The California State Senate passed legislation this week in an effort to prevent avoidable foreclosures. Senate Bill (SB) 1275 requires mortgage servicers to notify borrowers of a right to seek options that would avoid foreclosure and attach an application for a loan modification or other alternatives before issuing a notice of default (NOD). Also before filing an NOD, servicers must evaluate a borrower who submits a written request for a loan modification. For those denied one, a separate letter must be mailed to the borrower informing them of the denial and reasons why. The bill was authored by Sen. Mark Leno (D-San Francisco) and Senate President Pro Tem Darrell Steinberg (D-Sacramento). The bill will now move to the California State Assembly for consideration by the Assembly Banking Committee. Eligible mortgages must have been originated before Jan. 1, 2009 and must be a single-family, owner-occupied residential property. Under the bill, servicers must file a new declaration of compliance before recording the NOD. It is a checklist of all of the requirements completed before the NOD is filed. If this new document is not filed, damages could be awarded to the borrower, and the foreclosure could be voided. Also, if the home is sold at auction out of servicer error, recourse is provided in the form of a private right of action. It allows eligible homeowners to seek limited damages and could even reverse the foreclosure sale. Before the bill passed, there was no recourse for erroneous foreclosure sales. According to the Center for Responsible Lending, servicers are initiating the foreclosure process while handling borrower’s requests for resolutions. “Simple fairness dictates that no one should lose their home while they are in the middle of trying to save it,” said Paul Leonard, director of the California office of the Center for Responsible Lending. According to RealtyTrac, an online foreclosure marketplace, one in 192 homes received a foreclosure filing in April 2010. It’s the fourth highest foreclosure rate in the country. Another California bill requiring servicers and borrowers to attend foreclosure mediations passed the Assembly Appropriations Committee last week and should reach the floor in early June. Write to Jon Prior.