Nettlesome CA Rule Repealed.

The California state legislature, rarely a friend to mortgage lenders, has offered relief from a controversial court decision that exposed servicers to substantial litigation risk relating to loan payoffs.

The legislation will undo the "chilling effects" of the Bartold v. Glendale Federal Bank case, which held that servicers must immediately forward documentation for a lien release when a loan is paid off - a virtually impossible deadline. That case sparked a series of class-action lawsuits against lenders, and more were waiting in the wings. But the law may make those lawsuits moot.

"The short answer is the courts will now have to consider the effect of this legislation. The clear intent of the legislation was basically to overturn the Bartold decision," said John Ross, a California lobbyist with Kahl-Pownall Companies, Sacramento, who worked with the California Mortgage Bankers Association on the bill.

The remedy and extent of potential harm caused by Bartold were big.

Jim Stewart, a senior vice president for Nationwide Title Clearing, said the Bartold case "was a really dark cloud for both servicers and those who provide services" to the industry.

"No one can put together a reconveyance package and deliver it in zero days. It was a practical impossibility," Mr. Stewart said.

Lenders, however, faced potential million dollar lawsuits for allegedly failing to comply with the deadlines established under Bartold. The case was a concern nationally, Mr. Stewart said, because almost all big lenders have loans from California in their portfolios.