New California “Workout” Legislation

21 Sep New California “Workout” Legislation

Last week, my colleague Michael Doan, wrote an interesting post about new California legislation, Civil Code §2923.6. This is good legislation for home owners – as Michael points out the mortgage companies must now comply with several sections of this code to work with a homeowner to refinance or avoid foreclosure.

Michael’s post suggests that mortgage companies must work out a refinance or loan modification. I don’t think the statute is that clear. Although the intent is there to encourage a workout, it seems to me that there is sufficient “wiggle room” to allow the mortgage company to avoid having to do that.

Section 2963.6(a) states:”that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification or workout plan if such a modification or plan is consistent with its contractual or other authority.” Frankly, I doubt that when push comes to shove we won’t find that there is some “contractual or other authority” that allows the avoidance of a meaningful workout plan.

The law is brand new having gone into effect two weeks ago. We’ll just have to wait and see how California courts interpret this law. I, for one, hope Michael is right, though I fear otherwise.

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Douglas Jacobs is a California bankruptcy attorney and partner in the Chico law firm of Jacobs, Anderson, Potter & Chaplin. Since 1988, Mr. Jacobs has taught Constitutional law and Debtor-Creditor/Bankruptcy law at the Cal Northern School of Law. He has served as Dean of Students since 1994. He is a frequent lecturer on the subject of consumer bankruptcy law, and has spoken at both state and national levels.
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