BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



           ------------------------------------------------------------ 
          |SENATE RULES COMMITTEE            |                   SB 127|
          |Office of Senate Floor Analyses   |                         |
          |1020 N Street, Suite 524          |                         |
          |(916) 651-1520         Fax: (916) |                         |
          |327-4478                          |                         |
           ------------------------------------------------------------ 
           
                                         
                                 THIRD READING


          Bill No:  SB 127
          Author:   Calderon (D)
          Amended:  5/20/09
          Vote:     21

           
           SENATE JUDICIARY COMMITTEE  :  3-2, 5/12/09
          AYES:  Corbett, Florez, Leno
          NOES:  Harman, Walters


          SUBJECT  :    Mortgages

           SOURCE  :     Author


           DIGEST  :    This bill requires a mortgagee or trustee to  
          make specified disclosures on an Internet web site or in a  
          24-hour telephone recording at least once a week before the  
          scheduled sale of a property.  This bill (1) requires a  
          beneficiary to provide an opening bid to a trustee at least  
          week prior to the first scheduled sale date, and (2)  
          require a trustee to provide a list of liens and  
          encumbrances on a foreclosed property and to charge a  
          reasonable fee for that information, as specified.

           ANALYSIS  :    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 state law requires the trustee,  
          mortgagee, or beneficiary to record a Notice of Default and  
          allow three months to lapse before setting a date for sale  
          of the property.  (Civil Code Sections 22924, 2924f.)   
                                                           CONTINUED





                                                                SB 127
                                                                Page  
          2

          Existing law governs the issuance of the Notice of Sale and  
          requires that notice to be recorded at least 14 days prior  
          to the date of sale.  (Civil Code Section 2924f.)

          Existing law requires a mortgagee, trustee, or other person  
          authorized to record the Notice of Default or Notice of  
          Sale to make specified disclosures after the recording of  
          those notices and prior to the sale of the property.   
          (Civil Code Section 2924b.)

          This bill additionally requires the mortgagee, trustee, or  
          other person authorized to record the notice of sale to  
          make information available about each property at least one  
          week before sale.

          This bill requires that information to be posted on an  
          Internet web site or in a telephone recording that is  
          accessible 24 hours a day, at least one week before the  
          scheduled sale of property.  The information shall include  
          (1) a contract name and phone number; (2) the identifying  
          number for the sale of the property; (3) the date, time,  
          and location of the sale; (4) the estimated total amount of  
          debt; (5) the minimum opening bid, if any; (6) the outcome  
          of the auction, as specified; and (6) a statement that any  
          interested bidder may request information about liens and  
          encumbrances for a reasonable fee.  The statement shall  
          also notify the borrower that the information does not  
          necessarily disclose all liens and encumbrances, and that  
          the provided list of liens and encumbrances does not  
          include any information regarding taxes or assessments,  
          reservations in patents, easements, rights-of-way,  
          reservation of mineral rights, covenants, conditions, or  
          restrictions.  Any errors must be corrected as soon as  
          practicable after identifying the error or being informed  
          of the error.

          This bill, upon oral, written, or electronic request by a  
          person, and if known by the trustee, requires the trustee  
          to provide a list of the liens and encumbrances on a  
          property as of a date certain.  That list shall include a  
          statement that the provided information does not  
          necessarily disclose all liens and encumbrances, and that  
          the information does not include any information regarding  
          taxes or assessments, reservations in patents, easements,  







                                                                SB 127
                                                                Page  
          3

          rights-of-way, reservation of mineral rights, covenants,  
          conditions, or restrictions.  The trustee may charge a  
          reasonable fee not to exceed $30, per property, for  
          providing that information.

          This bill requires each beneficiary (i.e., the lender) to  
          provide an opening bid on property to the trustee at least  
          one week prior to the first scheduled sale date.  The  
          beneficiary may update that bid at any time prior to the  
          sale, and the trustee shall update its information  
          regarding the sale on its phone recording or Internet web  
          site as soon as practicable after receiving the revised  
          opening bid.  A beneficiary who provides an opening bid to  
          a trustee may accept a higher bid on the property.

          This bill also extends the time during which the notice of  
          sale must be recorded from 14 to 20 days.

          Existing law generally regulates the conduct of trustees in  
          the above process, and their actions at the resulting  
          trustee's sale.  (Civil Code Section 2924h.)  Existing law  
          also exempts a trustee form liability for any good faith  
          error resulting from reliance on information provided in  
          good faith by the beneficiary regarding the nature and the  
          amount of the default.  (Civil Code Section 2924(b).)

          This bill, instead, exempts a trustee from liability for  
          any good faith error resulting from reliance on information  
          provided in good faith by the beneficiary, or resulting  
          from any clerical error the trustee makes, despite  
          adherence to procedures intended to prevent the error.

          Existing law limits the costs and expenses that may be  
          charged in the non-judicial foreclosure process to, among  
          other things, the costs incurred for the recording,  
          mailing, publishing, and posting of notices.  (Civil Code  
          Section 2924c(c).)

          This bill includes the cost of posting information on an  
          Internet web site or making that information available on a  
          24-hour telephone recording not to exceed $50.

          According to the author's office, "California's housing  
          market is currently suffering from historically high rates  







                                                                SB 127
                                                                Page  
          4

          of default and foreclosure.  Nearly 250,000 properties were  
          sold through non-judicial foreclosure in California during  
          2008, and nearly all of those properties (96.4%) reverted  
          to the lender, after no bid was received on the property  
          from a third party.  Lenders are trying to draw bids from  
          third parties by discounting properties sharply, but are  
          still failing to attract bidders.  In December 2008, 40% of  
          the properties up for auction on the courthouse steps were  
          discounted by at least 50%.

          "When lenders take back properties through non-judicial  
          foreclosure, the properties often remain unoccupied and  
          unsold for months.  Financial institutions are overwhelmed  
          by the vast number of properties they have taken back onto  
          their books, and are selling these properties any way they  
          can - often at deep discounts.  These vacant, deeply  
          discounted properties are depressing property values in the  
          neighborhoods in which they are located, harming  
          hardworking, neighboring homeowners who are watching their  
          own home values plummet through no fault of their own.

          "Decreasing the number of properties that revert to  
          financial institutions on the courthouse steps by  
          increasing the number of people who bid at non-judicial  
          foreclosure sales will help reverse harmful housing trends  
          in several ways.  First, the properties will spend less  
          time vacant, which, in turn, will reduce levels of blight  
          and other problems, like theft and vandalism, which  
          frequently characterize vacant, foreclosed properties.   
          Second, housing values will begin to stabilize at levels  
          higher than those at which the banks are currently selling  
          their bank-owned inventory.  Third, reducing the number of  
          bank-owned properties will help financial institutions to  
          focus on helping borrowers before they enter foreclosure.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
          Local:  No

          RJG:cm  5/20/09   Senate Floor Analyses 

                       SUPPORT/OPPOSITION:  NONE RECEIVED

                                ****  END  ****