BILL ANALYSIS SENATE JUDICIARY COMMITTEE Senator Ellen M. Corbett, Chair 2009-2010 Regular Session SB 120 S Senator Lowenthal B As Introduced Hearing Date: March 31, 2009 1 Civil Code; Public Utilities Code 2 BCP:jd 0 SUBJECT Residential Tenancies DESCRIPTION This bill would extend certain tenant protections to apply after a foreclosure sale. For example, existing law prohibits a landlord, with the intent to terminate the tenancy, from interrupting or terminating a tenant's utility service, changing the locks, or removing a tenant's personal property from the premises. This bill would include a successor in interest who acquired the property through foreclosure in the definition of "landlord" subject to these prohibitions. Existing law permits tenants in multifamily dwellings to deduct utility payments from their rent when they pay for utilities as part of their rent and the owner's account is in arrears and scheduled to be terminated. This bill would extend these protections to tenants in single-family dwellings and would enhance the notice sent to tenants notifying them of an impending utility shutoff so that it is also mailed (existing law requires only posting) and is provided in English, Spanish, Chinese, Tagalog, Vietnamese, and Korean. This bill would provide that provisions of existing law regarding the collection and return of security deposits apply whether the termination of the landlord's interest was voluntary or involuntary and in the case of a trustee's sale. This bill would extend current law's protections requiring utilities, public utilities, and districts to notify tenants of multifamily dwellings of an impending shut-off of utility (more) SB 120 (Lowenthal) Page 2 of ? service to also include tenants living in single-family homes. This bill would also strengthen current law by requiring that the notice be mailed (existing law requires only posting) and that the notice be provided in English, Spanish, Chinese, Tagalog, Vietnamese, and Korean. 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. Often, tenants have become the innocent victims of the crisis; a November 2007 New York Times article noted: "In the foreclosure crisis of 2007, thousands of American families are losing their homes without ever missing a payment." A recent study by the National Low Income Housing Coalition found that more than 20% of the properties facing foreclosure nationwide are rentals, and "[b]ecause rental properties often are home to multiple families, renters make up roughly 40% of the families facing eviction." For tenants of foreclosed properties, existing law generally requires those tenants to receive a 60-day notice after the foreclosed home is sold before the tenants may be evicted (although some jurisdictions require evictions to be for just cause). During the time frame where the tenant is looking for new housing, some tenants have complained about the subsequent owner shutting off necessary utilities in order to encourage the tenant to prematurely leave the home. On March 12, 2008, the Los Angeles Times' article entitled Renters Tell of Harassment in Foreclosure Proceedings reported: They shut off the water at Ida Hancox's duplex just before Christmas, when she was doing her holiday cooking. The utility man who did the job brusquely told her to pay her bills. But Hancox and her fellow building tenant had done so. Utilities were included in their rent, which was up to date. Such costs had been the responsibility of the landlord, who had skipped town after the lender foreclosed on his loan. Hancox and her neighbor Kim Isaac-Ray, a mother of eight, told a Bay Area utility committee Tuesday that they believe that the lender stopped paying the utility bill knowing the water would be turned off - as a way of trying to push them out of the building despite local laws preventing their eviction. Area activists agree, and say SB 120 (Lowenthal) Page 3 of ? low-income renters who have the right to remain in their homes are increasingly being harassed in foreclosure proceedings by lenders eager to be rid of them. To respond to the problem of limited tenant protections after a foreclosure sale, this bill would extend certain tenant protections to apply after a foreclosure sale and extend existing protections regarding utility shut-offs to tenants of single-family dwellings. An identical bill, AB 2586 (Torrico, 2008), was vetoed by the Governor after being approved by this committee on June 24, 2008. CHANGES TO EXISTING LAW 1.Existing law prohibits a landlord-with intent to terminate the tenancy-from willfully causing the interruption or termination of any utility service provided to a tenant, whether or not the service is under the control of the landlord. (Civ. Code Sec. 789.3(a).) Existing law prohibits a landlord from willfully engaging in the following acts with intent to terminate a tenancy: a) Preventing a tenant from gaining reasonable access to the property by changing the locks; b) Removing outside doors or windows; or c) Removing from the premises the tenant's personal property, furnishings, or any other items without the prior written consent of the tenant, except as specified. (Civ. Code Sec. 789.3(b).) Existing law provides that a landlord who violates the above-described provisions shall be liable to the tenant for actual damages and other damages, as specified. (Civ. Code Sec. 789.3(c).) This bill would define "landlord" and "tenant" for purposes of these provisions to mean the following: a) "Landlord" would include a fee simple owner or owners of the property and any successor or successor in interest to the landlord's interest in the property, including interests acquired through foreclosure; and b) "Tenant" would include a tenant occupying the property pursuant to a fixed-term tenancy, periodic tenancy, tenancy at will, and a tenancy at sufferance. The term would also include a subtenant, a lawful occupant, and any of the SB 120 (Lowenthal) Page 4 of ? above persons who occupied the property immediately prior to the owner's acquisition of the property. 1.Existing law governs the collection and return of security deposits including that upon termination of a landlord's interest in the premises, whether by sale, assignment, death, appointment of a receiver or otherwise, the landlord shall either transfer the remaining portion of the tenant's security deposit, after lawful deductions are made, to the landlord's successor in interest or return the remaining portion, after lawful deductions, to the tenant along with an accounting. (Civ. Code Sec. 1950.5(h).) This bill would revise these provisions to specify that they apply: (a) whether the termination of the landlord's interest was voluntary or involuntary; and (b) in the case of a trustee's sale. This bill would also provide that "successor in interest" for purposes of existing law regarding the collection and return of security deposits includes a fee simple owner or owners of the property and any successor or successor in interest to the landlord's interest in the property, including interests acquired through foreclosure. If a successor in interest has acquired the property through foreclosure, this bill creates a rebuttable presumption that the amount of the deposit is equal to one month's rent. 2.Existing law requires an owner of a dwelling structure to give notice in a rental agreement of specified information, including the name, phone number, and address of the property manager and the owner and the contact information for the person to whom rent payments are to be made. Existing law provides that these provisions may be extended to, and are enforceable against, any successor owner. (Civ. Code Sec. 1962.) This bill would provide that, for purposes of these provisions, "successor owner" includes all successor owners, including a fee simple owner or owners of the property and any successor or successor in interest to the landlord's interest in the property, including interests acquired through foreclosure. This bill would provide that a successor owner whose interest was acquired through foreclosure does not need to comply with these provisions if the owner serves a notice to quit, as specified, within 15 days of acquiring the property. 3.Existing law provides that whenever an electrical, gas, heat, SB 120 (Lowenthal) Page 5 of ? or water corporation provides residential service to occupants through a master meter in a multiunit residential structure where the owner, manager, or operator is listed as the customer of record, the corporation must make every good faith effort to inform the occupants, by means of a written notice posted on the door of each residential unit at least 15 days prior to termination, when the account is in arrears, that service will be terminated on a date specified in the notice. Existing law provides that if it is not reasonable or practicable to post the notice on the door of each residential unit, the corporation must post two copies of the notice in each accessible common area and at each point of access. Existing law specifies procedures and the right of tenants in multifamily units to begin utility service and permits them to deduct payments from the rent in these cases. (Pub. Util. Code Sec. 777.1.) Existing law provides similar provisions for public utilities and districts. (Pub. Util. Code Secs. 10009.1, 12822.1, and 16481.1.) This bill would extend existing law which allows tenants in multifamily units to deduct utility payments from their rent to also include tenants in single-family dwellings when they have made a payment to a utility or district pursuant to existing law described above. This bill would extend these provisions to tenants living in single-family homes and condominiums. This bill would revise these provisions to also require the corporation, utility, or district to mail the notice to all affected service addresses known to it or available through reasonable and practical methods, unless the service address is the same as the billing address. This bill would require that the notice be in English, Spanish, Chinese, Tagalog, Vietnamese, and Korean (English plus the five languages described in Civil Code Section 1632), and that the outside of the envelope of the mailed notice state "Utility service to this address may be cut off soon" in those six languages. 4.Existing law provides that whenever an electrical, gas, heat, or water corporation provides individually metered residential service to occupants in a multiunit residential structure where the owner, manager, or operator is listed as the customer of record, the corporation must make every good faith effort to inform the occupants, by means of a notice, when the account is in arrears, that service will be terminated at least 10 days prior to termination. (Pub. Util. Code Sec. SB 120 (Lowenthal) Page 6 of ? 777.) Existing law provides similar provisions for public utilities and districts. (Pub. Util. Code Secs. 10009, 12822, and 16481.) This bill would repeal these provisions. COMMENT 1.Stated need for the bill According to the author,"SB 120 addresses an often overlooked aspect of the current mortgage crisis: an increase in the number of innocent renters who face eviction or other adverse effects as a result of foreclosure on a rented property." 2.Public policy supporting application of certain important tenant protections after a foreclosure sale This bill would extend certain tenant protections to apply after a foreclosure sale. For example, this bill would apply existing law's restrictions prohibiting a landlord from terminating a tenant's utility service or changing the locks to force an eviction to a successor in interest who acquired the property through foreclosure. The bill would also make clear that existing law's protections concerning the collection and return of security deposits extend to lenders or other successors in interest after a foreclosure sale, and create a rebuttable presumption that the amount of the deposit was equal to one month's rent. The Western Center on Law and Poverty, sponsor, notes that the presumption reflects the common amount for a security deposit, but "[a]s with all rebuttable presumptions, either party can show evidence to the contrary, such as a written lease." The sponsor further maintains that "[m]ost renters desperately need the deposit - to use as a deposit before they can rent a new place." The California Bankers Association and California Financial Services Association (trade associations), in opposition, contend that the former landlord would be unlikely to transfer the remaining security deposit to the successor in interest, thus "requir[ing] the successor in interest to return the security deposit even if they have not received those funds from the landlord thereby exposing the new successor in interest to new financial and legal burdens." The trade associations express further concern that "existing law would then expose the successor in interest to joint and several liability with the SB 120 (Lowenthal) Page 7 of ? landlord for non-compliance in the repayment of the security deposit." It should be noted that this bill would not require a lender, as a successor in interest, to assume all of the obligations of a landlord. Instead, it ensures that a successor in interest would have to assume certain vital tenant protections that protect, among other things, their security deposit and statutory right to remain in their home for a period of time after a foreclosure sale. Specifically, unless a more restrictive local ordinance applies, existing law generally requires a 60-day notice prior to evicting these tenants after a foreclosure sale. (See Code Civ. Proc. Sec. 1161b.) As noted in the above Los Angeles Times article, some unscrupulous landlords use leverage to force tenants to move out of their units. From a public policy standpoint, allowing tenants to remain in their home for a period of time after a foreclosure is relatively meaningless if tenants are prematurely forced out of their home because the landlord has terminated their utility services or changed the locks in order to force an eviction. Furthermore, existing protections which give a tenant time to locate a new home following a sometimes unexpected foreclosure would be meaningless if the tenant were forced out for these reasons. These provisions of the bill further the intent of those protections and reaffirm the Legislature's policy choice to protect those tenants. 3. Extension of tenant protections when owner fails to pay utility bill and shut-off is threatened Western Center on Law and Poverty asserts that sometimes landlords of distressed properties are unable to pay utility bills and shut-offs may occur. Existing law requires utilities, public utilities, and districts to notify residents of multifamily dwellings of an impending shut-off when the owner's account is in arrears and service is scheduled to be terminated. Current law also allows these tenants to begin service in their own names and deduct payments from the rent. This bill would extend these protections to tenants living in single-family homes and condominiums, and would enhance the notice so that it is also mailed (existing law requires only posting) and is provided in English, Spanish, Chinese, Tagalog, Vietnamese, and Korean. The sponsor contends that those "modest requirements SB 120 (Lowenthal) Page 8 of ? are calculated to give the greatest number of tenants actual notice [and are] appropriate given the drastic deleterious effect of a utility termination of a family's health and safety." Those proposed changes are further supported by press reports that indicate that as many as a quarter of all foreclosed single-family residences are occupied by renters (this number does not include tenants in duplexes or multiunit buildings). From a public policy standpoint, those tenants in single-family residences deserve the same protections as those in multifamily dwellings. 4. Veto of AB 2586 The Governor's veto message for AB 2586 (Torrico, 2008), identical to this bill, stated: I believe this bill is inequitable and fundamentally changes existing provisions in law because it would sign liability to the successor in interest for money never received and for actions not under its control. New owners who acquire property through foreclosure, who never signed an agreement with the tenant, should not be required to take over the legal obligations of the previous owner, including an obligation to return security deposits. As a result, this bill may increase costs and discourage purchases of foreclosed properties, and thus delay economic recovery in California. Additionally this year, I have signed several other measures to strengthen tenant notifications and rights during foreclosure proceedings, including SB 1137, which, among other things, doubled the amount of time that tenants have to find a new home before they must vacate foreclosed property. Support : Asian Americans for Civil Rights & Equality (AACRE); California Alliance for Retired Americans (CARA); California Rural Legal Assistance Foundation; FamiliesFirst; StoneSoup; Tenants Together SB 120 (Lowenthal) Page 9 of ? Opposition : California Bankers Association; California Financial Services Association HISTORY Source : Western Center on Law and Poverty Related Pending Legislation : None Known Prior Legislation : AB 2586 (Torrico, 2008), would have enacted a substantially similar set of tenant protections. This bill was vetoed. AB 1333 (Hancock, 2008), would have provided that the legal owner of real property must pay the utilities provided to a property or its tenants following a foreclosure under specified circumstances. This bill was vetoed. SB 1137 (Perata, Corbett, Machado, Chapter 69, Statutes of 2008), provided, among other things, that tenants of foreclosed properties receive notice that their home is in foreclosure, and receive a 60-day notice to quit, as specified. **************