BILL ANALYSIS
------------------------------------------------------------
|SENATE RULES COMMITTEE | SB 1137|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
------------------------------------------------------------
THIRD READING
Bill No: SB 1137
Author: Perata (D), et al
Amended: 4/16/08
Vote: 27 - Urgency
SENATE JUDICIARY COMMITTEE : 3-2, 3/25/08
AYES: Corbett, Kuehl, Steinberg
NOES: Harman, Ackerman
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 6-3, 4/2/08
AYES: Machado, Correa, Kehoe, Lowenthal, Scott, Wiggins
NOES: Cox, Hollingsworth, Margett
NO VOTE RECORDED: Runner, Florez
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Residential mortgage loans: foreclosure
procedures
SOURCE : Author
DIGEST : This bill enacts several changes to the
procedures that must be followed before the holder of a
mortgage may issue a notice of default or notice of trustee
sale, requires the holder of a mortgage to mail a specified
notice to the tenant(s) of a property on which foreclosure
proceedings have begun, and imposes penalties on property
owners who fail to adequately maintain foreclosed
properties, as specified.
CONTINUED
SB 1137
Page
2
Senate Floor Amendments of 4/16/08 clarify which individual
-- the mortgagee, trustee, beneficiary, or their authorized
agent -- is responsible for performing the required
contact, due diligence, posting, and other requirements of
the bill. The amendments also clarify that (1) a
mortgagee, beneficiary, or authorized agent has satisfied
the due diligence telephone contact requirements if after
attempting contact it determines that the primary number
and any secondary number or numbers on file have been
disconnected, and (2) that the provision requiring a 60-day
notice to quit applies to tenants or subtenants in
possession of a rental housing unit at the time the
property is sold in foreclosure.
ANALYSIS :
Existing law:
1. Regulates the non-judicial foreclosure process pursuant
to the power of sale contained within a mortgage
contract, and provides that in order to commence the
process, a trustee, mortgagee, or beneficiary must
record a notice of default (NOD) and allow three months
to lapse before setting a date for sale of the property
(Section 2924 of the Civil Code).
2. Further provides that the mortgagee, trustee or other
person authorized to make the sale must give notice of
sale, and requires notice of the sale to be made, as
specified, at least 20 days prior to the date of sale
(Section 2924f of the Civil Code).
3. Permits a party to a residential rental agreement to
terminate a periodic tenancy by giving 30 days written
notice, unless the tenant has resided in the dwelling
for one year or more, in which case a 60-day notice is
required, as specified (Sections 1946 and 1946.1 of the
Civil Code).
4. Provides that tenants or subtenants in possession of a
rental housing unit which has been sold due to
foreclosure shall be given written notice to vacate the
property. Notice must be provided at least as far in
advance as the term of the lease, not to exceed 30 days
SB 1137
Page
3
(e.g., if the lease is weekly, notice must be given one
week before the person must vacate, if the lease is
monthly or longer, notice must be given 30 days prior
(Section 1161a of the Code of Civil Procedure).
5. Provides that anything which is injurious to health,
indecent, or offensive to the senses, obstructs the free
use of property, or unlawfully obstructs free passage is
a nuisance (Section 3479 of the Civil Code).
This bill:
1. Makes findings and declarations about the nature of the
mortgage crisis in California and the importance of
enacting an urgency statute to address the threats to
the state economy and local economies that current
mortgage market troubles are creating.
2. Provides that a mortgagee, beneficiary, or authorized
agent may not file a NOD until 30 days after contact is
made with a borrower, as described below, or 30 days
after satisfying due diligence requirements relating to
contact, as described below.
A. Requires a mortgagee, beneficiary, or authorized
agent to contact a borrower in person or by telephone
to assess the borrower's financial situation and
explore options for the borrower to avoid
foreclosure. During the initial contact, the
mortgagee, beneficiary, or authorized agent must
advise the borrower that he/she has the right to
request a subsequent meeting and that, if the meeting
is requested, the mortgagee, beneficiary, or
authorized agent must schedule the meeting within 14
days.
B. Provides that the assessment of the borrower's
financial situation and discussion of options may
occur at the first contact, or at the subsequent
meeting scheduled for that purpose, but that in
either case, the borrower must be provided a
toll-free number for HUD-certified housing counseling
agencies.
SB 1137
Page
4
C. Allows any meeting to occur telephonically.
3. Provides that a NOD shall include a declaration from the
mortgagee, beneficiary, or authorized agent that it has
contacted the borrower, tried with due diligence to
contact the borrower, or that the borrower has
surrendered the property to the mortgagee, trustee,
beneficiary, or authorized agent.
4. Provides that if a mortgagee, trustee, beneficiary, or
authorized agent already filed the NOD prior to
enactment of this bill, and did not subsequently file a
notice of rescission, the mortgagee, trustee,
beneficiary, or authorized agent must include a
declaration, as part of the notice of sale, stating
either of the following:
A. The borrower was contacted to assess his or her
financial situation and to explore options for the
borrower to avoid foreclosure.
B. No contact occurred, in which case the mortgagee,
beneficiary, or authorized agent must list the
efforts made, if any, to attempt the contact.
5. Authorizes a mortgagee's, beneficiary's, or authorized
agent's loss mitigation personnel to participate by
telephone during any contact required by the bill, and
authorizes borrowers to designate a HUD-certified
housing counseling agency, attorney, or other advisor to
act on their (the borrower's) behalf in conversations
with the mortgagee, beneficiary, or authorized agent.
Any contact made by a HUD-certified housing counseling
agency, attorney, or other advisor on a borrower's
behalf satisfies the requirement for a mortgagee,
beneficiary, or authorized agent to contact a borrower
prior to filing an NOD. Any loan modification or
workout plan offered at the meeting by the mortgagee,
beneficiary, or authorized agent is subject to approval
by the borrower.
6. Provides that a NOD may be filed when a mortgagee,
beneficiary, or authorized agent has not contacted a
borrower, as required by the bill, provided that the
SB 1137
Page
5
failure to contact the borrower occurred despite the due
diligence of the mortgagee, beneficiary, or authorized
agent, and defines due diligence as all of the
following:
A. A mortgagee, beneficiary, or authorized agent must
first attempt to contact a borrower by sending a
first-class letter that includes the toll-free number
for HUD-certified housing counseling agencies.
B. After the letter has been sent, the mortgagee,
beneficiary, or authorized agent must attempt to
contact the borrower by telephone, at the primary
telephone number on file, at least three times, at
different hours and on different days. The
mortgagee, beneficiary, or authorized agent may use
an automated system to dial borrowers, as long as a
customer who answers the call is connected to a live
representative of the mortgagee, beneficiary, or
authorized agent.
C. The "three-call" requirement described immediately
above does not apply if the mortgagee, beneficiary,
or authorized agent attempts to contact the borrower
and learns that the borrower's telephone number has
been disconnected.
D. If the borrower does not respond to the mortgagee,
beneficiary, or authorized agent within two weeks
after the telephone call requirements have been
satisfied, the mortgagee, beneficiary, or authorized
agent is required to send a certified letter to the
borrower, return receipt requested.
E. The mortgagee, beneficiary, or authorized agent
must provide a way in which borrowers can contact it
in a timely manner, including a toll-free number that
provides access to a live representative during
business hours.
F. If a mortgagee, beneficiary, or authorized agent
has an Internet Web site, it must post a prominent
link on its homepage to the following information:
SB 1137
Page
6
(1) 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.
(2) A list of financial documents borrowers
should collect and be prepared to present to the
mortgagee, beneficiary, or authorized agent when
discussing options for avoiding foreclosure.
(3) A toll-free number for borrowers who wish to
discuss options for avoiding foreclosure with
their mortgagee, beneficiary, or authorized agent.
(4) A toll-free number for HUD-certified housing
counseling agencies.
7. Provides that the provisions, described above, requiring
certain acts to be performed prior to filing a NOD or a
notice of sale, do not apply if any of the following are
true:
A. A borrower has surrendered the property, as
evidenced by either a letter confirming the surrender
or by delivery of the keys to the property.
B. The borrower has contracted with an organization,
person, or entity whose primary business is advising
people on how to extend the foreclosure process and
avoid their contractual obligations to the mortgagee
or beneficiaries.
C. The borrower filed for bankruptcy, and the
bankruptcy proceeding is active.
8. Applies the provisions, described in #2-7 above, only to
loans that are secured by residential real property, are
for owner-occupied residences, and were made between
January 1, 2003 and December 31, 2007.
9. Codifies a legislative finding that any duty servicers
may have to maximize the net present value under their
pooling and servicing agreements is owed to all parties
SB 1137
Page
7
in a loan pool, not to any particular parties, and that
a servicer acts in the best interest of all parties if
it agrees to or implements a loan modification or
workout plan, as specified.
10.Codifies the intent of the Legislature that the
mortgagee, beneficiary, or authorized agent offer the
borrower a loan modification or workout plan, if such a
modification or plan is consistent with its contractual
or other authority.
11.Requires the following, effective 60 days after
enactment of the bill, with respect to loans secured by
residential real property, when the billing address for
the mortgage note is different than the property
address:
A. A mortgagee, trustee, beneficiary, or authorized
agent must mail an envelope addressed to the
"resident" of the property, upon posting a notice of
sale for the property (the word "resident" would
appear in English).
B. Inside the envelope, the following notice must be
included, in English, Spanish, Korean, Tagalog,
Chinese, and Vietnamese: "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. If you are renting this
property, 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".
12.Requires a legal owner to maintain vacant, residential
real property purchased by that owner at a foreclosure
sale or acquired by that owner through foreclosure under
a mortgage or deed of trust.
A. Provides that a governmental entity may impose
SB 1137
Page
8
civil fines and penalties of up to $1,000 per day per
violation on such a legal owner for failure to
maintain the property.
B. Requires any governmental entity that chooses to
impose fines and penalties pursuant to the bill to
give notice of the claimed violation, including a
description of the conditions giving rise to the
claim of violation, give the legal owner an
opportunity to remedy the violation at least 14 days
prior to imposing fines and penalties, and allow the
legal owner an opportunity to contest any fines and
penalties imposed.
C. Provides that "failure to maintain," for purposes
of this section, 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.
D. Requires fines and penalties collected pursuant to
this provision to be directed to local nuisance
abatement programs and clarify that this provision
does not pre-empt any local ordinance;
13.Provides that, notwithstanding existing law, a tenant or
subtenant in possession of a rental housing unit at the
time the property is sold in foreclosure shall be given
60 days' written notice to leave the property before
that tenant may be removed from the property, but
provides that this provision does not apply if any party
to the mortgage note remains in the property as a
tenant, subtenant, or occupant.
14.Provides that nothing in the bill is intended to affect
any local just-cause eviction ordinance, and that the
bill does not, and shall not be construed, to affect the
authority of a public entity to regulate or monitor the
basis for eviction.
SB 1137
Page
9
15.Provides that its provisions are severable and sunset on
January 1, 2013.
Related legislation . SB 926 (Perata), 2007-08 session, is
substantially similar to SB 1137. The bill failed passage
on the Senate Floor.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 4/17/08)
AARP
Affordable Housing Services
Asset Policy Initiative of California
ByDesign Financial Solutions
California ACORN
California Alliance for Retired Americans
California Capital Financial Development Corporation
California Coalition for Rural Housing
California Community Economic Development Association
California Labor Federation, AFL-CIO
California LULAC Housing Commission
California Reinvestment Coalition
California Resources and Training
California State Association of Counties
Center for California Homeowner Association Law
Center for Human Rights, Law, and Advocacy
Center for Responsible Lending
CHARO
Civic Center Barrio Housing Corporation
Community Housing and Credit Counseling Center
Community Legal Services in East Palo Alto
Consortium for Elder Abuse Prevention
Consumer Action
Consumer Federation of California
Consumers Union
East LA Community Corporation
East Oakland CDC
Fair Housing Council of Orange County
Fair Housing Council of the San Fernando Valley
Fair Housing of Marin
H.O.U.S.E. (Home Ownership Utilizing Supportive Education)
Housing and Economic Rights Advocates
SB 1137
Page
10
Housing Rights Center
Human Rights/Fair Housing Commission of Sacramento
Jefferson Economic Development Institute
Joanne Baker, Certified Counselor, NID Housing Counseling
Agency
Just Cause Oakland
League of California Cities
Lisa A. Baker, Executive Director, Yolo County Housing
Authority
Love, Inc.
Low Income Investment Fund
Mission Community Financial Assistance
Mission Economic Development Agency
National Council of La Raza
Nehemiah Community Reinvestment Fund
Non Profit Housing of Northern California
Northbay Family Homes
Orange County Community Housing Corporation
Pacific Asian Consortium in Employment
Project Sentinel
Public Interest Law Firm of the Law Foundation of Silicon
Valley
Renaissance Entrepreneurship Center
Rural Community Assistance Corporation
Sacramento Mutual Housing Association
Self-Help Enterprises
SF EARN
Sierra Planning and Housing Alliance, Inc.
Suburban Alternatives Land Trust
The Watsonville Law Center
Unity Council
Urban Strategies Council
Western Center on Law and Poverty
ARGUMENTS IN SUPPORT : Senator Perata introduced this
bill to help people affected by the subprime mortgage
crisis stay in their homes and prevent neighborhoods
afflicted with foreclosures from becoming areas of blight.
According to the author, "The mortgage crisis is taking a
terrible toll on Oakland and the rest of California. It is
crucial that we give homeowners the tools they need to
avoid foreclosure when possible because that's the best
outcome for everybody. Foreclosures are not only
devastating for the families who are forced from their
SB 1137
Page
11
homes, but for the neighborhoods and communities
surrounding them that can see vacancies increase,
properties fall into disrepair, and housing values
decline."
The Center for Responsible Lending (CRL) supports this bill
as an important part of the effort to stem the tide of
foreclosures and ameliorate the effects of the current
crisis on homeowners, tenants, neighborhoods, communities,
and the California economy as a whole. Last December, CRL
estimated that nearly 500,000 borrowers in California would
lose their homes to foreclosure, due to reckless lending
practices in the subprime market. Foreclosures are
already at extremely high levels, and CRL expects the worst
is still to come. Based on the timing of rate resets for
subprime adjustable rate mortgages, CRL expects the highest
volume of resets to occur in Spring and October 2008.
CRL supports the requirement in the bill that lenders
schedule a meeting to work with borrowers in default, prior
to filing a NOD, and the provisions that provide additional
notice and time to tenants of properties facing
foreclosure. The organization is disappointed, however,
that the bill lacks a provision, previously in SB 926
(Perata), which would have required the meeting between
lenders and borrowers to be conducted in the language in
which the loan was originally negotiated. CRL notes that
lenders or affiliated brokers typically met face-to-face
with borrowers to place them into the problem loans. It is
reasonable, then, to require a meeting with borrowers
before foreclosing on the loan and taking away their home.
Consumers Union (CU) supports this bill. They believe that
by creating sensible stop-gap protections for borrowers
before they lose their homes, this bill will help preserve
homeownership by preventing unnecessary home foreclosures
from occurring. This bill encourages early contact and
communication between borrowers and lenders to protect
against unnecessary mortgage loan foreclosures. CU
supports the provision of the bill that requires a lender
or servicing agent to contact a borrower and conduct a
meeting to discuss loss mitigation options. However, like
CRL, CU believes it is important to require that the notice
SB 1137
Page
12
and meeting be provided in the language in which the loan
was negotiated.
RJG:mw 4/17/08 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
**** END ****