How a New California Law Impacts Your Forbearance Application

In response to the COVID-19 crisis, California lawmakers have passed a variety of rules and regulations. One piece of legislation, called the COVID-19 Small Landlord and Homeowner Relief Act of 2020, largely addresses eviction that have become prominent between landlords and tenants. However, the law also addresses how a mortgage can be serviced and issued.

This law is important to anyone seeking a loan in California, including our city of San Diego.

Law Requires Forbearance-Denial Notices

In the wake of the coronavirus, states, counties, and townships locked down numerous businesses. The worthwhile goal of these lockdowns was to slow the spread of a dangerous and highly-contagious virus, but the lockdown resulted in millions of people losing their jobs or seeing a drop in income. This financial loss has caused difficulty for many Americans who are now struggling to make mortgage payments.

To get through the crises, many homeowners have requested forbearance (a pause) on their mortgage payments. This forbearance would, it’s hoped, allow them to get through the financial crisis with their homeownership still intact. But forbearance is not always granted by lenders, and mortgage companies are not always required to inform the homeowners on their decision. So not only can the request be denied, some homeowners don’t even know if the request was denied.

If you are experiencing financial trouble because of COVID-19, mortgage forbearance can provide some wiggle room for your budget.

The recent law simply requires mortgage servicers to provide written notice to specific borrowers whose request for forbearance has been denied.

From now until April 1, 2021, borrowers who were current on their mortgage payments as of February 1st, 2020 and are currently experiencing financial trouble because of COVID-19 are eligible to receive a notice of denial.

“Curable” Denials

There is an important detail in the law that may give you a second chance at receiving payment mortgage forbearance. The law states that if the denial is “curable,” the notice must explain any defects in the request that may have caused the denial. For example, the application may have simply been incomplete, or it could have missing information. If your request is denied, but the denial was caused by something curable, you will be informed that you have 21 days to fix the problem.

Once the lender receives the new request, the servicer must accept the new application and respond with their acceptance or denial within 5 business days.

Many Loans Impacted by the Law, Many NOT Impacted

To be honest, this California law will only impact certain loans. All government-backed loans that are subject to the CARES Act, of which there are many, will not be effected. Loans supported by the FHA, for example, do not require documentation to request forbearance. Instead, you only need to describe a specific need that relates to the COVID-19 crisis. The threshold for these loans is so low that denial of forbearance is practically unheard of.

The law is instead geared toward privately-held loans where the lender or investor is not required to stay within the legal confines of the CARES Act. For these loans, the lender is often able to request financial information from the borrower. This financial information can help the holder of the loan in making their final decision. The California law, essentially, encourages lenders and servicers on these loans to copy the guidelines set forth by the CARES Act. It also gives them protections for enforcing their criteria.

Part of the new law is a stipulation that complying with the national law is considered compliance with the California law. A servicer who allows for forbearance in a fashion that mirrors the CARES Act for an eligible mortgage shall be deemed to be in compliance with the law created by California lawmakers.

Perhaps most interesting to borrowers and lenders is a change in the new law that allows for a cause of action for a violation of the CARES Act, even though no such details is provided in the national law. The law essentially states that all lending servicers comply with national guidelines in regards to borrrower options after a COVID-19-related forbearance. The borrower who is harmed by a violation can obtain relief or financial damages to address the situation.

How Does This Impact You, the California Homeowner?

Essentially, this law ensures that you will, assuming you meet the requirements, be given a notice that describes the specific reasons for denial. So if you request forbearance, there is now a better chance that you will receive a formal and descriptive notice on the lending institution’s decision.

Should You Apply for Mortgage Forbearance?

Just because you are struggling financially does not automatically mean that mortgage forbearance is the right choice. If you are thinking about applying, you’ll need to follow these steps.

See if Forbearance is Right For your Situation

Personal financial factors should first be considered. For example, can you afford the payments even though it tightens your budget? If so, forbearance may not be needed.

Determine If You Are Eligible

Next, you will need to determine if you meet the legal requirements for a forbearance on your loan. Each loan type will have different eligibility requirements.

Contact Your Lending Agent

If you decide to proceed, the next step will be to contact your lending agent or lending institution. They may be able to provide information on eligibility as well.

Request a Forbearance Agreement or Application

The next step is to start filling out the proper paper work and begin the process of applying for forbearance. These documents are usually easy to fill out, but assistance may be required.

Organize and Deliver Financial Documents

To be granted forbearance, you’ll need to demonstrate a financial need. Information that supports this need, such as bank statements, layoff papers, and other documents, can help your cause.

Fill Out Paperwork and Wait for Final Decision

Once all the paperwork is filled out, simply wait for your lending institution to issue a decision on your forbearance request.

(Note: Steps can vary depending on your lending institution and the type of loan you have.)

Proudly Supporting You Through Any Mortgage Situation!

If you are ready for a world-class mortgage, or if you need guidance for a forbearance application on one of our loans, contact our staff today. From simple guidance to assistance with your next mortgage application, we would be proud to help you in any way possible.

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I hope you enjoyed reading this article. It's my goal to keep you updated with the latest real estate mortgage news. I'm proud to provide you with 100% original and unique content. Subscribe now to get high quality real estate mortgage content and articles delivered directly to your inbox. Chad Baker is Regional Manager for Cross Country Mortgage. Chad is consistently recognized in the top 1% of mortgage originators in the United States 2011-2019. Got a question for Chad? Call (858) 353-8331 or submit your question online