BILL NUMBER: SB 926 AMENDED
BILL TEXT
AMENDED IN SENATE JANUARY 24, 2008
AMENDED IN SENATE JANUARY 18, 2008
AMENDED IN SENATE JANUARY 7, 2008
INTRODUCED BY Senators Perata, Corbett, and Machado
(Coauthors: Senators Cedillo, Migden, Romero, and
Wiggins)
FEBRUARY 23, 2007
An act to add and repeal Sections 2923.5, 2923.6, 2924.8, and
2929.3 of the Civil Code, and to add and repeal Section 1161b of the
Code of Civil Procedure, relating to mortgages, and declaring the
urgency thereof, to take effect immediately.
LEGISLATIVE COUNSEL'S DIGEST
SB 926, as amended, Perata. Mortgages.
Residential mortgage loans: foreclosure procedures.
(1) Existing law requires every mortgage instrument to meet
specified requirements. Existing law invalidates any change in
interest provided for in any provision for a variable interest rate
contained in a security document, as defined, or evidence of debt
issued therewith, unless the provision is set forth in the security
document or evidence of debt, the document or documents contain,
among others, a statement notifying the borrower that the mortgage
may provide for changes in interest, principal loan balance, payment,
or loan terms, and, upon a change in interest rate, the borrower is
mailed specified information on the base index and interest rate
change.
Until January 1, 2013, this bill would require, commencing at 120,
90, and 45 days prior to any projected change
increase of at least 10% in a residential mortgage payment
amount for a loan made on or before December 31, 2007, that is
for an owner-occupied residence , the mailing of specified
information related to the interest rate change and payment due, in
plain language at a specified reading level
and in the language in which the mortgage was negotiated, as
specified.
(2) Upon a breach of the obligation of a mortgage or transfer of
an interest in property, existing law requires the trustee,
mortgagee, or beneficiary to record in the office of the county
recorder wherein the mortgaged or trust property is situated, a
notice of default, and to mail the notice of default to the mortgagor
or trustor. Existing law requires the notice to contain specified
statements, including, but not limited to, those related to the
mortgagor's or trustor's legal rights, as specified.
Until January 1, 2013, and as applied to residential mortgage
loans made on or before December 31, 2007, that are for
owner-occupied residences , this bill would, among
other things, require, prior to the filing of any notice of default,
a mortgagee, trustee, servicer, or beneficiary to conduct an
in-person or, at the borrower's option, telephonic meeting with the
borrower, as defined, to assess the borrower's financial situation,
provide the borrower with a list of HUD-certified credit counselors
in the borrower's geographic area, and explore options for the
borrower to avoid foreclosure. The bill would also require the
mortgagee, trustee, servicer, or beneficiary to offer, if feasible,
other nonforeclosure options, as specified. The bill would preclude
the filing of a notice of default until 30 days after that meeting,
and would, upon that filing, require the mortgagee, trustee,
servicer, or beneficiary to include a specified declaration regarding
the meeting and the offering of alternative terms and options,
which, upon a willful misstatement of material fact, may subject that
person to a specified civil penalty subject to a civil action by the
attorney general, district attorney, county counsel, or city
attorney. If a notice of default had already been filed prior to the
enactment of this act, the bill would instead require, prior to the
notice of sale, an in-person or, at the borrower's option,
telephonic meeting between the above-described parties.
Upon filing a notice of sale, the aforementioned declaration
requirements and penalty provisions would also apply thereto.
The bill would also set forth procedures by which the borrower would
be contacted prior to those in-person meetings, defined as "due
diligence" on the part of the mortgagee, trustee, servicer, or
beneficiary, which would require and include preliminary contact by
electronic mail, first class mail, telephone, and certified mail, as
specified. The bill would also require specified mailings to the
resident of a property that is the subject of a notice of sale.
Until January 1, 2013, this bill would also set forth specified
penalties of up to $1,000 a day for the failure by a legal owner to
maintain vacant foreclosed residential
property purchased at a foreclosure sale , as specified
, and subject to a 14-day abatement period .
(3) Existing law governs the termination of tenancies and
generally requires 30 days' notice of the termination thereof, except
under specified circumstances. Existing law also establishes the
criteria for determining when a tenant is guilty of unlawful
detainer.
Until January 1, 2013, this bill would give a tenant or subtenant
in possession of a rental housing unit that has been sold due to
foreclosure, 60 days to remove himself or herself from the property,
as specified.
(4) This bill would set forth specified findings and declarations
and intent provisions with regard to the above, and would provide
that its provisions are severable.
(5) This bill would declare that it is to take effect immediately
as an urgency statute.
Vote: 2/3. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) California is facing an unprecedented threat to its state
economy and local economies because of skyrocketing residential
property foreclosure rates in California. Residential property
foreclosures have increased almost 250 percent from
September 2006 to September 2007. More than 52,000 homes were lost to
foreclosure in California in 2007, and another 172,000 households
are in default and undergoing the foreclosure process. As many as
foreclosures increased sevenfold from 2006 to 2007. In
2007, more than 84,375 homes were lost to foreclosure in
California, and 254,824 households went into default, the first step
in the foreclosure process. As many as 400,000 subprime
borrowers with over one hundred billion dollars ($100,000,000,000) in
mortgages, and hundreds of thousands of other residential property
borrowers, could face foreclosure in the next five years.
(b) High foreclosure rates have adversely affected property values
in California, and will have greater adverse consequences as
foreclosures continue to rise. A recent United States Congress Joint
Economic Committee report estimates that more than twenty-three
billion six hundred million dollars ($23,600,000,000) in property
values will be lost over the next two years in California because of
foreclosures.
(c) Over the next two years, it is estimated that California will
lose nearly one hundred eleven million dollars ($111,000,000) in tax
revenues from forecasted foreclosures and the spillover effect on
neighboring properties. More foreclosures mean less money for
schools, public safety, and other key services.
(d) Under specified circumstances, mortgage lenders and servicers
are authorized under their pooling and servicing agreements to modify
mortgage loans when the modification maximizes the net present value
of recoveries to the securitization trust and is in the best
interest of investors; and that modification is in the best interest
of investors when the borrower's ability and willingness to pay under
the modified terms continues to produce revenue for the investor,
whereas a default on the loan and foreclosure of the property causing
significant financial loss to the investor is likely to occur
without a restructuring or other modification of the loan.
(e) It is essential to the economic health of California for the
state to ameliorate the deleterious effects on the state economy and
local economies and the California housing market that will result
from the continued foreclosures of residential properties in
unprecedented numbers by modifying the foreclosure process to require
mortgage lenders and servicers to contact their borrowers and
explore mutually agreed upon options that could avoid foreclosure.
These changes in the procedure for accessing the state's foreclosure
process are essential to ensure that the process does not exacerbate
the current crisis by adding more foreclosures to the glut of
foreclosed properties already on the market where a foreclosure could
have been avoided. Those additional foreclosures will further
destabilize the housing market with significant, corresponding
deleterious effects on the local and state economy.
(f) This act is necessary to avoid unnecessary foreclosures of
residential properties and thereby provide stability to California's
statewide and regional economies and housing market by requiring
early contact and communications between lenders and specified
borrowers to improve the long-term affordability of those loans and
by facilitating the modification or restructuring of loans that would
likely default otherwise.
SEC. 2. Section 2923.5 is added to the Civil Code, to read:
2923.5. (a) Notwithstanding any other provision of law, 120, 90,
and 45 days prior to any projected change
increase of at least 10 percent in a borrower's mortgage
payment amount, the mortgagee, trustee, servicer, or beneficiary
shall mail notice to the borrower of all of the following:
(1) The current interest rate.
(2) The current monthly payment amount or the current periodic
payment amount if the borrower is on a payment schedule other than
monthly.
(3) The formula used by the mortgagee, trustee, servicer, or
beneficiary to calculate the monthly or periodic payment amount, as
provided in the borrower's mortgage loan contract. If the loan is an
adjustable rate loan whose interest rate is calculated by adding a
margin to the value of an index, the formula shall clearly identify
the amount of the margin and the name of the index.
(4) The date on which the monthly or periodic payment amount is
projected to change.
(5) A statement explaining that the mortgagee, trustee, servicer,
or beneficiary will not know the modified interest rate or modified
payment amount until at least 30 days prior to the projected date of
change in payment amount.
(6) A statement explaining that the mortgagee, trustee, servicer,
or beneficiary will notify the borrower about the actual change in
payment amount at least 25 days prior to any change in payment
amount.
(7) The difference between the borrower's current monthly or
periodic payment and the illustrative monthly or periodic payment
described in paragraph (8).
(8) An illustration of what the borrower's monthly or periodic
payment amount and interest rate would be upon adjustment, if those
amounts were calculated by the mortgagee, trustee, servicer, or
beneficiary as of a date certain using the formula as provided
in the borrower's mortgage loan contract . The date used by the
mortgagee, trustee, servicer, or beneficiary shall not be any
earlier than 30 days prior to the date the notice is sent. The
illustration shall be clearly denoted as such at the beginning of the
example and set forth in no smaller than 12-point font. The date
certain and the formula used to calculate the illustrative monthly or
periodic payment amount and interest shall be specified in the
notice. The illustration shall be accompanied by a statement that
clearly states all of the following:
(A) The illustration is intended only as an aid to the borrower in
evaluating whether he or she is likely to be able to afford the new
monthly or periodic payment.
(B) The illustration is not an offer of credit terms.
(b) The notice described in subdivision (a) shall be provided by
first-class mail and shall be in plain language at a reading
level no higher than grade 6 . The notice shall be
provided in the language in which the mortgage was negotiated. If the
mortgagee, trustee, servicer, or beneficiary is not the entity that
originally negotiated the mortgage and does not know the language in
which the mortgage was negotiated, the notice shall be provided in
English and the languages described in Section 1632.
(c) This section shall only apply to loans secured by residential
real property made on or before December 31, 2007, that are for
owner-occupied residences .
(d) This section shall remain in effect only until January 1,
2013, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2013, deletes or extends
that date.
SEC. 3. Section 2923.6 is added to the Civil Code, to read:
2923.6. (a) Prior to filing a notice of default pursuant to
Section 2924, the mortgagee, trustee, servicer, or beneficiary shall
conduct an in-person meeting with the borrower to assess the borrower'
s financial situation, provide the borrower with a list of
HUD-certified credit counselors in the borrower's geographic region,
and explore options for the borrower to avoid foreclosure. At that
meeting, the mortgagee, trustee, servicer, or beneficiary shall
offer, where feasible, restructuring or other options, including
forbearance or loan modification, consistent with the mortgagee's,
trustee's, servicer's, or beneficiary's authority to mitigate losses,
if that mitigation will serve the best interest of the investors
because (1) the borrower is able and willing to pay under the
modified terms, and (2) significant financial loss to the investors
is likely to occur without a restructuring or other modification.
Except as provided in subdivision (b), the mortgagee, trustee,
servicer, or beneficiary may not file a notice of default until 30
days after that in-person meeting.
(b) Upon filing a notice of default pursuant to Section 2924, a
mortgagee, trustee, servicer, or beneficiary shall include a
declaration that it has met with the borrower or tried with due
diligence to contact the borrower for an in-person meeting. The
mortgagee, trustee, servicer, or beneficiary shall also include
within that declaration the terms of the existing loan and the
restructuring options that were offered. If the mortgagee, trustee,
servicer, or beneficiary willfully states as true any material fact
he or she knows to be false, that person shall be subject to a civil
penalty of up to ten thousand dollars ($10,000). The attorney
general, any district attorney, county counsel, or city attorney may
bring a civil action to impose the penalty.
(c) (1) If a mortgagee, trustee, servicer,
or beneficiary had already filed a notice of default prior to the
enactment of this section, then the mortgagee, trustee, servicer, or
beneficiary shall, prior to notice of the sale pursuant to Section
2924f, and with due diligence, contact the borrower and conduct an
in-person meeting to assess the borrower's financial situation,
provide the borrower with a list of HUD-certified credit counselors
in the borrower's geographic area, and explore options for the
borrower to avoid foreclosure. At that meeting, the mortgagee,
trustee, servicer, or beneficiary shall offer, where feasible,
restructuring or other options, including forbearance or loan
modification, consistent with the mortgagee's, trustee's, servicer's,
or beneficiary's authority to mitigate losses if that mitigation
will serve the best interest of the investors because the borrower is
able and willing to pay under the modified terms and significant
financial loss to the investors is likely to occur without a
restructuring or other modification.
(2) Upon filing a notice of sale pursuant to Section 2924f, the
mortgagee, trustee, servicer, or beneficiary described in paragraph
(1) shall also comply with the declaration requirements of, and be
subject to the penalties set forth in, subdivision (b).
(d) All communications and negotiations pursuant to this section
shall occur in the language in which the loan was originally
negotiated. If the mortgagee, trustee, servicer, or beneficiary is
not the entity that originally negotiated the terms and conditions of
the loan and does not know the language used to negotiate the loan,
a notice shall be sent to the borrower in English and the languages
described in Section 1632, stating the following: "Your home may be
subject to foreclosure, which could result in you losing your home.
Please contact us at (insert telephone number) to discuss possible
options to avoid the foreclosure."
(e) Any in-person meeting required pursuant to this section may
instead, at the option of the borrower, occur telephonically.
(f) A mortgagee's, trustee's, servicer's, or beneficiary's loss
mitigation personnel may participate by telephone at any in-person
meeting required by this section.
(g) For purposes of this section, a "borrower" shall include a
mortgagor or trustor.
(h) For purposes of this section, "due diligence" shall require
and mean all of the following:
(1) A mortgagee, trustee, servicer, or beneficiary shall first
contact a borrower by electronic mail and by sending a first -
class letter. The first - class letter shall be sent
to the address to which the property tax bill is sent and the
electronic mail shall be sent to the electronic mail address on file
if the mortgagee, trustee, servicer, or beneficiary has that
electronic mail address.
(2) After the letter and electronic mail have been sent, the
mortgagee, trustee, servicer, or beneficiary shall contact the
borrower by telephone at least three times at different hours and on
different days, including one call on a weekend. Telephone calls
shall be made to the primary telephone number on file. This
requirement is not necessary if a meeting has been arranged pursuant
to the letter or electronic mail contact.
(3) If the borrower does not respond within two weeks after the
last communication by the mortgagee, trustee, servicer, or
beneficiary, and that party has met the electronic mail, first -
class letter, and telephone call requirements, the mortgagee,
trustee, servicer, or beneficiary shall then send a certified letter
with a return receipt , with
return receipt requested . The letter shall be sent to the
address to which the property tax bill is sent. This requirement is
not necessary if a meeting has been arranged pursuant to the letter,
electronic mail, or telephone contact.
(4) If the borrower does not respond to the certified letter
within 30 days, the filing of a notice of default may commence.
(5) Written communications with the borrower shall include a
notice providing that the borrower may wish to contact a
HUD-certified credit counselor to contact the mortgagee, trustee,
servicer, or beneficiary on the borrower's behalf.
(6) The mortgagee, trustee, servicer, or beneficiary shall provide
a means for the borrower to contact it in a timely manner, including
a toll-free telephone number that will be answered by a live person
after no more than eight rings or a 24-hour toll-free telephone
number that gives the borrower the option of reaching a live
representative of the mortgagee, trustee, servicer, or beneficiary.
(i) This section shall only apply to loans secured by residential
real property made on or before December 31, 2007, that are for
owner-occupied residences.
(i)
(j) This section shall remain in effect only until
January 1, 2013, and as of that date is repealed, unless a later
enacted statute, that is enacted before January 1, 2013, deletes or
extends that date.
SEC. 4. Section 2924.8 is added to the Civil Code, to read:
2924.8. (a) Upon filing a notice of sale pursuant to Section
2924f , a mortgagee, trustee, servicer, or beneficiary shall
also mail, at the same time, a notice addressed to the "resident" of
the property.
(b) The outside of the envelope shall prominently state in English
and the languages described in Section 1632: "IMPORTANT: Information
contained in this letter may affect your right to live in this
property."
(c) The notice shall state the following in the same languages
required on the outside of the envelope: "Foreclosure process has
begun on this property, which may affect your right to continue to
live in this property. Twenty days or more after the date of this
notice, this property may be sold at foreclosure. The new property
owner may either give you a new lease or provide you with a 60-day
eviction notice. However, other laws may prohibit an eviction in this
circumstance or provide you with a longer notice before eviction.
You may wish to contact a lawyer or your local legal aid or credit
counseling organization to discuss any rights you may have."
(d) This section shall only apply to loans secured by residential
real property.
(d)
(e) This section shall remain in effect only until
January 1, 2013, and as of that date is repealed, unless a later
enacted statute, that is enacted before January 1, 2013, deletes or
extends that date.
SEC. 5. Section 2929.3 is added to the Civil Code, to read:
2929.3. (a) Failure by a legal owner to maintain a vacant
foreclosed property residential property
purchased by that owner at a foreclosure sale shall constitute
a nuisance and a violator shall be subject to civil fines and
penalties of up to one thousand dollars ($1,000) per day. If an
entity chooses to assess fines and penalties pursuant to this
section, that entity shall send the legal owner, by first class mail,
a notice of violation and opportunity to abate at least 14 days
prior to assessing those fines or penalties.
(b) For purposes of this section, "failure to maintain" includes
failure to adequately care for the property, including, but not
limited to, permitting excessive foliage growth that diminishes the
value of surrounding properties, allowing trespassers or squatters,
or permitting mosquito larva to grow in standing water.
(c) Fines and penalties collected pursuant to this section shall
be directed to local nuisance abatement programs.
(d) These provisions shall not preempt any local ordinance that
contains any greater standards or protections.
(e) This section shall only apply to residential real property.
(e)
(f) This section shall remain in effect only until
January 1, 2013, and as of that date is repealed, unless a later
enacted statute, that is enacted before January 1, 2013, deletes or
extends that date.
SEC. 6. Section 1161b is added to the Code of Civil Procedure, to
read:
1161b. (a) Notwithstanding Section 1161a, a tenant or subtenant
in possession of a rental housing unit that has been sold due to
foreclosure shall be given 60 days' written notice to quit pursuant
to Section 1162 before the tenant or subtenant may be removed from
the property as prescribed in this chapter.
(b) This section shall remain in effect only until January 1,
2013, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2013, deletes or extends
that date.
SEC. 7. Nothing in this act is intended to affect any local
just-cause eviction ordinance.
SEC. 8. The provisions of this act are severable. If any provision
of this act or its application is held invalid, that invalidity
shall not affect other provisions or applications that can be given
effect without the invalid provision or application.
SEC. 9. This act is an urgency statute necessary for the immediate
preservation of the public peace, health, or safety within the
meaning of Article IV of the Constitution and shall go into immediate
effect. The facts constituting the necessity are:
In order to stabilize and protect the state and local economies
and housing market at the earliest possible time, it is necessary for
this act to take effect immediately.