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  
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          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  
                                                                      



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            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  
                                                                      



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               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,  
                                                                      



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            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.  
                                                                      



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            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  
                                                                      



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          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  
                                                                      



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          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
                                                                      



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           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.

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