BILL ANALYSIS                                                                                                                                                                                                    






                             SENATE JUDICIARY COMMITTEE
                           Senator Ellen M. Corbett, Chair
                              2009-2010 Regular Session


          AB 2016 (Torres)
          As Introduced
          Hearing Date: June 15, 2010
          Fiscal: No
          Urgency: No
          BCP:jd
                    

                                        SUBJECT
                                           
            Common Interest Developments: Requests for Notices of Default

                                      DESCRIPTION  

          This bill seeks to allow a homeowners association in a common  
          interest development to record a single request for a copy of a  
          trustee's deed upon the sale of any separate interest within the  
          association at foreclosure.

                                      BACKGROUND  

          California, as well as the nation, is facing an unprecedented  
          threat to the economy and housing market due to increasing  
          numbers of foreclosures caused by mortgage payment defaults.   
          When a foreclosure occurs in a common interest development  
          (CID), and a struggling homeowner stops paying their association  
          dues, the association must continue to function despite that  
          loss of funds.  If that property is sold in a foreclosure sale,  
          it is in the best interest of the association to begin  
          collecting dues from the new owner of that home as soon as  
          possible. 

          Under the Davis-Stirling Common Interest Development Act, CIDs  
          are to be managed by a homeowners association that is authorized  
          to levy regular and special assessments to cover operating  
          expenses and to fulfill their obligations to members of the  
          association.  After sale or transfer of ownership, the  
          subsequent owner is responsible for paying assessments from the  
          time they become the legal owner of the property.   

          In order to assist associations in collecting assessments from  
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          subsequent purchasers of foreclosed properties, SB 1511  
          (Ducheny, Chapter 527, Statutes of 2008) allowed an association  
          to request that the person authorized to record the notice of  
          default (usually a trustee) mail the association the trustee's  
          deed upon sale.  The deed both informs the association that the  
          property was sold, and includes information about the new owner  
          of the property so that the association may begin collection of  
          dues.  

          To address issues encountered by associations using the  
          provisions of SB 1511, this bill seeks to clarify that a  
          homeowners association may record a single request for a copy of  
          notices of a trustee's deed with regards to all separate  
          interests within the association.

                                CHANGES TO EXISTING LAW
           
           Existing law  , the Davis-Stirling Common Interest Development  
          Act, defines and regulates common interest developments (CIDs),  
          including the ability of the association to levy regular and  
          special assessments sufficient to perform its obligations.   
          (Civ. Code Sec. 1350 et seq.)

           Existing law  regulates the non-judicial foreclosure of  
          properties pursuant to the power of sale contained within a  
          mortgage contract.  To commence the process, existing law  
          requires the trustee, mortgagee, or beneficiary to record a  
          Notice of Default and requires three months to lapse before  
          setting a date for sale of the property. (Civ. Code Secs. 2924,  
          2924f.)  Existing law allows a person to record a request to be  
          notified upon the filing of a notice of default or notice of  
          sale and requires the trustee to mail notice to those persons.  
          (Civ. Code Secs. 2924b(a), 2924b(b)(1).)

           Existing law  permits an association to record a request that the  
          mortgagee, trustee, or other person authorized to record a  
          notice of default mail the association a copy of the trustee's  
          deed upon sale of a separate interest within the association at  
          foreclosure.  The request must include a legal description or  
          the assessor's parcel number of the separate interests, the name  
          and address of the association, and a statement that it is a  
          homeowners' association. (Civ. Code Sec. 2924b(f).)

           Existing law  requires the above request to be recorded before  
          the filing of a notice of default, and requires the mortgagee,  
          trustee, or other authorized person to mail the requested  
                                                                      



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          information to the association within 15 business days following  
          the date the trustee's deed is recorded. (Civ. Code Sec.  
          2924b(f).)

           Existing law  requires specified information to be included in  
          any document that effects or evidences a transfer or encumbrance  
          of an interest in real property or that releases or terminates  
          any interest, right, or encumbrance. (Gov. Code Sec. 27288.1.)

           This bill  would state that a request filed by an association  
          pursuant to the above provisions does not, for purposes of  
          Government Code Section 27288.1, constitute a request for a  
          document that either effects or evidences a transfer or  
          encumbrance of an interest in real property or that releases or  
          terminates any interest, right, or encumbrance of an interest in  
          real property. 
          




                                        COMMENT
           
          1.   Stated need for the bill  

          According to the author:

            AB 2016 clarifies the process established by SB 1511, by  
            allowing HOAs to record one notice against all the  
            properties in their HOA as a group.  The county assessors  
            have interpreted SB 1511 to require that an association  
            record a document on each individual home, versus on the  
            entire association in one action.  This is expensive and  
            time consuming for an HOA.  AB 2016 corrects this  
            misunderstanding.

          2.   Filing of a single request that applies to multiple  
          properties  

          SB 1511 (Ducheny, 2008) permitted an association to request that  
          the person authorized to record a notice of default mail the  
          association the trustee's deed upon sale in foreclosure.  The  
          association can then begin collecting assessments from the  
          subsequent owner based upon the contact information contained  
          within the deed.  In response to difficulties faced with several  
          county recorders, AB 2016 seeks to clarify that an association  
                                                                      



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          may file a single request that covers all properties within the  
          association by enacting two separate changes.  Although the  
          filing of a single request is already contemplated by existing  
          statutory language, several changes are required in order to  
          address the concerns of the county recorders who are refusing to  
          record such a request.

          First, AB 2016 provides that the ability for an association to  
          file a request applies notwithstanding the general provision  
          under existing law which permits any person to request a copy of  
          a notice of default or notice of sale.  Since those requests for  
          a notice of default or notice of sale only apply to one specific  
          parcel (not multiple parcels) - the addition of  
          "notwithstanding" to the SB 1511 language would clearly separate  
          those two different types of requests.  Those two provisions are  
          already in two separate subdivisions and the proposed addition  
          appears to be more technical than substantive.

          Second, AB 2016 clarifies that for purposes of Section 27288.1  
          of the Government Code, those requests do not constitute a  
          document that effects or evidences a transfer or encumbrance of  
          an interest in real property, or, that releases or terminates  
          any interest, right, or encumbrance of an interest in real  
          property.  If a request were construed to have those effects,  
          Section 27288.1 would require additional property-specific  
          information to be included in the request - that inclusion would  
          preclude the recording of one notice for multiple properties.   
          While a trustee's deed would technically be evidence of a  
          transfer of an interest in real property, the initial request  
          for that deed should not be seen to effect or evidence a  
          transfer, or release or terminate an interest.  That document is  
          a simple request and should have no effect on title.  


          As drafted, AB 2016 provides that those requests do not  
          constitute a "request" for a document that has the  
          above-specified effects.  Since the requirements of Government  
          Code Section 27288.1 apply to the document actually filed - not  
          the document requested - the inclusion of the word "request" may  
          cause further confusion.  The following amendment is suggested  
          to strike that second reference to "request."

             Suggested amendment:

             On page 7, line 29, strike "a request for"

                                                                      



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          3.   Consistent with the intent of SB 1511  

          Although not specifically discussed when this Committee heard SB  
          1511, the enacted language permitted the association to request  
          "a copy of any trustee's deed upon sale concerning a separate  
          interest" and specified that "[t]he request shall include a  
          legal description or the assessor's parcel number of the  
          separate interests."  (Civ. Code Sec. 2924b(f).)  The word "any"  
          and the use of the plural "interests" arguably served to codify  
          the intent of the sponsor that an association may record a  
          single request for all properties within the CID.  From a policy  
          standpoint, the recording of those single requests would serve  
          to effectuate the original intent of the sponsor and allow  
          associations to minimize their recording costs.  

          It should also be noted that those requests would still include  
          a legal description or assessor's parcel number for each of the  
          affected properties.  The most significant effect of clarifying  
          the recording of a single notice would be to allow the  
          association to record a request that applies to multiple  
          properties without incurring the substantial fees that would  
          have been required if each request was filed individually. 


           Support  :  Executive Council of Homeowners (ECHO)

          Opposition  :  None Known

                                        HISTORY
           
           Source  :  Community Association Institute

           Related Pending Legislation  :  None Known

           Prior Legislation  :  SB 1511 (Ducheny, Chapter 527, Statutes of  
          2008) (See Background.)

           Prior Vote  :

          Assembly Banking and Finance (Ayes 12, Noes 0)
          Assembly Judiciary (Ayes 10, Noes 0)
          Assembly Floor (Ayes 75, Noes 0)

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