During the eleventh hour of the 2020 legislative session, the California Legislature approved 2 significant bills in response to the COVID-19 pandemic with the potential to have far-reaching ramifications for mortgage servicers.
Assembly Bill 3088
The first of the bills this article discusses is Assembly Bill (AB) 3088,[1] which temporarily prevents evictions due to hardships related to COVID-19. More specifically, and effective immediately, AB 3088 prevents eviction of tenants enduring financial hardship due to COVID-19 through January 2021 and delays rental recovery by landlords until March 2021. AB 3088 only applies to residential tenants and landlords; however, no part of this bill forgives or cancels any payment obligations of a tenant.
Key provisions of AB 3088
- A landlord must provide a notice to its tenants informing them of their rights under AB 3088 by September 30, 2020, or concurrently with any notice demanding rent or other payment obligations under the lease.
- Tenants will have 15 business days to respond to the landlord’s demand to pay rent by returning a declaration signed under penalty of perjury, indicating that the tenant cannot pay the amount at issue because of COVID-19 related financial distress.
- “COVID-19-related financial distress” means any of the following: (1) loss of income caused by the COVID-19 pandemic; (2) increased out-of-pocket expenses directly related to performing essential work during the COVID-19 pandemic or directly related to the health impact of the COVID-19 pandemic; (3) responsibilities to care for children, elderly, disabled, or sick family member directly related to the COVID-19 pandemic that limit a tenant’s ability to earn income; or (4) other circumstances related to the COVID-19 pandemic that have reduced a tenant’s income or increased a tenant’s expenses.
- Households making more than $100,000 annually or more than 130 percent of the county’s median income, whichever is higher, will be required to provide additional documentation showing financial hardship.
- This bill also includes a provision that clarifies already-enacted provisions of the Tenant Protection Act[2] (AB 1482) to: (1) identify inflation calculation when determining permissible rent increases; (2) clarify application of the law to properties containing two housing units; (3) align definitions; (4) correct erroneous cross-references; and (5) clarify the scope of laws with which a housing provider must demonstrate compliance before establishing new rental rates after the expiration of affordability covenants.
Timeline
September 2, 2020: Landlords can evict tenants for lawful causes permissible under law, other than for the nonpayment of rent. A landlord cannot evict a tenant if a tenant demonstrates COVID-19 related financial hardship for rental debt accrued between March 1, 2020, and August 31, 2020.
October 5, 2020: Landlords can evict tenants for nonpayment of rent or other charges if a tenant fails to provide documentation under penalty of perjury, indicating that the tenant cannot pay the demanded amount of rent because of a COVID-19 related financial hardship.
February 1, 2021: Landlords can evict tenants who had a COVID-19 related financial hardship but failed to pay 25% of their rent between September 1, 2020, and January 31, 2021.
March 1, 2021: Landlords can sue tenants to repay their outstanding rental debts due to COVID-19.
Local Ordinances
Local ordinances put in place to prevent evictions in response to COVID-19 will continue to apply until they expire; however, such ordinances cannot be renewed, modified, or adopted between August 19, 2020, and January 31, 2021. Any local ordinance that allows a tenant to pay off unpaid rent must begin by March 1, 2021, and expire by March 31, 2022.
Extension of the Homeowners Bill of Rights to Small Landlords
Homeowners Bill of Rights (HBOR) provides procedural protections to homeowners before a foreclosure sale by requiring mortgage servicers to contact borrowers to discuss foreclosure prevention alternatives and pause foreclosure proceedings if a loan modification is under review.
AB 3088 extends HBOR protections to small landlords owning a fully tenant-occupied property with one to four units if the following conditions are met:
- The landlord owns a maximum of 3 residential properties, each of which contains a maximum of 4 dwelling units.
- The property for which the landlord is seeking protection is occupied by at least 1 tenant who has been unable to pay rent due to COVID-19 financial hardship.
- The property for which the landlord is seeking protection is occupied by at least 1 tenant who entered into a market-rate lease that was in effect on March 4, 2020.
The protections expanded to small landlords will only be in effect until January 1, 2023.
AB 3088 also requires a mortgage servicer to provide a written explanation outlining the basis for denying any forbearance request by a borrower if the following conditions are met:
- The borrower was current on payment as of February 1, 2020.
- Due to COVID-19, the borrower is experiencing a financial hardship that prevents the borrower from making timely payments on the mortgage obligation due.
If the written notice by the mortgage servicer cites any defect in the borrower’s request, that is curable, the mortgage servicer shall:
- Specifically identify any curable defect in the written notice;
- Provide 21 days from the mailing date of the written notice for the borrower to cure any identified defect;
- Accept receipt of the borrower’s revised request for forbearance before the aforementioned 21-day period lapses; and
- Respond to the borrower’s revised request within 5 business days of receipt of the revised request.
The Centers for Disease Control and Prevention Orders Moratorium on Residential Evictions
Relatedly, even if AB 3088 had failed to obtain Legislative’s approval, a tenant can still be protected by the eviction moratorium put in place by the Centers for Disease Control and Prevention (CDC), which halts residential evictions nationwide pursuant to Section 361 of the Public Health Service Act (CDC Order). The CDC Order applies to any state or local jurisdiction that has not provided the same or greater level of protection provided by the CDC Order. The CDC Order is effective through December 31, 2020.
In order for a tenant to be protected under the CDC Order, the tenant must provide to their landlord an executed copy of the declaration form provided by the CDC or a similar declaration under penalty of perjury. Each adult listed on the lease or housing contract should complete and provide the declaration.
The declaration must indicate the following:
- Tenant has used best efforts to obtain all available government assistance for rent or housing;
- Tenant either: (a) expects to earn no more than $99,000 in annual income for 2020 (or no more than $198,000 if filing a joint tax return); (b) was not required to report any income in 2019 to the U.S. Internal Revenue Service; or (c) received an Economic Impact Payment;
- Tenant is unable to pay the full rent due to substantial loss of household income, loss of compensable hours of work or wages, a lay-off, or extraordinary out-of-pocket medical expenses;
- Tenant is using best efforts to make timely partial payments that are as close to the full payment as the individual’s circumstances may permit; and
- Eviction would likely render the individual homeless or force the individual to move into a shared living setting because the individual has no other available housing options.
The CDC Order will be enforced by federal authorities. The CDC Order does not forgive or cancel any payment obligations of a tenant and does not preclude a landlord from charging or collecting fees, penalties or interest as a result of the failure to pay rent.
Assembly Bill 1864
The second bill passed by the California Legislature, AB 1864, implements the California Consumer Protection Law (CCFPL) to promote consumer welfare and fair competition. Governor Newsom signed AB 1864 on September 25, 2020, and will be effective on January 1, 2021.
CCFPL prohibits unlawful, unfair, deceptive or abusive acts or practices with respect to consumer financial services and authorizes the Department of Financial Protection and Innovation (DFPI) (formerly known as the Department of Business Oversight [DBO]) to oversee and enforce CCFPL. DFPI is an expansion of DBO and retains all powers and responsibilities of the DBO.
CCFPL provides DFPI additional oversight authority over business activities, including debt collection, debt settlement, credit repair, check cashing, rent-to-own contracts, retail sales financing, consumer credit reporting and lead generation. CCFPL authorizes DFPI to implement rules related to any person that engages in the offering or providing of a consumer financial product or service to a California resident, including registration requirements, registration fees, records retention policies, background checks for key officers, and other appropriate financial requirements. CCFPL also authorizes DFPI to bring actions against any entity licensed or registered by the DFPI who engages in unlawful, unfair, deceptive or abusive practices.
The following are exempt from the CCFPL:
- Licensees of state agencies other than DFPI to the extent such entities are acting under the authority of the other state agency’s license;
- Existing licensees of the DFPI other than, payday lenders and student loan servicers; and
- Banks, credit unions, and other financial institutions acting under federal law or the laws of another state.
FOOTNOTES
[1] (Chiu) Tenancy: rental payment default: mortgage forbearance: state of emergency: COVID-19.