BILL ANALYSIS
SB 1221
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Date of Hearing: June 29, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 1221 (Calderon) - As Amended: April 6, 2010
PROPOSED CONSENT
SENATE VOTE : 32-0
SUBJECT : MORTGAGES: NOTICE OF SALE
KEY ISSUE : SHOULD THE NOTICE OF SALE IN A NON-JUDICIAL
FORECLOSURE BE ALLOWED TO BE GIVEN FIVE DAYS EARLIER THAN
CURRENT LAW ALLOWS, I.E. 85 DAYS, INSTEAD OF THREE MONTHS AFTER
THE FILING OF THE NOTICE OF DEFAULT?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This non-controversial bill, sponsored by the United Trustees
Association, would permit a notice of sale to be given five days
earlier than allowed under current law for properties in
non-judicial foreclosure, i.e. 85 days after recording the
Notice of Default, rather than three months after the notice of
default is recorded. According to the author, this technical
change to the law is needed to alleviate a potential unintended
consequence arising from SB 306 (Calderon) of 2009, namely,
possible delay of the foreclosure sale that could arise from
innocent delays in recording the Notice of Sale, especially if
those delays create technical violations of the non-judicial
foreclosure law. Although this bill permits the notice of sale
to be filed up to five days earlier than allowed under current
law, this bill does not move up the actual sale date of the
property or otherwise shorten the foreclosure process. This
bill passed the Senate by a 32-0 vote and has no known
opposition.
SUMMARY : Authorizes notice of sale of a property in
non-judicial foreclosure to be given five days earlier than
current law allows-a total of 85 days, instead of three months,
after the filing of a Notice of Default. Specifically, this
bill :
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1)Authorizes the mortgagee, trustee, or other person authorized
to take sale of the property pursuant to non-judicial
foreclosure to file a notice of sale up to five days before
the lapse of the three-month period, provided that the date of
sale is no earlier than three months and 20 days after the
filing of the notice of default.
2)Makes corresponding changes to the codified notice that must
be included in the notice of default.
EXISTING LAW regulates the non-judicial foreclosure of property
pursuant to the power of sale contained within a mortgage
contract:
1)Requires the trustee, mortgagee, or beneficiary to record a
Notice of Default and allow three months to pass before
setting a date for sale of the property. (Civil Code Sections
2924(a), 2924f(a).)
2)Requires the notice of sale to be published and recorded at
least 20 days prior to sale of the property. (Civil Code
Section 2924(b)(1), 2924f(b)(1).)
COMMENTS : This non-controversial bill, sponsored by the United
Trustees Association, would permit a notice of sale to be given
five days earlier than allowed under current law for properties
in non-judicial foreclosure, i.e. 85 days after recording the
Notice of Default, rather than three months after the notice of
default is recorded. According to the author, this technical
change to the law is needed to alleviate a potentially
problematic unintended consequence arising from SB 306
(Calderon) of 2009, namely, possible delay of the foreclosure
sale that could arise from innocent delays in recording the
Notice of Sale, especially if those delays create technical
violations of nonjudicial foreclosure law.
Background on Non-Judicial Foreclosure . Non-judicial
foreclosure (sometimes referred to as a "private trustee's
sale") is the preferred method used by lenders in California to
exercise the remedy of foreclosure when the loan is not repaid
by the borrower according to the terms of a mortgage agreement.
The procedural requirements for non-judicial foreclosure are set
forth in Civil Code Sections 2924 to 2924(h).
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Ordinarily, the borrower will execute a deed of trust in favor
of the lender which makes the real property the security for the
loan and names someone to act as trustee. The function of this
trustee under a deed of trust is either to initiate foreclosure
at the lender's direction in the event of a breach, or to
reconvey the trust deed once the obligation has been satisfied
in full. The trustee initiates the foreclosure process by
preparing, executing, and recording the Notice of Default. For
the next three months, there is a redemption period in which the
borrower may attempt to cure the default. If the borrower is
unsuccessful, then a Notice of Sale is recorded and the process
culminates in a trustee's sale where the property is sold to the
highest bidder.
The auctioneer conducts this sale as instructed by the trustee
and reports the results back to the trustee. The trustee will
notify the beneficiary and prepare the Trustee's Deed, which
will vest title into the name of the successful bidder. If
there are no bids for the property which exceed the opening bid,
the property reverts to the beneficiary (in this case, the bank
or lender) who will then take title to the property under the
Trustee's Deed. Because there is no statutory right of
redemption following a non-judicial foreclosure under California
law, at this point the property officially becomes "bank-owned."
This bill addresses timing issues arising from SB 306 (2009) .
According to the author, this bill is needed to address a
workability issue that arose after the author's previous bill SB
306 of last year required that the notice of sale be posted 20
days prior to the date of the sale. The author explains:
Prior to enactment of SB 306, notices of sale were required
to be published in newspapers of general circulation at
least 20 days prior to the sale of the property, and
recorded with the county recorder at least 14 days prior to
the sale. SB 306 conformed these dates, so that notices of
sale must now be published and recorded at least 20 days
prior to sale. The change was intended to give the public
and those relying on the recording process as much advance
notice of sales as possible.
The problem with the law, as amended by SB 306, is that,
while publication dates can be coordinated very precisely
between trustees and newspapers, the recording process is
subject to greater opportunity for error. If recorders
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close early on a given day due to budget cutbacks, or if
the notice of sale document is delivered to the recorder's
office, but not actually recorded until the next day, a
technical violation of the law can occur.
In nonjudicial foreclosures, a foreclosure sale can be
subject to challenge, and possible revocation, if the
requirements of the law are not strictly followed. SB 306
requires that at least 20 days pass between the date of
recordation and the date of sale. Existing law also
prohibits the recordation of a notice of sale until at
least three months have passed since recordation of the
notice of default. The interaction of these two rules
leaves trustees no room for error. If there is a one or
two day delay in recording the notice of sale, the
foreclosure sale may also have to be delayed. Delays in a
foreclosure sale can result in significant expense.
To address that issue, SB 1221 would permit a notice of sale to
be given five days earlier in the process - 85 days after
recording the Notice of Default, rather than three months after
the notice of default is recorded. According to the author,
those extra five days seek to account for any delays in the
recording process, and that the bill is not intended to propose
any change in sale dates.
Although this bill permits the notice of sale to be filed up to
five days earlier than allowed under current law, this bill does
not move up the actual sale date of the property or otherwise
shorten the foreclosure process. Under this bill, the actual
sale date may not occur any sooner than allowed by existing
law-to be precise, three months and 20 days after the notice of
default is filed.
REGISTERED SUPPORT / OPPOSITION :
Support
United Trustees Association
Opposition
None on file
SB 1221
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Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334