CALIFORNIA MORTGAGE SERVICING REQUIREMENTS

NOTE:  The following is to be used for informational purpose and does is not legal advice.  Legal practioners should not use these summaries to the exclusion of the actual statutory and regulatory materials. Note also that this does not include judicial interpretations.

Scope: Transfer requirements apply to transferor of servicing of

mortgage or deed of trust secured by real property located in state

containing one to four residential units. § 2937. Escrow requirements

apply to lenders or purchasers (and their agents) of obligations

secured by real property containing a single-family, owneroccupied

dwelling. § 2954. Provisions of § 2954.2 apply to

mortgagees of real property containing a one to four family

residence.

Exclusions: ??Servicing agent'' does not include a trustee exercising

a power of sale pursuant to a deed of trust. § 2937.

Transfer Notice Requirements: Transferor and transferee of servicing

must notify borrower (or subsequent obligor) before borrower

becomes obligated to make payments to new servicer (if a notice

of default has been recorded or a judicial foreclosure is in progress,

should notify the attorney named in the notice of default or

foreclosure). Notice to borrower must include name and address of

new servicing agent; date the transfer will take place; address to

which payments should be sent; due date of next payment. Transferor

must notify new servicing agent about existing insurance

policies servicer is responsible for maintaining, including flood and

hazard insurance. Borrower not liable for amounts paid to former

servicer prior to borrower's receipt of notice of the transfer, or for

late charges if these payments were otherwise on time. § 2937.

Borrower Inquiries: Borrower may request additional account

statements (discussed below). See also Appx. E.2, infra, for payoff

statement requirements.

Escrow Requirements:

Restrictions: Escrow may be required only for loan insured or

guaranteed by certain government agencies, or loan of more

than ninety percent of sale price, or after borrower has missed

two tax payments. If escrow used in absence of these conditions,

borrower must be told it is voluntary. § 2954. May not require

Appx. E.1-AZ Foreclosures

2

deposits in escrow account in excess of that permitted by

RESPA or reasonably necessary to pay taxes or insurance

premiums as they become due. Excess must be refunded within

thirty days, unless parties agree otherwise. Additional payments

may be required to make up deficiencies. § 2954.1.

Recordkeeping and Notice: Itemized annual accounting must be

provided free within sixty days of end of calendar year; information

includes accounting of moneys received, credited, or

disbursed for principal, interest, late charges, and payment of

taxes and insurance. Additional accounting statements at borrower's

request, for prescribed fees?$.50 each for statements

requested in advance on a monthly basis, $1 when requested for

only one month, $5 for single cumulative statement. Borrower

must be notified of availability of additional statements. No

increase in monthly payments permitted until borrower has been

given an itemized accounting, listing the new payment amount

and explanation of reasons for increase. §§ 2954, 2954.2.

Handling of funds: Payments shall be made promptly to ensure

that insurance remains in force and tax payments are not

delinquent. § 2954.1.

Interest: Financial institutions must pay two percent interest on

funds held in escrow accounts for one to four family residences,

and must not charge any fee for maintaining escrow account that

will result in payment of less than two percent interest on

monies held in escrow accounts. Interest shall be credited to

borrower's account annually or upon termination of account.

§ 2954.8.

Private Mortgage Insurance Requirements: If private mortgage

insurance is required, lender must notify borrower within 30 days

after close of escrow of the conditions under which cancellation is

possible, the information needed to communicate with lender and

insurer, and the procedure for cancellation. Thereafter, lender must

provide annual notice that cancellation may be possible, and an

address and phone number for inquiries. This information may be

included in the annual accounting required by § 2954.2. Private

mortgage insurance on a loan for personal, family or household

purposes secured by an owner-occupied one to four unit dwelling

may be cancelled by a request in writing two years after origination

if the loan balance is not more than 75%, no required payment has

been more than 30 days late in the past 24 months, and no other

default has been recorded. Within 30 days after cancellation,

insurer must refund any unused premium to person designated by

insured. These sections do not apply to loans such as FHA and VA

that require insurance for the life of the mortgage. Cal. Ins. Code

§§ 117, 12640.02; Cal. Civ. Code §§ 2954.6 through 2954.7.

Additional Requirements: None specified.

Private Remedies: Any person harmed by violation of escrow

requirements may sue for actual damages and injunctive relief.

§§ 2954, 2954.1. Any person harmed by violation of private

mortgage insurance requirements has a cause of action for injunctive

relief, treble damages, costs and reasonable attorney fees. Cal.

Civ. Code § 2954.6.

State Remedies: Willful and repeated violations of escrow requirements

punishable by fines of $50 to $200. § 2954.

Special Servicing Requirements for High-Cost Loans: Cal. Fin.

Code §§ 4970, 4973 prohibit increasing interest rates upon default

on payments. See also Cal. Fin. Code § 1916.7 (adjustable rate loan