BILL NUMBER: SB 1137 AMENDED
BILL TEXT
AMENDED IN SENATE MARCH 13, 2008
INTRODUCED BY Senators Perata, Corbett, and Machado
JANUARY 31, 2008
An act to amend Section 2924 of the Civil Code, relating
to foreclosure. 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 1137, as amended, Perata. Foreclosure.
Residential mortgage loans: foreclosure procedures.
(1) 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, beneficiary, or authorized agent to contact the borrower, or
with due diligence attempt to contact the borrower, as specified, to
conduct a meeting with the borrower, as defined, to assess the
borrower's financial situation, provide the borrower with a list of
HUD-certified housing counseling agencies in the borrower's
geographic area, and explore options for the borrower to avoid
foreclosure. The bill would preclude the filing of a notice of
default until 30 days after that meeting or, if a meeting has not
been arranged, 30 days after satisfying specified due diligence
requirements, and would, upon that filing, require the mortgagee,
trustee, beneficiary, or authorized agent to include a specified
declaration regarding the meeting or that the borrower has
surrendered the property. If a notice of default had already been
filed prior to the enactment of this act, the bill would instead
require the mortgagee, trustee, beneficiary, or authorized agent,
prior to the notice of sale, to contact the borrower, or with due
diligence attempt to contact the borrower, as specified, to conduct a
meeting between the above-described parties to assess the borrower's
financial situation, provide the borrower with a list of
HUD-certified housing counseling agencies in the borrower's
geographic area, and explore options for the borrower to avoid
foreclosure. Upon filing a notice of sale, the above-described
declaration requirement would also apply. The bill would authorize a
borrower to designate a HUD-certified housing counseling agency to
discuss with the mortgagee, trustee, beneficiary, or authorized
agent, on the borrower's behalf, options for the borrower to avoid
foreclosure. The contact and meeting requirements of these provisions
would not apply if a borrower has surrendered the property. 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 require a legal owner to
maintain vacant residential property purchased at a foreclosure sale,
or acquired by that owner through foreclosure under a mortgage or
deed of trust. The bill would authorize a governmental entity to
impose civil fines and penalties for failure to maintain that
property of up to $1,000 per day for a violation. The bill would
require a governmental entity that seeks to impose those fines and
penalties to give notice of violation and an opportunity to abate at
least 14 days prior to imposing the fines and penalties, and to allow
a hearing for contesting those fines and penalties.
(2) 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.
(3) 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.
(4) This bill would declare that it is to take effect immediately
as an urgency statute.
Existing law provides for the use of a mortgage or a deed of trust
as security in a transfer of real property, provides for a power of
sale upon breach of the obligation that a mortgage or deed of trust
secures, and establishes specified procedures that a mortgagee or
trustee is required to follow when exercising a power of sale.
This bill would make technical, nonsubstantive changes to that
provision.
Vote: majority 2/3 . Appropriation:
no. Fiscal committee: no. 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 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. Furthermore, hundreds of thousands of residential property
borrowers, including as many as 400,000 subprime borrowers with
mortgages valued at over one hundred billion dollars
($100,000,000,000), 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
foreclosure rates 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) The United States Conference of Mayors reports that, due to
the housing crisis, California cities may see a decline in property,
sales, and transfer taxes of nearly four billion dollars
($4,000,000,000). More foreclosures means less money for schools,
public safety, and other key services. In addition, Los Angeles could
see an eight billion three hundred million dollars ($8,300,000,000)
decline in economic output in 2008.
(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. 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
responsible parties to contact 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 when 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) According to a survey released by the Federal Home Loan
Mortgage Corporation (Freddie Mac) on January 31, 2008, 57 percent of
the nation's late-paying borrowers do not know their lenders may
offer alternatives to help them avoid foreclosure.
(g) As reflected in recent government and industry-led efforts to
help troubled borrowers, the mortgage foreclosure crisis impacts
borrowers not only in nontraditional loans, but also many borrowers
in conventional loans.
(h) 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 responsible parties 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) (1) Prior to the filing of a notice of default
pursuant to Section 2924, a mortgagee, trustee, beneficiary, or
authorized agent shall contact the borrower, or with due diligence
attempt to contact the borrower pursuant to subdivision (g), in order
to conduct a meeting with the borrower to assess the borrower's
financial situation, provide the borrower with a list of
HUD-certified housing counseling agencies in the borrower's
geographic area, and explore options for the borrower to avoid
foreclosure. Any meeting may occur telephonically.
(2) The mortgagee, trustee, beneficiary, or authorized agent may
not file a notice of default until 30 days after the meeting or, if a
meeting has not been arranged, 30 days after satisfying the due
diligence requirements as described in subdivision (g). The
mortgagee, trustee, beneficiary, or authorized agent may file a
notice of default if the borrower has canceled more than one meeting
scheduled pursuant to this section.
(b) As part of the notice of default filed pursuant to Section
2924, the mortgagee, trustee, beneficiary, or authorized agent shall
include a declaration that it has met with the borrower, tried with
due diligence to contact the borrower for a meeting as required by
this section, or the borrower has surrendered the property to the
mortgagee, trustee, beneficiary or authorized agent.
(c) (1) If a mortgagee, trustee, beneficiary, or authorized agent
had already filed the notice of default prior to the enactment of
this section and did not subsequently file a notice of rescission,
then the mortgagee, trustee, beneficiary, or authorized agent shall,
prior to filing a notice of sale pursuant to Section 2924f, contact
the borrower, or with due diligence attempt to contact the borrower
pursuant to subdivision (g), in order to conduct a meeting to assess
the borrower's financial situation, provide the borrower with a list
of HUD-certified housing counseling agencies in the borrower's
geographic area, and explore options for the borrower to avoid
foreclosure. Any meeting may occur telephonically.
(2) Upon filing a notice of sale pursuant to Section 2924f, the
mortgagee, trustee, beneficiary, or authorized agent described in
paragraph (1) shall also comply with the declaration requirements of
subdivision (b).
(d) A mortgagee's, trustee's, beneficiary's, or authorized agent's
loss mitigation personnel may participate by telephone at any
meeting required by this section.
(e) For purposes of this section, a "borrower" shall include a
mortgagor or trustor.
(f) A borrower may designate a HUD-certified housing counseling
agency to discuss with the mortgagee, trustee, beneficiary, or
authorized agent, on the borrower's behalf, options for the borrower
to avoid foreclosure. That discussion satisfies the meeting
requirements of this section. Any loan modification or workout plan
offered at the meeting by the mortgagee, trustee, beneficiary, or
authorized agent is subject to approval by the borrower.
(g) For purposes of this section, "due diligence" shall require
and mean all of the following:
(1) A mortgagee, trustee, beneficiary, or authorized agent shall
first attempt to contact a borrower by sending a first-class letter.
(2) (A) After the letter has been sent, the mortgagee, trustee,
beneficiary, or authorized agent shall attempt to 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. The
requirements of this subparagraph are not applicable if a meeting
that satisfies subdivision (a) or (c) has been arranged.
(B) A mortgagee, trustee, beneficiary, or authorized agent may
attempt to contact a borrower using an automated system to dial
borrowers, provided that, if the telephone call is answered, the call
is connected to a live representative of the mortgagee, trustee,
beneficiary, or authorized agent.
(3) If the borrower does not respond within two weeks after the
last communication by the mortgagee, trustee, beneficiary, or
authorized agent, and the first-class letter and telephone call
requirements have been satisfied, the mortgagee, trustee,
beneficiary, or authorized agent shall then send a certified letter,
with return receipt requested. This requirement is not applicable if
a meeting that satisfies subdivision (a) or (c) has been arranged.
(4) The mortgagee, trustee, beneficiary, or authorized agent shall
provide a means for the borrower to contact it in a timely manner,
including a toll-free telephone number that will provide access to a
live representative during business hours.
(5) The mortgagee, trustee, beneficiary, or authorized agent has
posted a prominent link on the homepage of its Internet Web site to
its Web page, or pages, that contain the following information:
(A) Options that may be available to borrowers who are unable to
afford their mortgage payments and who wish to avoid foreclosure, and
instructions to borrowers advising them on steps to take to explore
those options.
(B) A list of financial documents borrowers should collect and be
prepared to present to the mortgagee, trustee, beneficiary, or
authorized agent when discussing options for avoiding foreclosure.
(C) A toll-free telephone number for borrowers who wish to discuss
options for avoiding foreclosure with their mortgagee, trustee,
beneficiary, or authorized agent.
(h) Subdivisions (a), (c), and (g) shall not apply if a borrower
has surrendered the property as evidenced by either a letter
confirming the surrender or delivery of the keys to the property to
the mortgagee, trustee, beneficiary, or authorized agent accompanied
by other indicia of the borrower's intent to surrender the property.
(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.
(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. 3. Section 2923.6 is added to the
Civil Code , to read:
2923.6. (a) The Legislature finds and declares that any duty
servicers may have to maximize net present value under their pooling
and servicing agreements is owed to all parties in a loan pool, not
to any particular parties, and that a servicer acts in the best
interests of all parties if it agrees to or implements a loan
modification or workout plan for which both of the following apply:
(1) The loan is in payment default, or payment default is
reasonably foreseeable.
(2) Anticipated recovery under the loan modification or workout
plan exceeds the anticipated recovery through foreclosure on a net
present value basis.
(b) It is the intent of the Legislature that at any meeting held
pursuant to subdivisions (a) or (c) of Section 2923.5, the mortgagee,
trustee, beneficiary, or authorized agent offer a loan modification
or workout plan if such a modification or plan is consistent with its
authority to mitigate losses.
(c) 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, beneficiary, or authorized agent shall
also mail, at the same time, an envelope addressed to the "resident"
of the property containing the following notice in English and the
languages described in Section 1632: "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 housing
counseling agency to discuss any rights you may have."
(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) This section shall only apply to loans secured by residential
real property.
(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. 5. Section 2929.3 is added to the
Civil Code , to read:
2929.3. (a) A legal owner shall maintain vacant residential
property purchased by that owner at a foreclosure sale, or acquired
by that owner through foreclosure under a mortgage or deed of trust.
A governmental entity may impose civil fines and penalties for
failure to maintain the property of up to one thousand dollars
($1,000) per day for a violation. If the governmental entity chooses
to impose fines and penalties pursuant to this section, it shall give
notice of violation and opportunity to abate at least 14 days prior
to imposing those fines and penalties and allow for a hearing and
opportunity to contest any fines and penalties imposed.
(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, failing to take action to prevent
trespassers or squatters from remaining on the property, or failing
to take action to prevent mosquito larva from growing 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.
(e) This section shall only apply to residential real property.
(f) The rights and remedies provided in this section are
cumulative and in addition to any other rights and remedies provided
by law.
(g) 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. This act does not, and shall
not be construed to, affect the authority of a public entity that
otherwise exists to regulate or monitor the basis for eviction.
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.
SECTION 1. Section 2924 of the Civil Code is
amended to read:
2924. (a) Every transfer of an interest in property, other than
in trust, made only as a security for the performance of another act,
shall be deemed a mortgage, except when in the case of personal
property it is accompanied by actual change of possession, in which
case it shall be deemed a pledge. Where, by a mortgage created after
July 27, 1917, of any estate in real property, other than an estate
at will or for years, less than two, or in any transfer in trust made
after July 27, 1917, of a like estate to secure the performance of
an obligation, a power of sale is conferred upon the mortgagee,
trustee, or any other person, to be exercised after a breach of the
obligation for which that mortgage or transfer is a security, the
power shall not be exercised except where the mortgage or transfer is
made pursuant to an order, judgment, or decree of a court of record,
or to secure the payment of bonds or other evidences of indebtedness
authorized or permitted to be issued by the Commissioner of
Corporations, or is made by a public utility subject to the
provisions of the Public Utilities Act, until all of the following
apply:
(1) The trustee, mortgagee, or beneficiary, or any of their
authorized agents shall first file for record, in the office of the
recorder of each county wherein the mortgaged or trust property or
some part or parcel thereof is situated, a notice of default. That
notice of default shall include all of the following:
(A) A statement identifying the mortgage or deed of trust by
stating the name or names of the trustor or trustors and giving the
book and page, or instrument number, if applicable, where the
mortgage or deed of trust is recorded or a description of the
mortgaged or trust property.
(B) A statement that a breach of the obligation for which the
mortgage or transfer in trust is security has occurred.
(C) A statement setting forth the nature of each breach actually
known to the beneficiary and of his or her election to sell or cause
to be sold the property to satisfy that obligation and any other
obligation secured by the deed of trust or mortgage that is in
default.
(D) If the default is curable pursuant to Section 2924c, the
statement specified in paragraph (1) of subdivision (b) of Section
2924c.
(2) Not less than three months shall elapse from the filing of the
notice of default.
(3) After the lapse of the three months described in paragraph
(2), the mortgagee, trustee or other person authorized to take the
sale shall give notice of sale, stating the time and place thereof,
in the manner and for a time not less than that set forth in Section
2924f.
(b) In performing acts required by this article, the trustee shall
incur no liability for any good faith error resulting from reliance
on information provided in good faith by the beneficiary regarding
the nature and the amount of the default under the secured
obligation, deed of trust, or mortgage. In performing the acts
required by this article, a trustee shall not be subject to Title
1.6c (commencing with Section 1788) of Part 4.
(c) A recital in the deed executed pursuant to the power of sale
of compliance with all requirements of law regarding the mailing of
copies of notices or the publication of a copy of the notice of
default or the personal delivery of the copy of the notice of default
or the posting of copies of the notice of sale or the publication of
a copy thereof shall constitute prima facie evidence of compliance
with these requirements and conclusive evidence thereof in favor of
bona fide purchasers and encumbrancers for value and without notice.
(d) All of the following shall constitute privileged
communications pursuant to Section 47:
(1) The mailing, publication, and delivery of notices as required
by this section.
(2) Performance of the procedures set forth in this article.
(3) Performance of the functions and procedures set forth in this
article if those functions and procedures are necessary to carry out
the duties described in Sections 729.040, 729.050, and 729.080 of the
Code of Civil Procedure.
(e) There is a rebuttable presumption that the beneficiary
actually knew of all unpaid loan payments on the obligation owed to
the beneficiary and secured by the deed of trust or mortgage subject
to the notice of default. However, the failure to include an actually
known default shall not invalidate the notice of sale and the
beneficiary shall not be precluded from asserting a claim to this
omitted default or defaults in a separate notice of default.