The first step in the non-judical foreclosure process is for the lender to record a Notice of Default. In 2008, the Legislature enacted Civil Code Section 2923.5. This law provided that, as to certain residential loans, the lender could not file a Notice of Default, until it contacted the borrower and discussed alternatives to foreclosure.

This law applies only to the following deeds of trust and mortgages:

(1) Deeds of trust and mortgages recorded from January 1, 2003 to December 31, 2007.

(2) Deeds of trust and mortgages against owner-occupied residential real properties with four units or less.

If the law applies, then the lender may not file a Notice of Default until at least thirty (30) days after either contacting the borrower to discuss alternatives to foreclosure, or making a good faith effort to do so. Civil Code Section 2923.5(a)(1). The initial contact with the lender by the borrower may be in person or by telephone. The purpose of the contact is “to assess the borrower’s financial situation and explore options for the borrower to avoid foreclosure.” Civil Code Section 2923.5(a)(2). During the initial meeting, the lender or its representative shall tell the borrower that he or she has the right to request a follow-up meeting, which shall occur within fourteen (14) days.

If the law applies, any Notice of Default filed by the lender must include a declaration that contact was made with the borrower, pursuant to the statute, or that the borrower had attempted to do so, with due diligence. The statute defines what constitutes due diligence in some detail. Civil Code Section 2923.5(g).

Mabry v. Superior Court(2010) 185 Cal. App. 4th 208, 110 Cal. Rptr. 3rd 201, was the first appellate decision to construe the meaning and requirements of Civil Code Section 2923.5. “There is nothing in section 2923.5 that requires the lender to rewrite or modify the loan.” 185 Cal. App. 4th 214. The law can be enforced by a private cause of action. Rejecting two common lender arguments, no, the borrower need not tender the full amount of the mortgage in default before it can sue and, no the law is not pre-empted by federal law. Finally, and critically, the borrower’s remedies are limited to postponing the foreclosure; the borrower cannot undo a foreclosure because the law was violated.

Civil Code Section 2923.5, by its own terms, will expire on January 1, 2013, unless extended by the Legislature.