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 (more) AB 2016 (Torres) Page 2 of ? 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 AB 2016 (Torres) Page 3 of ? 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 AB 2016 (Torres) Page 4 of ? 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" AB 2016 (Torres) Page 5 of ? 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) ************** AB 2016 (Torres) Page 6 of ?