association of Court Clerks and Controllers"(2010). Note that Florida is a judicial foreclosure state,

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fORECLOSURE!N CALIfORNiA I A CRiSIS OF COMPLIANCE

5. Presentation of FindingsIn this section we provide detailed findingsfrom our analysis organized by the SubjectAreas identified in Section 1. For eachSubject Area (such as Assignments or Noticeof Trustee's Sale) we focus on particulartopics (such as chain of title issues or timingrequirements). In addition to a Subject

Area's overall exception rate (which

combines all topics), we show the exceptionrates and explanatory discussion for each

topic.

5.1 AssignmentsWhen a lender decides to sell a trust deedto another lender or to a party to a

securitization transaction8, the lender signs

an assignment of the deed of trust in favorof the new lender. This assignment typicallyincludes an assignment of the Note theDeed of Trust secures and gives the newlender the same lien on the property thatthe original lender had under the trustdeed. The new lender essentially steps intothe shoes of the old lender.

Figure 5.1 Loans with Assignment Issues

While we observed a meaningful number ofissues relating to Assignments, we focusedspecifically on five topics: recordation ofconflicting assignments, conflicts betweenfederal filings (usually filings with theSecurities Exchange Commission) and

8 See Appendix A for a primer on securitization,

02,t 1

recorded documents, Assignmentsostensibly executed by the Trustee orServicer, assignees ostensibly signing forassignors and potential issues relating toAssignments filed subsequent to the Noticeof Default.

Overall, 75% of the subject loans containedone or more exceptions relating to thesefive topics.

A discussion of the five topics and our

findings are set forth below. The

percentages highlighted in the shaded

boxes indicate the exception rate for eachtopic.

Recordation Of ConflictingAssignments: In 6% of the

subject loans, two or moreconflicting Assignments of the

Deed of Trust were recorded, purporting totransfer ownership of the Deed of Trust totwo or more separate entities. For theseloans, the conflicting transfers make itimpossible for both recorded Assignments

to be legally valid. In such cases, there is astrong possibility that neither of therecorded Assignments is legally valid. Atthe very least, the conflicting Assignmentschallenge the power and authority of theentities foreclosing on the property and callinto question whether the foreclosingBeneficiary does in fact own the loan.

Conflicts Between Federal

Filngs And RecordedDocuments: In 23% of thesubject loans, the foreclosuredocuments contradict the

findings of a securitization audit regarding

who is the true, current owner of this loan.Specifically, federal securities dataregarding the ownership of the loan

èontradict the documents filed at theCounty Recorder's office.

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FORECLOSURE iN CALIFORNIA I A CglSIS OF CmvlPLIANCE

Assignments that areostensibly executed by theTrustee or Servicer: 27% ofthe time we found evidence

to suggest that the original or prior ownerof the loan may not have signed the

Assignment and that it instead was

improperly signed by an employee of theServicer or Trustee. We suspected thisbecause the name of the person thatexecuted the Assignment of the Deed of

Trust was verified to be an employee of theTrustee or the Servicer. The original owneror a subsequent owner of the loan must

execute the Assignmeint of the Deed of

Trust. It is unlikely that an emplöyee of theTrustee or the Servicer was a prior owner ofthe loan. Moreover, it is unlikely that theemployee of the current entity claiming tobe Beneficiary was, in fact, an agent of aprior owner, as this suggests the prior

owner signed an unrecorded document

granting authority to assign the Deed ofTrust rather than simply signing the

Assignment itself. More likely, the chain oftitle to such loans has been broken and thewritten transfers from the original ownersto the current entities claiming to be

Beneficiary do not exist. The possible

undocumented or, worse, nonexistenttransfers of the loan may explain why theprior, known owner of the loan did notexecute the Assignment.

Assignees Ostensibly SigningFor Assignors: Additionally,11% of the time we found

evidence to suggest the priorowner of a subject loan may not have

signed the Assignment and that instead theassignee signed also as assignor. This issuspected because the name of the personthat signed the Assignment as assignor wasverified to be an employee of the entityclaiming to be the current Beneficiary.

(Note that this differs from the topic

examined immediately above. Above, theSubstitution appears to be executed by the

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0242

Trustee or Servicer. Here, simply put, an

apparent employee of the buyer of the loanhas executed the assignment on behalf ofthe seller.) The original owner or a properlyassigned subsequent owner must executethe assignment of the Deed of Trust. It isunlikely that an employee of the entityclaiming to be the current Beneficiary was

also a prior owner of the loan. Moreover, itis unlikely that the employee of the currententity claiming to be Beneficiary was an

agent of a prior owner, as this suggests theprior owner signed an unrecorded

document granting authority to assign theDeed of Trust rather than simply signing theAssignment itself. More likely, the chain oftitle to this loan has been broken and thewritten transfers from the original ownersto the current entity claiming to be

Beneficiary do not exist. The possible

undocumented transfers of this loan mayexplain why the prior known owner of theloan did not execute the Assignment.

Potential Issues Relating to

Assignments Filed After TheNotice Of Default: For 59% ofthe subject loans, an

Assignment of the Deed of Trust was filedsubsequent to the Notice of Default.Therefore, the persons filing the Notice ofDefault claimed at that time to represent

one purported Beneficiary and then,subsequently, stated that the actual

Beneficiary was another person/entity. It ispossible that the order and substance ofthese notices caused a failure to comply

with CaL. Civ. Code §2923.5. This couldindicate that the Notice of Default was notexecuted under the proper authority of thetrue Beneficiary of this loan. CaL. Civ. Code

section §2924(a)(1)(C) expressly requires

that a Notice of Default include "A

statement setting forth the nature of eachbreach actually known to the beneficiary."Furthermore, the Notice of Compliance

attached to the Notice of Default may notmeet the requirements of CaL. Civ. Code


FORECLOSURE IN CAliFORNiA I A CRISIS OF COMPLI\NCE

§2923.5 because that statute requires theactual Beneficiary of the loan to attempt todiscuss alternatives to foreclosure with theBorrower. It should be noted that while thenew Beneficiary came to light late in theforeclosure process, the new Beneficiarymay have purchased the loan years beforethe Assignment was recorded.

5.2 Notice of DefaultBefore commencing the foreclosureprocess, California requires the recordationof a Notice of Default in the county in whichthe property is located. Importantly, a

lender is not required to record a Notice ofDefault simply because one or more

payments are not met. In fact, a lendermay decide not to record the Notice ofDefault until after a loan is in substantialdefault-sometimes six months or more

past due. However, a Notice of Defaultmust be filed to set California's non-judicialforeclosure process in motion.

Pursuant to CaL. Civ. Code

§2923.S, lenders are requiredto first contact the borrower"in person or by telephone"

to "assess the borrower's financial situationand explore options for the borrower toavoid foreclosure," thirty (30) days prior torecording a Notice of Default against aproperty. We found that 6% of theforeclosures did not comply with CaL. Civ.

Code §2923.S because no affdavit attestingto compliance was file.

§2923.S was enacted in 2008 to encouragecommunication between lenders andborrowers prior to commencement of non-judicial foreclosure. The extent of theprivate right of action for non-compliance islimited to obtaining a postponement of animpending foreclosure to permit the lenderto comply with the statute. In cases wherea foreclosure sale has already been held,

() 243

noncompliance does not affect the title tothe foreclosed property, as the Legislature

did nothing to affect the rule regarding

foreclosure sales as finaL. Therefore, if theproperty is sold to a bona fide purchaser forvalue, there is a significant chance that thehomeowner will have waived this defectand lose the property.9

5.3 Substitution of TrusteeIn most instances, the original Beneficiarywill substitute another trustee to handlethe foreclosure under a Substitution ofTrustee. Substitute trustees are typicallyfirms that specialize in default servicing

needs and foreclosure processing.

Where there is a successor Trustee, therecan be no valid non-judicial foreclosurewhere the trustee under the original deedof trust is not properly substituted with a"recorded" document. To avoid confusionand litigation, there cannot be at any giventime more than one person with the powerto conduct a sale under a Deed of Trust.Therefore, failure to execute or record aSubstitution of Trustee is a substantial

defect and impacts a right afforded toborrowers to know whom the Trustee isthat will sell their property at a foreclosuresale. As such, the sale may be void.

While we observed a meaningful number ofissues relating to Substitutions of Trustee,

we focused on four topics: invalidSubstitutions subsequent to the Notice ofDefault, Substitutions recorded subsequentto the filing of the Notice of Trustee Sale,

Substitutions executed by an entity otherthan the Beneficiary and other suspicious

executions.

9 See Mabry v, The Superior Court of Orange County, No,

5042911 (June 2, 2010)

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FORECLOSURE IN CALIFORNIA I A CRiSIS OF COMPLIANCE0(' 44

Overall, 85% of the subject loans containedone or more exceptions relating to thesefour topics.

A discussion of the four topics and our




Figure 5.33 Loans with Substitution Issues

Invalid Substitutions After

The Notice Of Default: In 18%of the subject loans the

Substitution of Trustee wasnot executed in compliance with CaL. Civ.

Code §2934a therefore the Substitution andany document filed by the new Trustee maybe invalid. The Substitution of Trustee wasrecorded after the Notice of Default was

recorded, but the required Declaration of

Mailing was not included as required by CaL.

Civ. Code §2934a (b) and (c). The

Substitution of Trustee is defective and,

therefore, any documents signed by thenew Trustee lack proper authority and anysale of the underlying property may be

void. It's worth noting that we are not

presuming that the Substitution was neveractually mailed to the homeowner; rather,we are concluding that a valid Substitutionof Trustee was not effectuated because thestatutory requirements were not met.

Ib

Substitution is Recorded

Subsequent To The Filng Of

The Notice Of Trustee Sale:We found that 3% of the time

the Substitution of Trustee was recordedafter the Notice of Trustee's Sale was

recorded. Such action is a violation of CaL.Civ. Code §2934a and may invalidate theforeclosure documents filed by the newTrustee. CaL. Civ. Code §2934a requires thatonly the original trustee or a properly

substituted trustee has the power to file aNotice of Trustee's Sale and actually sell aproperty at a Trustee's sale. Under thisstatutory provision, the Substitution of

Trustee must be filed prior to or currentlywith the Notice of Trustee's Sale. If aSubstitution of Trustee is never properly

filed in the County Records office, then thecurrent purported Trustee may not havethe authority to foreclose on the subject

property. An incorrect Substitution ofTrustee or failure to file a Substitution of

Trustee could invalidate the foreclosure

process. While there is a relatively smallexception rate associated with this topic,such violations in combination with

exceptions elsewhere suggest the possibilityof fraud and should be investigatedaccordingly.

Substitution Executed By AnEntity Other Than TheBeneficiary: For 85% of thesubject loans, the

Substitution of Trustee was not executed bythe Beneficiary of the loan. Therefore, theinstrument may be invalid unless it wassigned with the express authority of theBeneficiary. Specifically, the original lenderor a properly assigned beneficiary did not

execute the Substitution of Trustee. CaL.

Civ. Code §2934a (a)(1) states that only thecurrent Beneficiary of the loan has_ the

authority to execute a valid Substitution ofTrustee. Therefore, a successor Trustee

must be appointed by the original Lender ora properly assigned Beneficiary. If the new

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fORECLOSURE iN CALIfORNIA I A CRISIS OF COMPLI¡\NCE

024 '5

Trustee was not appointed by the currentBeneficiary, the new trustee does not havethe authority to foreclose on the subject

property or execute the statutorily requirednotices. Careful verification that the entitythat executed the Substitution of Trustee isthe actual owner of the loan is critical to adetermination of whether the Substitutionof Trustee is valid.

Other Suspicious Executions

of Substitution: In 28% of thesubject loans, we found

reason to suspect the

execution of the Substitution was

unauthorized. Specifically, there werequestions as to whether the Substitution ofTrustee was signed by a person who is anactual employee of the entity executing theSubstitution. Pursuant to CaL. Civ. Code

§2934a (a)(l), a Substitution of Trustee mayonly be validly executed by the Beneficiariesunder the Deed of Trust or their successorsin interest. This suggests that an employeeor agent of a duly authorized company

purporting to execute the Substitution ofTrustee must actually sign the document.In these cases, the individuals signing theSubstitutions of Trustee were not actualemployees of the companies purporting toexecute the Substitution. This informationwas verified through a database with thenames of employees of several Trusteecompanies that frequently sign foreclosuredocuments. The entity that executed theSubstitution may claim that it acted as theagent of the Lender or Beneficiary.However, if this is not the case (as hasfrequently been shown), any unauthorized

execution may invalidate the Notice ofDefault and Notice of Trustee's Sale.

5.4 Notice of Trustee Sale

The Notice of Trustee's Sale (NOTS) serves

as public notice that the auction of the

property will be taking place. The Notice of

Trustee's Sale can be recorded three (3)months after recording the Notice ofDefault. The trustee sale date must be noearlier than 20 days after Notice of TrusteesSale is recorded.

While we observed a meaningful number ofissues relating to the Notice of Trustee's

Sale, we focused on three topics: early filingof NOTS, early actual or planned sale andthe NOTS not executed by authorizedTrustee.

Overall, 42% of the subject loans containedone or more exceptions relating to .thesethree topics.

Figure 5.4 Loans Notice of Trustee's Sale Issues

A discussion of the three topics and our




Early Filng of NOTS: 2% ofthe time the Notice ofTrustee's Sale was not filed incompliance with CaL. Civ.

Code §2924 because three months did notelapse since the Notice of Default was

recorded. The Notice of Trustee's sale wasrecorded less than three months after theNotice of Default was recorded in theofficial County Records. Failure of thetrustee to give the homeowner the

statutorily required time to cure the defaultis a violation of the homeowner's due

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FORECLOSURE IN CALIFORNIA I A CRISIS OF COf\PLlMKE'1 ,~4 6

process rights. Generally, absent any otherwrongdoing, the practical consequence ofthis violation is to delay the foreclosure

proceedings until all notices are properlyfiled and timing requirements met.

Early Actual or Planned Sale:In 10% of the subject loans,the actual or -planned sale of

the property was scheduled

less than 20 days after the Notice ofTrustee's Sale was recorded. A sale of theproperty by the Trustee may not occur untiltwenty days after the Notice of Trustee'sSale is executed and given to the

homeownèr. In the case of the affectedloans, the CaL. Civ. Code §2924(f)

notification requirements were not metand/or the Trustee did not wait until twentydays after the Notice of Trustee's Sale was

recorded to sell the property. Non-

compliance with the timing requirement

may invalidate the foreclosure sale or delaythe sale. Failure of the Trustee to give thehomeowner the full 20 days to respond tothe notice of sale is a violation of thehomeowner's due process rights.

NOTS not executed byauthorized Trustee: 34% ofthe time the original Trustee

or a properly substituted

Trustee did not execute the Notice of

Trustee's Sale. Therefore, the Notice of

Trustee's Sale was not executed by theproper Trustee. This should void the Noticeand any Trustee's Sale by that entity. TheDeed of Trust and California foreclosurestatutes give exclusive power to the originalTrustee or a properly substituted Trustee tofile a Notice of Trustee's sale and sell theproperty at a Trustee's sale (see Section

5.3). Because the authorized Trustee did

not execute the Notice of Trustee's Sale,

the Trustee's sale may be void.

86

5.5 SuspiciousOther Issues

Activitv and,/

Charges that some of the largest mortgageservicers are engaged in fraudulentpractices continue be made. Thesepractices include: fabricating documentsthat should have been signed years ago and

submitting them as evidence to forecloseon homeowners, back-dating documentsand robo-signing (using fake srgnatures topower through foreclosure documents).

It is sometimes difficult to prove fraudulentpractices with certainty. However, by

reviewing documents and signaturesagainst public and proprietary databases,

we were able to identify numerous specificinstances potential abusive practices. Werefer to these instances as "Suspicious

Activity."

While we observed a meaningful number ofissues relating to Suspicious Activity, we

focused on three topics: "strangers" to thedeed of trust purporting to be Beneficiaries,

back-dating of documents and incorrectlyexecuted documents.

Overall, 82% of the subject loans containedone or more exceptions relating to thesethree topics.

Figure 5.5 Loans with "Suspicious Activity"

A discussion of the three topics and our




FORECLOSURE IN CAUFORftHA I 1\ CRISIS OF COfVPLlí\NCE02.17

boxes indicate the exception rate for each

topic.

"Strangers" to the Deed ofTrust Purporting to Be

Beneficiaries: For 45% of thesubject loans, the property

securing a loan was sold at auction to anentity that is claiming to be the Beneficiaryof the Deed of Trust when that entity is notthe original Beneficiary and either (1) no

Assignment of the Deed of Trust was everrecorded granting a beneficial interest tothat entity or (2) such assignment was

recorded after such sale. In other words, a"stranger" to the Deed of Trust purported

to be the foreclosirig Beneficiary of thesubject property and was granted

ownership of said property at the Trustee'sSale. This entity was not the originalBeneficiary of the Deed of Trust and noassignment of the Deed of Trust has beenrecorded assigning the beneficial interestsof the Deed of Trust. This is an issuebecause such entities do not convey anymoney for the subject property, but insteadmade a credit bid at the auction. TheCalifornia foreclosure statutes state thatonly the Beneficiary of the Deed of Trustcan make a credit bid at a foreclosureauction. Without proof of the ownership ofthe beneficial interests in the Deed of Trust,the entity that was granted ownership of

the subject property may not have goodtitle to the property and the Trustee's Sale'to this unauthorized "stranger" may be

invalid. The fact that an Assignment of theDeed of Trust was never recorded could

indicate that the chain of title for such loanscannot be established. Further, onlyforeclosing beneficiaries have the right to

be exempt from the payment of transfertaxes charged by government agencies. Ifthe foreclosing party was not, in fact, theforeclosing beneficiary then the transactionmay involve the unlawful evasion of taxes.

Back-Dating Of Documents: We foundevidence in 59% of the subject loans thatone or more of the foreclos'ure documentsrecorded against the subject property wereback-dated (i.e. there is a time discrepancybetween the document date and thenotary's date or the recording date).

Creating a false date of signature is a

potentially serious issue as many of thesedocuments carry penalties for perjury orother violations of California's Penal Code.

It should be noted that there may have

been a legitimate reason for thediscrepancy between the document dateand the recording date, such as thedocument was properly executed butmishandled prior to recordation.

Incorrect Execution of One orMore Documents: In 10% ofthe subject loans we foundinstances where one or more

of the foreclosure documents were

incorrectly executed for reasons other thanthose already discussed above. A naturalperson must sign each document recordedin the foreclosure process, including all

Assignments, Substitutions of Trustee, theNotice of Default and the Notice of Trustee

Sale. Documents not bearing signatures ofnatural persons may be invalid.

5.6 MERS Conflicts and ResultsThe Mortgage Electronic RegistrationSystem (MERS) is a private corporation thattracks the ownership interests and servicingrights in mortgage loans, allowing the

parties to the securitization process

(described in Appendix A) to buy and sellthe loans without having to record transferswith the county.

Mortgage Electronic Registration Systems,Inc. and MERSCORP, Inc. were created byFannie Mae, Freddie Mac, Ginnie Mae, theMortgage Bankers Association of America

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FORECLOSURE IN CALIORNIA i A CRISIS OF CO~v'1Pll¡\NCE0248

and large mortgage banks to provide an

electronic registry for tracking ownership

interests and servicing of mortgage loans.

MERS played a unique role during theadvent and subsequent boom of thesecuritization market for residentialmortgage loans.

M ERS members can sell mortgage loanswithout having to record each transfer incounty offices thus eliminating the need forfrequent recorded assignments ofmortgages and deeds of trust. MERS

asserts to be the owner (and the owners

agent) of the security interest indicated by

trust deed and registers assignments of

beneficial interests through its system.

MERS maintains that by eliminating theneed to file assignments in the County

Records it lowers costs for lenders and

consumers by reducing county recordingfee expenses resulting from real estatetransfers. MERS further maintains that itprovides a central source of information

and tracking for mortgage loans, although atransfer between two MERS members is

effectively unknown to those outside theMERS system.

The scope of this segment of ourinvestigation involves the disclosure of the

investor (Beneficiary) as named inthe MERSsystem versus the investor (Beneficiary)information as named on the Trustee'sDeeds upon Sale and/or Assignments ofDeeds of Trust that have been recorded inthe San Francisco County Recorder's Office.

A Trustee's Deed Upon Sale must name aforeclosing beneficiary, who is the granteeof the beneficial interest under the Deed ofTrust. We compared this information to theinvestor information indicated in the MERS

system. All entities that did not match theMERS database were identified as conflicts.

The foreclosing beneficiaries as named inthe Trustee Deeds were either entered as a"wildcard" grantee (that is a foreclosing

beneficiary grantee whereby there was noassignment to that entity) or the foreclosingbeneficiary grantee was named subsequentto a sale by an assignment. In either case, ifthis entity was different than the investor asnamed in the MERS database a conflict wastallied.

Figure 5.6-A MERS Conflicts with TDUS

Investor information was available from theMERS database on 192 of the 382 subjectloans. The investigation resulted in 112loans whereby the beneficiary as enteredon the Trustee's Deed upon Sale conflictedwith the investor information present on

the MERS database. This is a 58% failurerate.

In addition to investigating conflicts

between MERS and the County Records, wealso analyzed the MERS-registered loans

separately from the Non-MERS loans across

all Subject Areas (excluding MERS Conflicts,which of course only includes MERS loans).

As Figure 5.6-B illustrates, MERS-registeredloans had a higher exception rate in eachSubject Area.

AEQUITAS COMPLIANCE SOLUTIONS, INC. ! 13

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FOREClOSURE!N CAliFORNIA i A CRISIS OF COMPLIANCE02,19

Figure 5.6-8 Comparing MERS Loan Exceptions Rates

"All MERS Non-MERS

93% 9D

75%

50%

-25%

0% "Assignment NOD Substitution NQTS Suspicious

Activity

As always, it is important to keep in mindthat correlation does not imply causation.

Indeed, there are many possibleexplanations for the correlation between aloan's exception rates and whether it isM ERS-registered.

Securitization practices may be a significantcausative variable explaining these results.In general, MERS loans are more likely to besecuritized. Indeed, facilitating the multiplesales and assignments required by the

securitization process is a primary objectiveof MERS. As Appendix A shows,securitization involves multiple transactionsamong multiple parties, creating moreopportunities for error and introducing

moral hazard among various parties withdifferent interests. On the other hand,loans originated for a lender's portfolio do

not present the same issues.

Another possible explanation is thatbeneficiaries relying on the County Records,as opposed to the private MERS registry,are more likely to ensure that all legalinstruments are valid, executed and

retained.

6. ConclusionIf there is one lesson to take away from thisreport it is that, with so many homes beingforeclosed and with so little oversight,California's foreclosure process appearsutterly broken.

What is at stake here is more than merelyfairness and minimal due process.Foreclosures impact not only homeownersbut also entire communities and housing

markets. The integrity of California's recordtitle system is also at stake because thevalidity of title for subsequent purchasers isdependent on those that precede it.

The mortgage industry, for its part, assertsit is taking vigorous steps to work at itsshortcomings. The paradox is that theforeclosure crisis has been caused by theirsuccesses as much as their failures. Duringthe boom, poor underwriting anddocumentation standards made possiblethe blistering rate of originations and

securitizations. While it invested heavily inproduction, the mortgage industry did notapply commensurate resource andingenuity to the quality control and

servicing function. Consequently,

outmoded infrastructure and incomplete,or missing, loan documentation made

it infeas'ible to carry out large-scaleforeclosu res.

As regards the current crisis, it is difficult toimagine how the industry can cost-effectively solve these problems ex postfacto. Going forward, however, much can

be done to improve the entire mortgage

loan value chain in order to mitigate the

potential for these failures to recur in thefuture.

So far as public policy is concerned,

supervisory and enforcement activity willlikely increase until the industry can

demonstrate the weaknesses anddeficiencies in its foreclosure practices havebeen corrected. But, here too, there ismuch looking to be had in themirror. California's real estate laws were

designed to address a far simpler, much

different market. The mortgage industryhas since seen remarkable

AEQUITAS COMPLIANCE SOLUTiONS; INC. 861.:1

FORECLOSURE IN CALIFORNIA I A CRISIS OF COMPLI/\NCE 02':0

innovation. Considering the extent and

consequence of the issues, perhaps it istime for the legislature to be similarlyinnovative. Ensuring clear chains of titleand the integrity of California's record titlesystem are essential to the recovery and

stabilization of the state's housing

market. Similarly, California's hoarystatutory foreclosure process is complicatedby outmoded assumptions and problematicambiguities. It is in the best interest of all-the mortgage industry, securities investors,homeowners and communities-tomodernize California's real estate laws sothat these issues are more effectivelyaddressed.

It is not yet clear that the underlying

problems that made possible thecatastrophic failures and tragedies wroughtby the foreclosure crisis have been solved.On this will depend the chances of arecovered mortgage market and a salvagingof the American Dream.

AEQUiTAS COMPLIANCE SOLUTIONS, INC. i 15

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FORECLOSURE IN CAlIFORI\HA I A CRiSIS OF COMPLlí\I\CE 025 I

Appendix A - Understanding Securitization

It is important to have a general familiarity with mortgage securitization in order to understandthe foreclosure process. Securitization involves a series of conveyances of the note evidencingthe residential loan and assignment of the mortgage or trust deed securing it. Therefore, chainof title and beneficial interest issues frequently turn on the securitization trajectories.

Securitization is the process pooling loans into "mortgage-backed securities" or "M BS" for saleto investors. MBS is an investment instrument backed by an undivided interest in a pool ofmortgages or trust deeds. Income from the underlying mortgages is used to pay interest andprincipal on the securities. Figure A below is a simplified schematic depicting the general

securitization process and some of the parties involved.

Figure A - Securitization Schematic

/Mortgage Payments

~. Mortgage Loans

? Distributions

II Certificate Ins Premiums/Proceeds

? PMI Premiums/Proceeds

,./r.,..",..",."'..""'''''",..,

y """""."__,'i,, "___,__,,

~..

~~ ~

'Ë

~

Mtg Payments

The process begins with Originators, which are the lenders (such as banks or finance companies)that initially make the loans to homeowners. Sponsor/Sellers (or "sponsors") purchase theseloans from one or more Originators to form the pool of assets to be securitized. (Most largefinancial institutions are both Originators and Sponsor/Sellers.) A Depositor creates aSecuritization Trust, a special-purpose entity, for the securitized transaction. The depositoracquires the pooled assets from the Sponsor/Seller and in turn deposits them into the

Securitization Trust. An Issuer acquires the Securitization Trust and issues certificates toeventually be sold to investors. However, the Issuer does not directly offer the certificates for

AEQUITAS COMPLIANCE SOLUTIONS, iNC. 16

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(J,(" .:FORECLOSURE IN CALIFORNIA I i\ CRISIS OF COMPLIANCE

sale ,to the investors. Instead, the Issuer conveys the certificate to the Depositor in exchange forthe pooled assets. An Underwriter, usually an investment bank, purchases all of the certificatesfrom the Depositor with the responsibility of offering to them for sale to the ultimate investors.

What is first important to understand is that to effect the securitization process both the noteand trust deed (the security interest) must be assigned from the Originator to theSponsor/Seller, then from the Sponsor/Seller to the Depositor and, finally, from the Depositor tothe Securitization Trust. Each assignee, up until it makes an assignment to the next party alongthe chain of title, is the beneficiary under the trust deed. There is a break in this chain of titlewhere an assignment is not made or is otherwise invalid.

Also worth noting is that almost all Securitization Trusts elect to be treated as "Real EstateMortgage Investment Trusts" or "REMICS" pursuant to the rules and regulations of Sections860A-F of the Internal Revenue Code ("IRC"). Consequently, a Securitization Trust must adhereto certain strict and absolute requirements involving transfers of assets into the trust. The IRC860 outlines these requirements, which include a condition that all loans that are stated to be in

the REMIC trust must be acquired on the startup day of the trust or within three monthsthereafter. Any other contributions to the REMIC after the startup date or the subsequent 90-day window are treated as a "prohibited transaction". A prohibited transaction is catastrophicto a Securitization Trust as it subjects the entire cash flows of the trust to a minimum 100% tax.For this reason, all parties to a Securitization Trust must strictly adhere to the rules of the trust'sPooling and Servicing Agreement and the Mortgage Loan Purchase Agreement, especially theguidelines regarding conveyances (and assignments) of the assets.

AEQUlTAS COMPLLil1\CE SOLUTIONS, INC. I 17

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fORECLOSURE iN CALIFORNIA I j\ CRISIS OF COMPLIANCE

Appendix B - Methodology

The City and County of San Francisco's Offce of the Assessor-Recorder randomly selected 382residential mortgage loan transactions (the "subject loans") that resulted in foreclosure salesthat occurred from January 2009 through October 2011. The subject loans included all SanFrancisco zip codes and comprised proportionally more loans in areas that had a higher rate offoreclosure. Over this period, there were 2,405 foreclosure sales. The subject loans thus

represent approximately 16% of the total.

We reviewed all recorded documents. We likewise collected and reviewed extensiveinformation using other publi~ resources, including federal filings (usually filings with theSecurities Exchange Commission). Finally, we utilized public and proprietary databases to assistin identifying suspicious activity (such as robo-signing or other execution issues).

The loan reviews were performed by experienced mortgage and legal professionals, utilizing aproprietary rules-based auditin-g software developed by attorneys expert in mortgageorigination, securitization and foreclosure laws.

AEQU!TAS COMPLIANCE SOLUTiONS, INC. I

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18

It,

About Aequitas

Aequitas Compliance Solutions, Inc.("Aequitas") is a mortgage regulatorycompliance consulting firm specializingin complex litigation, investigation andinternal audit issues. We work with themortgage industry and its stakeholdersproviding accurate, thoughtful and

customized analysis, which we presentin a clear and persuasive manner. Ourexperts possess a broad rangemortgage and regulatory expertisewhich enable us to serve large and

small companies, law firms and

regulators.

Contact

For questions related to the findings

presented herein:

Lou Pizante

[email protected]

For copies of this paper:

Mark Rapparport949.272.3955resea [email protected]

For media inquiries:

Barbara Caruso, APRCaruso [email protected]

o ('fj it

Lou Pizante is a partner at Aequitas where he leads thefirm's Regulatory Compliance & Litigation Supportpractice. Mr. Pizante has more than 15 years experience inmortgage regulation and capital markets. Prior to

Aequitas, Mr. Pizante Was CEO of Mavent Inc, currently asubsidiary of Ellie Mae, the leading provider of automatedregulatory compliance solutions for the mortgage

industry. Mr. Pizante has held positions with RB5

Securities Inc, Nomura Asset Capital and Goldman Sachs.Mr. Pizante is a frequent author and speaker for variousmortgage industry publications and conferences. He holdsa bachelor's degree from the University of California atBerkeley and a master's degree and a juris doctorate fromNew York University. Mr. Pizante is a member of theCalifornia Bar Association. He has been recongnized as aFuture Leader by the Mortgage Bankers Association.

Mark Rapparport is a partner at Aequitas where he leadsthe firm's Forensic and Investigative Services practice.

Jay Patterson is the owner of Full Disclosure, LLC Mr.Patterson is a forensic accountant and credentialed

Certified Fraud Examiner. He is recognized nationally asone of only a handful of professionals that provide

forensic and investigative accounting, examination andanalyses related to the areas of mortgage loan servicingand securitization. He has been designated as an expertwitness in several court jurisdictions around the country,developed methodologies that are used in the forensicexamination and analyses of mortgage loan servicing andsecuritization transactions. His clients are attorneys andgovernmental entities. He is a frequent speaker and

instructor at various mortgage servicing and securitizationseminars and is currently involved in several landmarkmortgage related cases, Mr. Patterson is a native of Texasand currently resides in Hot Springs National Park,

Arkansas.

Aaron Sheffield is Associate Counsel at Aequitas and isresponsible for audit and quality supervision. Mr. Sheffieldholds a bachelors degree from the Univeristy of Kentuckyand a juris doctorate from Pepperdine University School ofLaw.

The authors wauld like to thank Phil Ting, Benjamin Weber andWalter Hackett for their excellent assistance,

@ 2012 Aequitas Compliance Solutions Inc. All Rights Reserved.

86

o 2 ~5~,

Blueprint for a Comprehensive Housing Counseling &Education Program in Santa Cruz County

IntroductionThe economic vibrancy of Santa Cruz County and the stability of its residents rely on asustainable housing market and viable consumers. Ensuring that County residents are preparedto obtain and maintain safe, stable and affordable housing has always been a challenge becauseof the historically high cost of living in the central coast. The financial meltdown, subsequentrecession, wave of home losses and economic hardship that coursed through this county hasleft devastation in its wake. Local data on foreclosures describe the widespread effects of thehousing crisis in Santa Cruz County:

. Over 41000 foreclosure notices have been issued in Santa Cruz County since 2007.1

. The number of notices of default in Santa Cruz County increased 489% between 2005

(279 notices issued) and 2009 (1,643 notices issued).2. All parts of the county have been affected by foreclosures, but the areas with the

highest number of default notices are Watsonville, City of Santa Cruz, Live Oak and theSan Lorenzo Valley.3

Notice Of Default Properties

2010 and 2011

NoUce of Default. 2010

NoUce of Default. 2011

"-_.:'.,

"

A

o 2 .-=-.

i Source: Applied Survey Research, Community Assessment Project Report 2010

2 Source: Applied Survey Research, Community Assessment Project Report 2010

3 Source: County of Santa Cruz Planning Department, August 2011

i

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025 ~)

While the data above illustrates the staggering impact the housing crisis has had on Santa CruzCounty, a personal story of a family affected gives a more immediate and real understanding ofthe deep scars left in our community.

Mr. and Ms. H, a Spanish-speaking couple in Santa Cruz County, were thrilled to buytheir first house in 2005, and looked forward to seeing their three children grow upthere. They couldn't really understand but the realtor assured them not only could they

afford the home on their limited income, but it was a once in a life time opportunity. Asthe economy collapsed, Mr. H's hours at work were cut and their house paymentsadjusted. Unable to support their family on their reduced income the Hs quickly fellbehind on their mortgage. Desperate to save their home, they responded to a Spanishadvertisement for Loan Modification Services. LM Services promised to lower the H'smonthly mortgage payments and principal balance, as well as identify claims for alawsuit against the bank. LM Services said they were part of President Obama's newestplan the Hs only had ta pay $500 and stop making payments to the bank.

Severol months later the lender began calling the Hs to demand payment and the Hsimmediately called LM Services. LM Services said all was well and negotiations with thebank was underway. But several months later LM Services called the Hs and told thembank negotiations had fallen through but there was still hope because they hadidentified fraud in the mortgage documents and the Hs could sue the bank. If they sued,the bank could not foreclose while the lawsuit was pending. Once they had won thelawsuit, the Hs would get a loan modification or even a loan payoff. The Hs borrowed$1,500 to pay LM Services. Soon another bill for $1,500 came from LM Services and stildesperate to save their home, the Hs sold their car to pay.

Alarmed when they received a foreclosure notice, the Hs contacted LM Services whoinstructed them to file for bankruptcy and charged $3,000 more to continue thelitigation. LM Services took the $1,000 the Hs had saved but warned the whole $3,000was required. Soon, LM Services' phone number was disconnected and business officesvacated.

The Hs filed reports with the Department of Real Estate, the District Attorney and theState Bar, and steps are being taken to investigate LM Services and reimburse the Hs.

Unfortunately the Hs- and countless other homeowners - have been victims ofunscrupulous practices from pre-purchase to post foreclosure. Without proper educationand legitimate housing counseling the housing path is wrought with risk and pitfalls.

The last several years offer an important lesson: preparing renters and home owners to besavvy consumers and manage their personal finances, supports a safe and sustainable housingmarket and a stable and viable community. Providing comprehensive housing counseling andeducation (HCE) is key, and plays a pivotal role in stabilizing our current housing market andpreventing another crisis in the future. HCE prepares individuals to successfully rent or own a

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safe, stable and affordable home and ensures they make legal and financial decisionsimpervious to eviction or foreclosure.

There are excellent HCE services in Santa Cruz County, but they are limited, not coordinated or

comprehensive, and fall far short of meeting the current need. Community members are oftenunaware of these services and find them difficult to navigate, let alone determine which matchtheir needs and for which they are eligible. In addition, HCE services are rarely required inorder to obtain housing, so there is no incentive to seek counseling or education unless ahousing crisis occurs.

Concerned with the unmet need and inspired to improve use of affordable home rental andpurchase programs, the Community Foundation of Santa Cruz County, the City of Watsonvilleand the County of Santa Cruz (The Funders) co-sponsored this Housing Counseling FeasibilityStudy. The Study's purpose was to research current needs and resources, identify gaps anddevelop a plan for comprehensive housing counseling and education in Santa Cruz County. Ledby the Watsonville Law Center between May - September 2011 and facilitated by Nicole Youngof Optimal Solutions Consulting, the Feasibility Study inc.luded representatives from twenty twoorganizations (Stakeholders).

This report summarizes the Stakeholders' recommendations resulting from the Study.Recommendations are focused on ensuring our community has the skills and tools necessary toaccess and maintain affordable housing. The report serves as a blueprint to guide future effortsto obtain funding, plan services and programs, and implement comprehensive counseling andeducation in Santa Cruz County. Particulars, such as staffing, target populations, fees andresource allocation are not included in this report and should be considered specific toopportunities for funding and program development.

Overview of Study ProcessThis Housing Counseling and Education (HCE) Feasibility Study was conducted in an effort to:

. Document the need for comprehensive housing counseling and education in Santa CruzCounty;

. Identify existing housing counseling and education services, as well as gaps in services;

and. Identify steps, resources and partnerships required to develop and sustain a

comprehensive housing counseling and education program.

Organizations that provide HCE services and/or serve clients who could benefit from localhousing counseling and education in Santa Cruz County were invited to provide information andinput through an on-line survey and four Stakeholder Meetings. The following organizations

(Stakeholders) participated in the feasibility study:

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HCE Feasibility Study: Participating Stakeholders

On-Line Stakeholder MeetingsSurvey (attended at least 1)

Bay Federal Credit Union X X

California Rural Legal Assistance (CRLA) X X

Catholic Charities of the Dioceses of Monterey Bay X X

Center for Community Advocacy (CCAl X X

City of Watsonville - Redevelopment & Housing X X

Communities Organized for Relational Power in ActionX X

(COPA)Community Action Board of Santa Cruz County, Inc (CAB) X X

Community Bridges - La Manzana Community ResourcesX X

(LMCR)

Community Bridges - Live Oak Family Resource CenterX

(LOFRC)

Community Bridges - Mountain Community ResourcesX

(MCR)County of Santa Cruz - Housing Department X

Families in Transition (FIT) X

First Community Housing, Inc. X

Housing Authority of the County of Santa Cruz X X

Mercy Housing , X

Mid Peninsula Housing Corporation X

Pajaro Valley Shelter Services (PV Shelter) X

Salvation Army X

Santa Cruz Community Credit Union/Santa CruzX X

Community Ventures (SCCCU/SCCV)

South County Housing X

SurePath Financial Solutions X X

Watsonville Law Center (WLC) X X

Understanding the Need for Housing Counseling & EducationPrior to the financial meltdown, the path to safe, stable and affordable housing was likely to becharacterized as a linear process, as depicted in the housing continuum below.

Foreclosures occurred before 2007, but they were uncommon. Historically, hard work andcarefully saving money made the "American dream" of buying and keeping a home attainable.The financial meltdown and recession has created a "new normal" where long-term renting

4

tlti

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may be more desirable than homeownership for many people. With a nearly 500% increase inNotices of Default, foreclosures are now common in the housing continuum.

Notices of Default lFirst Step in Foreclosure Process), Santa Cruz County

1,643

1,537

2006 2007 2008 2009

Source: Applied Survey Research, Community Assessment Project Report 2010

The 2010 Community Assessment Project Report (Applied Survey Research) provided furtherevidence of the need for housing counseling and education:

. The median income in Santa Cruz County ($84,200) is higher than the state and nationalmedians, yet only 34% of homes in this county are affordable for median-incomefamilies.

. The majority of respondents in the Community Assessment Project survey reported

feeling worse off financially than the previous year.. Half of all respondents reported spending more than 30% of their household take-

home pay on rent or housing costs.. A significantly higher percentage of those respondents were Latino (70%) than

Caucasian (44%).

. One-third of respondents went without meeting basic needs within the past 12

months. 22% of those respondents went without rent or housing.. Latino respondents were significantly more likely than Caucasian respondents to report

they were not building assets through savings accounts, IRAs or 401Ks.

These data illustrate that now more than ever, HCE is needed not only as an intervention forhomeowners facing foreclosure, but to prepare people in all stages of the housing continuumfor success in obtaining and then maintaining housing. Throughout the feasibility study, theFunders and Stakeholders consistently agreed that a comprehensive HCE program wouldinclude a simpler and easily navigable path to safe, stable and affordable housing.

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The Current landscape of HCE Services

The Stakeholders were invited to participate in an online survey designed to identify currenthousing counseling and education services and capture ideas for comprehensive HCE in SantaCruz County. A total of 21 respondents from 18 organizations/programs responded to thesurvey. Highlights from the survey responses include:

a. Organizations provide HCE services as part of the path to safe, stable and affordablehousing. Some survey respondents described their HCE services as helping peoplePrepare to rent or own a home, such as financial education. Others help to Obtainhousing such as assisting with vouchers and other low-income rental programs. Stillothers support Maintaining housing, such as foreclosure prevention services. Inaddition, several organizations help individuals Stabilize their lives by providingassistance meeting basic needs such as food, shelter, health care and income. Oftenthese urgent stresses must be addressed before an individual is able to take stepstowards acquiring long-term safe, stable and affordable housing.

..b. Organizations provide HCE services that include face to face individual assistance, live

educational workshops, online and self-help resources. The following describescategories of common assistance available in Santa Cruz County:

. Rental HCE helps people understand and take steps to demonstrate they are

stable, responsible renters.. Pre-Purchase HCE helps people understand the homebuying process and their

financial options so that they can make informed decisions when purchasinghomes.

. Post-Purchase HCE helps homeowners maintain their homes and avoid risk offoreclosu re.

. Foreclosure Prevention HCE helps people resolve their mortgage delinquency

status and prevent the foreclosure process from advancing to the next stage.The chart on the next page shows the types of HCE services provided by survey respondents.

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8()c

026 ¡

HCE Services Offered by Survey Respondents

RENTAL Housing 1:1Online/

Workshops Self- Other Services/NotesCounseling & Education Counseling

Help

Bay Federal Credit Union x x X

CA Rural Legal Assistance,x x X Legal assistance

Inc.

Center for Communityx x Organizing/Advocacy

AdvocacyCommunity Action Board

x Xof Santa Cruz County, Inc

Families In Transition x

First Community Housingx X

Inc

Mercy Housing x x X

Pajaro Valley Shelterx x

. Services

Santa Cruz Communityx x

VenturesSure Path FinancialSolutions

x x x

The Salvation Army x

PRE-PURCHASE Housing 1:1Online/

Workshops Self- Other Services/NotesCounseling & Education Counseling

HelpBay Federal Credit Union x x x

CA Rural Legal Assistance Pending

First Community Housingx

Inc

Housing Authority of theSelf-study for Housing Choice

x Voucher program (convert rentalCounty of Santa Cruzvoucher to homeowner voucher)

SurePath Financial Solutions x x x

Mercy Housing x x x

POST-PURCHASE1:1

Online/Housing Counseling &

CounselingWorkshops Self- Other Services/Notes

Education Help

Bay Federal Credit Union x x x

CA Rural Legal Assistance x x

Center for Communityx

Advocacy

Community Bridges-x

LOFRC

7

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FORECLOSURE1:1

Online/PREVENTION Housing

CounselingWorkshops Self- Other Services/Notes

Counseling & Education HelpBay Federal Credit Union x x x

CA Rural Legal Assistance,x x x Legal advice; Legal representation

Inc.

City of Watsonville:x

RedevelopmentCommunity Action Board

x xof Santa Cruz County, Inc

Community Bridges-x

LOFRC

Community Bridges-x

MCR

COPA x

Mercy Housing x x x

Sure Path FinancialSolutions

x x x

The Watsonville LawX Fraud reporting

Center

c. Funding is essential, most organizations do not plan to expand or enhance their HCEservices without adequate funding.

d. Organizations refer clients to each other when they cannot provide the needed HCEservice. Referral relationships exist between organizations, however, there is rarelycoordination to ensure access to referred services.

e. Survey respondents are interested in participating in a comprehensive HCE program inSanta Cruz County. There was particularly strong interest in helping apply for funding(n=14), serving as an "entry point" to the HCE program (n=13) and leading or developingthe HCE program (n=7).

f. Survey respondents' describe the "ideal" HCE program with the following four

elements:1. Adequate Funding . For staff, operations and outreach

. For rental assistance and deposits

. To attract or leverage Federal funds2. Partnerships & . I-stop intake (centralized point of entry)

Collaboration . Partners include Stakeholders + other agencies. Collaborate/contract with existing HCE in neighboring counties

8

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3. Services Array of services includes

. Advocacy

. Bilingual outreach

. Counseling & education at all points in housing continuum

. Ongoing coaching for participants

. Action planning (financial analysis, needs, options, goals, nextsteps)

. Referrals and links to non-housing related social services

4. Requirements & . Mandatory participation in HCE services for lt time homebuyers"Bonuses" . Lenders required to stay up-to-date about local HCE programs

. Realtors & property managers become ambassadors for program

. Align with www.consumerfinance,gov standards

Strengthening What ExistsThroughout the feasibility study, the question was asked, "How would a future HCE program bedifferent from what currently exists?" Stakeholders concluded it should be a coordinatednetwork of services that meet comprehensive HCE needs at each point in the housingcontinuum. Stakeholders agreed this was significantly different and more effective than theexisting services:

. Collaboration among multiple partners is more likely to be effective and producesustainable results when there is a dedicated coordinator to facilitate communicationand planning among the network of providers.

. People in the community are more likely to make referrals to the HCE program and/or

utilize services if there is a centralized, user-friendly "entry point" where an initialscreening is conducted to determine what HCE services are needed and who canprovide them.

. It makes sense for a coordinator (or organization that takes on the coordination for the

network) to be the entry point to the HCE program and to conduct an initial intake andscreening.

. The individual(s) conducting intake and screening should have the ability to connect

clients to the appropriate HCE provider directly (as opposed to referring the client out)to minimize barriers and increase access to services. This could be done through ashared, web-based calendar with designated times for individual counselingappointments, an online registration process for workshops and links to HCE providers'own websites or online/self-help resources.

. At the same time, there should be "no wrong entry point" to the HCE program. Even if

a coordinated network is established, organizations will continue to operate theirrespective HCE programs, conduct outreach for their agencies and serve clients whocontact them directly. If a housing need emerges that one HCE provider cannotaddress, clients can be directed to the HCE network's entry point for further screeningand referrals to services.

. Organizations in the HCE program will need an effective system for sharing relevant

information (electronic) to ensure success for the client. This requires developing

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confidentiality protocols and privacy protections, and how to manage sensitiveinformation such as financial data, Social Security numbers or legal documents.

HCE Program StrategiesThe survey results, community data and Stakeholder Meetings led to four key strategiesessential in a comprehensive HCEprogram.

Strategy 1: Incentivize/Normalize consumer education at all points in housing continuum.Suggested . Develop outreach and marketing campaigns that present HCE services as routine

Activities activities that benefit everyone (i.e. not just for pre-purchase or foreclosure crisis;that also benefit landlords, realtors, lenders and consumers)

. Partner with reputable individuals and institutions in the real estate and lending

industries to offer incentives for participating in routine HCE services (e.g. lowerinterest rate on mortgage for completing annual financial literacy workshop forhomeowners)

Strategy 2: Increase financial literacy of consumers at all points in housing continuum.Suggested . Develop and increase utilization of HCE services that help people develop financialActivities knowledge and ability to achieve short and long-term housing goals (e.g. understand

their finances, manage their credit and debt, develop spending plans, emergencyplanning, etc).

. Offer financial education courses to students in middle school, high school and

college so that they enter the housing market as informed and prepared consumers.

Strategy 3: Coordinate a network of HCE providers.Suggested . Establish a coordinated network, with formalized interagency communication andActivities coordination, that includes organizations providing each service in the HCE

continuum.. Identify an agency with capacity to serve as coordinator for the network of HCE

providers. The coordinator's role would include coordinating interagencycommunication and maintaining updated program information from the HCE

providers in the continuum, facilitating collaboration and relationship-building amongHCE providers and serving as a single point of entry and "case manager" for the HCEprogram.

Strategy 4: Leverage relationships with key stakeholders.Suggested . Identify reputable individuals and institutions in the real estate and lendingActivities industries that could promote the HCE services to their respective clients.

. Identify opportunities for funders and jurisdictions to support a comprehensive

HCE program through input, policy, funding, etc.

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The flow chart below provides a visual example of how an individual or family with an identifiedhousing need would be connected to the appropriate HCE services.

Proposed HCE Program Flow Chart

~Person iii Nee J Siakehoide rsl Referrers

An individual orfamilyexperiencesâ NEEDOR PROBLIM that

impacts the abilty toobtain & maintainsafe, stable, affl?rdablehousing.

The housing need or

problem is DISCLOSED

or becomes KNOWNto others, such as:

. Friends

tíus

.. Family

.. . Banks/Lenders""8 . Real estate

professionals

I . Business professionals

/ (accountants. financial~-'-- plannrs, etc)

. Social service agencies

(FRCs, housingagencies, county

programs, etc). Faith-based

communities. Schools

. Employers/Co,

Workers. Others in a posítion toreferto the HCE

fa su. Other ne thi

could be addessthroUlh llCE servces

program

~'l!~~Í)tt of HèE P~lfers I

Potential Funding SourcesThe US Department of Housing & Urban Development (HUD) used to be a primary andrelatively stable source of funding for housing counseling and education programs. However,HUD recently suspended funding for HCE services due to significant budget deficits. TheWatsonville Law Center conducted some research on potential funding sources (Attachment A)iwhich provides a useful starting point for pursuing funds for elements of the HCE program.

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Recommended Next StepsThe information and input gathered during this feasibility study resulted in a core group ofStakeholders agreeing on the foundations for a future HCE program in Santa Cruz County, as

outlined in this blueprint. Continued discussions about program planning, funding andcollaboration should follow for interested organizations. A few key next steps arerecommended to continue enthusiasm and momentum towards establishing a comprehensiveHCE program.

1. Establish a comprehensive HCE program as outlined in this blueprint with interestedStakeholders.

2. Conduct further research on potential funding sources and assess the matchbetween the funders' priorities and the recommended elements, strategies andactivities outlined in this blueprint.

3. Identify funding sources that allow funds to be used for general operating expensesor indirect costs (e.g. establish and maintain the HCE network).

4. Maintain contact with Stakeholders to obtain input and/or collaborate on funding

strategies and sources, establishing a network of HCE providers and clarifyingspecific roles of participating organizations.

5. Provide opportunities for further discussion and shared decision-making amongStakeholders about funding decisions (e.g. which HCE services to add or expand,staffing requirements, etc).

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WHAT LOCAL GOVERNMENT CAN DOTO ADDRESS

F RE:,CL:O:S REForeclosure Prevention and Education

Early Outreach to Foreclosure Impacted Households: Partner with the Minnesota Home Ownership Center to

implement a Foreclosure Prevention Education Campaign, includig hostig borrower's workshops for consumers,

inserting foreclosure prevention information in tax statements and utity bils, encouraging agencies encounteringconsumers in crisis to have their agency staff attend a Foreclosure Prevention Training and to sign up for the HomeOwnership Center's listserve. For more information on workshops contact the Minnesota Home Ownership Center at 651-659-9336 or http://ww.hocmn.org/

Actively Provide Local Referrals: Refer homeowners and renters totrsted local and regional foreclosure prevention and credit counseligorganiations.

Reach Out To Local Renters in Foreclosed Units: Partner withHOME Line, Legal Aid, and Southern Minesota Regional LegalServices (SMRLS) on their outreach campaign to renters. Directrenters to these organizations to receive free legal advice about theirrights and options during foreclosure, For example, HOME Line at 1-866-866-3546 (or see http://ww.homelinemn,org and see MinnesotaAttorney Generals Office for rights and duties of landlords andtenants at http://ww,ag.state,mn.us/Consumerihousing/lt/default.asp)

Provide Helpful Literature and Web Links: Distribute materialsthrough city departments, utities, and local non-profits, and provideliks on your city web site to trsted foreclosure prevention counseling

resources such as J\Tinnesota Home Ownership Center, HOMELinetenant hotlne at (866) 866-3546, the Attorney General's Office, and

lawhelpmn.org about the avaiabilty of services and other resources toassist home owners and renters.!.

How Cities Are CommunicatingAbout Local Foreclosures

. Post foreclosure information on city website

. Insert information in utility bills

. Host a foreclosure educational workshop

. Provide counselors at city hall once a week

. Use door to door outreach techniques

. Use local media: cable TV and newspapers

. Work with local community and faith

organizations to expand outreach in targeted

areas.

. Designate city staff and neighborhood leaders as

foreclosure information coordinators.

Promote "Don't Borrow Trouble" Consumer Education: Don'tBorrw Trouble is a public education initiative that seeks to educate famies and individuals about how to avoid predatorylending scams, The Don't Borrw Trouble help lie has been established at 612-312-2020 to offer famies a safe place to calbefore they sign anythig that puts their home at risk (http://ww.dontborrowtroublemn.org/01.htm.)

Foster Pre-Purchase Counseling for New Homebuyers: Partner with the Minnesota H01ne Ownership Center and itsmember agency in your area to implement a communications strategy that encourages prospective homes owners to attendpre-purchase traing2 or seek assistance from a trusted advisor before signing any documents related to their homes.

Increase Access to Affordable Financing: Publicize lending tools that may assist home owners in di,stress, includinghome repair funds.

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City Management Of Vacant PropertiesRevise Rental Licensing and Housing Codes: Re-examie rental licensing programs and housing codes and revise oradd to where needed to prevent lack of deferred maintenance and the lack of safety and security of affected housing stock.Effective ordinances include Point of Sale Code Complianceordinances, Public Nuisance Abatement ordinances, Long GrassOrdiances, etc. 3 If your city does not license rental properties,consider licensing as a method of trackig changes in use fromownership to rental and inspecting rental buidig conditions,

Track Your City's Foreclosures and Sub-Prime LoanConcentrations: Track existig foreclosures and use external and

internal data resources (such as city early warning systems4 and theFederal Reserve data on sub-prime loan concentrations5) in acoordinated city/county-wide manner to predict future distressedhomeowners and manage vacancies, For example, some cities tag homesthat appear vacant or have not paid their monthly water bil and leaveinformation requesting the homeowner contact the city within severaldays - if no contact is made, the city turns off the water to theproperty6.

Track Vacant Properties: Employ a vacant and/or boarded propert registr and ask community residents to reportvacant properties imediately.

Educate Landlords: Educate landlords on obligations under city ordinances and state laws regardig propertymaitenance, rental licensing.

Step Up the Use Legal Remedies: Enforce administrative code anduse legal remedies. See list of helpful city ordinances to the right Legalremedies can include, for example, tenant remedies actions andnuisance actions which can be brought by a local government, a localcommunity group, a tenant, or other concerned parties.

Creative Board Ups: In areas where board-ups are rampant consideruse innovative boardig techniques, such as artistic board-ups

Acquisition, Rehabilitation &Neighborhood RecoveryTarget Public Funding and Financing Tools: Publicize financingtools that may assist new home owners to acquie and rehabilitateforeclosed properties. Examples include a The City Living Program inSt PauF , Northside Home Fund in Mineapolis 8, City Advantage inMineapolis9, HUD 203(k) loans10, Minesota Housing's CASA11 andFix-up Fund, 12 and use of local HRA levy dollars in key areas.

Develop New Strategic Partnerships: Buid partnerships with for-profit and non-profit redevelopers, lenders, realtors and other

community based organizations that focus on the recovery of specifictargeted geographic areas of your community.13

Explore Bulk Purchasing Strategies with Local Developers andLenders: Partner with local non-profit and for-profit developers tonegotiate bulk purchase of properties from lenders to proactivelyrevitalize affected neighborhoods and prevent foreclosed homes fromfallg into the hands of unscrupulous speculators,

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Implement Ordinances toAddress Foreclosure Impacts

. Point Of Sale Code Compliance Ordinance

. Vacant Building Registration

. Public Nuisance Abatement (removal of

junk cars, garbage, building materials)

. Long Grass Ordinance

. Recoup Vacant Propert Monitoring and

Board Up Costs

. Recoup Costs Of Excessive Use Of

Services

Coordinate Early Warning Data onForeclosures and Suh-Prime Loansto Target Outreach and Remediation

Efforts

. Track Utility Biling (Late Payers) And Usage

To 1.0. Vacant Homes and Prevent Water

Damage

. Track City Inspection And Enforcement Reports

. Monitor Federal Reserve Data On Sub Prime

Loan Concentrations By Local Zip Code

. Monitor County Sheriff Data To Track Street

Address Level Foreclosure Locations

. Monitor State Foreclosure Reports At GMH

And Housing Link Web Sites

. Monitor Values Through County Assessor Data

and Property Tax Records

. Monitor Police Reports to 1.0. Problem

Properties

Zb C.

WHAT LOCAL GOVERNMENT CAN DO TO ADDRESS

F RECLOSURESMore Detail on Foreclosure Recovery Strategies and Resources1 HELP FOR RENTERS IN FORECLOSED APARTMENTS: For a copy of a fact sheet on how to deal with a foreclosed rental propert as a

tenant, please see: When Your Landlord Loses The Building: Mortgage Foreclosure see: http://www,lawhelp,org/docliments/412111-14 %20 W hen% JOY our%20 Landlord%2 OLoses%20 Ihe%20Bui I di ng, pdl"sta tea bbrev=/MN /

2 HOME OWNER EDUCATION AND FORECLOSURE COUNSELING: For more information on foreclosure prevention related

homeowner education see http://www,hocmn.org/map,cÜn?pageID=5,

J POINT OF SALE CODE ENFORCEMENT ORDINANCES: For information on Point of Sale Code Compliance Ordinances, see this

example from the City of Richfield: "Point of Sale code Compliance" brochnre:http://www.cirichfield.mn.us/I.o i iee/lnspcctions/Pointo fSalcBroe hure, pdf

4 EARLY WARNING SYSTEMS FOR FORECLOSURES: For more information on the use of early warning systems for cities experiencing

increasing foreclosures contact Kellie Jones at the City of Minneapolis at 612- 673-3506 or [email protected].

5 SUB PRIME LOAN CONCENTRATIONS - WHERE FUTlJRE FORECLOSURES ARE MOST LIKELY: To obtain data on Sub-Prime

Loan Concentrations by Zip Code from the Federal Reserve contact Michael Grover at 612-204-5 172 or [email protected],og.

6 HOW ONE COUNTY IS RESPONDING TO FORECLOSURES: For examples of how counties can respond to foreclosures, see: ITennepin

Countv Foreclosure 'fask Force Report:http://ww.co.hennepio.mn.us/images/H CI nternet/Y CGlNewsroom/Files%20P A/mortgage_closure _web, pdf

7 HOME PURCHASE LOAN PROGRAM EXAMPLE: For more information on Saint Paul"s CitvLivii!lIoine Prognun designed to assist

homebuyers with purchase and rehabilitation of homes, see http://ww.stpau1.gov/index,asp?NTD=2350

8 STRATEGIC NEIGHBORHOOD REMEDIATION FUND EXAMPLE: For more information on the Northsidc lIome Fund which is

designed to foster redevelopment of vacant and boarded homes, and seeks to leverage additional investment and enforcement tools needed toimprove surrounding properties. The focus is on small geographic redevelopment areas, or "clusters", intended to make a noticeably positiveimpact on foreclosure impacts, improve the area's housing stock and to stabilize and strengthen the homeownership market. Contact Jill Kiener [email protected],us and review http://www.ci.minneapolis.lnn.us/cped/docs/nhf brochure.pdt:

9 FORGIVEALBLE DOWNPA YMENT LOANS: For more information on Minneapolis Advantage Horne Loan Program (for targeted

neighborhoods), which offers a $10,000 zero-percent interest rate loan that is forgivable over five years to anyone buying a home in which theywill live in these eligible neighborhoods (PDF). Loan Program Guidelines are available at:http://www.ci.minneapolis.mn.us/cped/docs/Final Mpls Advantagc Guidelines.pdfAlso see: http://www.ci.miniieapolisomnous/cped/minneapolisadvantage home,asp

10 HUD HOME LOANS.For more information on HUD loans, see http://www,hud,gov/offees/hsg/sfh/203k/203kabou,ctìil

i i FIRST TIME HOMEBUYER LOAN PROGRAMS: For more infìimiation on Af"tordable Mortgages for First- Time Homebuyers through

Minnesota Housing's Coiimunitv Activitv Set Aside (CASA) Loan Program for fìrst time homebuyers that helps low to moderate incomeMinnesotans buy a home, The affordable, low, fixed interest rates for up to 40 years arc available to eligible homcbuyers through lendersparticipating in initiatives in several communities around the state. Homcbuyer education is required for all borrowers receiving a CASA loan,see http://www,mnhousing,gov/eonsumers/home-buvers/loans/MTIFA 000469.aspx Also see Minnesota 'lousing's downpayment and closingcost loans through the Homeownership Assistance Fund (lIAF) which provides the opportunity for eligible targeted borrowers who qualify for aninterest-free, deferred loan to help with downpayment and closing costs, See: http://www.llnhousing,gov/consuliers/home-buye rs/loans/M HFA ~ 003407, aspx

12 MINNESOTA HOUSING'S FIX lJP FUND PROGRAM: For more information on Minnesota Housing's Fix-up Fund, see

http://www.Ilnho us i ii g 0 go v / co ns um ers/ho me-o ""iie rs/H om e I II pro ve m entLoa ns/ i n ci ex, a s px

13 NORTHSIDE HOME FUND - STRATEGIC CLUSTER REDEVELOPMENT PROGRAM:

http://www, ciom inneapo i is, mIL L1s/ wed/ does/nhf broeh Lire. pdf

This document was prepared by: Minnesota Foreclosure Prevention Council, Greater Minnesota Housing Fund, http://www,gmhfeom

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