BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1223|
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UNFINISHED BUSINESS
Bill No: SB 1223
Author: Calderon (D)
Amended: 5/27/10
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 9-0, 4/7/10
AYES: Calderon, Cogdill, Correa, Florez, Kehoe, Liu,
Lowenthal, Padilla, Runner
NO VOTE RECORDED: Cox, Price, Vacancy
SENATE JUDICIARY COMMITTEE : 4-0, 4/13/10
AYES: Corbett, Hancock, Leno, Walters
NO VOTE RECORDED: Harman
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SENATE FLOOR : 33-0 (Consent), 4/29/10
AYES: Aanestad, Alquist, Ashburn, Calderon, Cedillo,
Cogdill, Corbett, Correa, Cox, DeSaulnier, Ducheny,
Dutton, Florez, Hancock, Harman, Hollingsworth, Huff,
Kehoe, Leno, Liu, Lowenthal, Negrete McLeod, Oropeza,
Padilla, Pavley, Price, Runner, Simitian, Steinberg,
Walters, Wolk, Wright, Wyland
NO VOTE RECORDED: Denham, Romero, Strickland, Wiggins,
Yee, Vacancy, Vacancy
ASSEMBLY FLOOR : 78-0, 8/12/10 (Consent) - See last page
for vote
SUBJECT : Escrow agents: auctions
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SOURCE : Author
DIGEST : This bill, with regard to an auction sale of
real property that has been the subject of a foreclosure
sale, requires an escrow agent to give back all deposits
and fees to a bidder once the escrow agent receives escrow
instructions from the auctioneer or auction company
directing the return of such funds. This bill applies to
all escrow agents, including those required to be licensed
pursuant to the Escrow Law and those granted exemptions
from licensure under the Escrow Law. In addition, this
bill requires the surety or sureties of a bond established
by an escrow agent to give notice to the Insurance
Commissioner and to Fidelity Corporation of any release,
substitution, cancellation, withdrawal, or nonrenewal of a
bond.
Assembly Amendments require the surety or sureties of a
bond established by an escrow agent to give notice to the
Commissioner and to Fidelity Corporation of any release,
substitution, cancellation, withdrawal, or nonrenewal of a
bond.
ANALYSIS :
Existing Law
1. Regulates the activities of auctioneers and auction
companies pursuant to the Auctioneer and Auction
Companies Law.
2. Requires every auction company and auctioneer to,
disclose their name, telephone number, and bond number
in all advertising; post a specified sign at the main
entrance to each auction; post or distribute the terms,
conditions, restrictions, and procedures whereby goods
will be sold at the auction; disclose the existence and
amount of any liens or encumbrances; and return the
blank check or deposit of each buyer who purchased no
goods at the sale. Existing law imposes specified fines
for violation of the above provisions.
3. Exempts the following from the definition of "auction":
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(a) wholesale motor vehicle auction; and (b) a sale of
real estate or a sale of real estate with personal
property or fixtures or both in a unified sale in
accordance with Section 9604 of the Commercial Code.
4. Regulates the business of escrow under the Escrow Law
and defines "escrow" as a transaction in which one
person, for the purpose of effecting the sale, transfer,
encumbering, or leasing of real or personal property to
another person, delivers any written instrument, money,
evidence of title to real or personal property to a
third person to be held by that third person until the
happening of a specified event or the performance of a
prescribed condition, when it is then to be delivered by
that third person to a specified person.
5. Exempts a variety of entities from Escrow Law including
depository institutions; a person licensed to practice
law in California as specified; title insurance
companies regulated by the Department of Insurance; and
real estate brokers performing in the course of, or
incidental to a real estate transaction in which the
broker is an agent or a party to the transaction and is
performing an act for which a real estate license is
required.
This bill:
1. Requires the surety or sureties of a bond established by
an escrow agent to give notice to the commissioner and
to Fidelity Corporation of any release, substitution,
cancellation, withdrawal, or nonrenewal of a bond.
2. Require an escrow agent to return all deposits and fees
received from a bidder in connection with an auction of
real property that has been the subject of a foreclosure
sale, upon receipt of escrow instructions from the
auctioneer or auction company directing the return of
all funds placed on deposit by the bidder with that
agent.
3. Provide that for purposes of this bill, an escrow agent
may recognize an auctioneer or auction company as the
agent of the property seller.
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4. Clarifies that this bill applies to auction sales of
real property that have previously been foreclosed upon
and are now the subject of a subsequent,
post-foreclosure auction sale. This bill does not apply
to foreclosure sales.
5. Clarifies that provisions of this bill apply to all
escrow agents, including those required to be licensed
pursuant to the Escrow Law and those granted exemptions
from licensure under the Escrow Law pursuant to
Financial Code Section 17006.
Background
California ranks fourth in foreclosures in the nation,
following Nevada, Florida, and Arizona, with one in every
195 housing units receiving a foreclosure filing in
February of this year. (Lazo, Alejandro, "Fewer homes
enter foreclosure process in February," Los Angeles Times,
March 11, 2010.) According to a recent article in the Los
Angeles Times, foreclosures make up approximately 42.3
percent of the housing market in southern California noting
that the "foreclosure factor will likely remain strong in
the housing market and experts have long feared that a new
wave of them is coming." (Alejandro Lazo, "Southern
California home prices rise 10 percent in February," Los
Angeles Times, March 17, 2010.) In addition, according to
statistics by RAND California, the number of foreclosed
homes statewide totaled 189,788 in 2009. As foreclosed
homes have inundated the real estate market, the method of
using auctions to sell this type of property has become
more commonplace.
Selling a foreclosed house typically involves the financial
institution listing the property through a multiple listing
service or using other traditional real estate marketing
means. However, after a house fails to be purchased within
a few months through these traditional means, financial
institutions are increasingly turning to auction companies
to help sell a bank-owned property. Auctions may benefit
financial institutions looking to unload a foreclosed home
in several ways, including stimulating interest in a given
property to a wider audience, potentially increasing the
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final sale price by an auctioneer stirring multiple bidders
to increase their bids during an auction, or, helping to
facilitate or encourage the sale of a piece of residential
real estate that would either otherwise not sell on the
open market or that would probably sell for far less than
it could be sold at auction.
However, at auction, a winning bid on a foreclosed home may
not always result in the property actually being sold to
that bidder. For example, a seller may have a reserve
price on the property which is an unpublished minimum
dollar amount that is essentially the lowest offer the
seller is willing to accept. A seller maintains the right
to reject the winning bid if that bid is below the reserve
price. If a seller chooses not to accept the bid, then the
bidder should be refunded his/her deposit.
This bill is a follow-up to last year's SB 109 (Calderon)
which was vetoed by the Governor. Senate Bill 109 was a
more comprehensive bill than this bill and would have done
the following: (1) removed the exemption for sales of real
property from the Auctioneer and Auction Company Law for
sales of real property; (2) established specific rules for
auction sales of foreclosed real estate, including
requiring notification to an auction audience of all fees
that would be levied as a condition of bidding and an
explanation of specified terms relating to the auction; and
(3) required the return of deposits and fees in a specified
time if the high bidder's offer was rejected or if the
seller did not respond to the offer. Governor
Schwarzenegger vetoed SB 109, stating:
"While the goals of SB 109 are laudable, this bill adds
additional unnecessary regulatory burdens on business.
Existing law provides consumers with civil remedies
should a seller fail to release a deposit in a timely
fashion. In addition, auctions of real property by
third parties often involve a real estate broker whose
improper conduct would already be subject to discipline
by the Department of Real Estate. Since this measure
would unnecessary restrictions and fees upon real
estate auctioneers, I am unable to sign this bill.
"This bill is narrower in focus than SB 109 and is
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intended to make certain that refundable deposits at
auctions are returned to a bidder of a foreclosed
property in a timely manner if his or her bid is
ultimately rejected by the seller of the property."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/12/10)
Escrow Agents' Fidelity Corp.
California Association of Realtors
ARGUMENTS IN SUPPORT : According to the author's office,
some bidders have reported having difficulty recouping
their refundable deposits after an auction when the seller
has rejected their bid. The deposit funds are not held by
the auctioneer or auction company but rather are held by an
escrow agent. In order to release the funds back to the
bidder, the escrow agent must receive instruction to do so
by both the property buyer and seller. After an auction,
if the seller cannot be located or contacted to give such
instruction, then the escrow agent cannot give back the
deposit to the bidder.
This bill addresses this issue by allowing auctioneers and
auction companies to act as the agent of the seller for
purposes of directing an escrow agent to return deposits
and fees to a bidder.
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Bradford, Brownley, Buchanan, Caballero, Charles
Calderon, Carter, Chesbro, Conway, Cook, Coto, Davis, De
La Torre, De Leon, DeVore, Eng, Evans, Feuer, Fletcher,
Fong, Fuentes, Fuller, Furutani, Gaines, Galgiani,
Garrick, Gatto, Gilmore, Hagman, Hall, Harkey, Hayashi,
Hernandez, Hill, Huber, Huffman, Jeffries, Jones, Knight,
Lieu, Logue, Bonnie Lowenthal, Ma, Mendoza, Miller,
Monning, Nava, Nestande, Niello, Nielsen, V. Manuel
Perez, Portantino, Ruskin, Salas, Saldana, Silva,
Skinner, Smyth, Solorio, Audra Strickland, Swanson,
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Torlakson, Torres, Torrico, Tran, Villines, Yamada, John
A. Perez
NO VOTE RECORDED: Norby, Vacancy
JJA:do 8/16/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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