BILL ANALYSIS Ó AB 2273 Page 1 Date of Hearing: May 8, 2012 ASSEMBLY COMMITTEE ON JUDICIARY Mike Feuer, Chair AB 2273 (Wieckowski) - As Amended: April 26, 2012 As Proposed to Be Amended SUBJECT : COMMON INTEREST DEVELOPMENTS: REQUIRED DOCUMENTS KEY ISSUE : IN ORDER TO ENSURE THAT A HOMEOWNERS' ASSOCIATION KNOWS WHO THE NEW OWNER IS WHEN A UNIT IN A COMMON INTEREST DEVELOPMENT IS FORECLOSED UPON, SHOULD THE MORTGAGEE OR TRUSTEE BE REQUIRED TO MAIL A COPY OF THE DEED WITHIN 15 BUSINESS DAYS OF THE SALE AND RECORD THE DEED NO LATER THAN 30 DAYS AFTER THE DATE OF SALE? FISCAL EFFECT : As currently in print this bill is keyed non-fiscal. SYNOPSIS This bill seeks to assist homeowners' associations with problems they reportedly face in collecting unpaid assessments upon a separate interest in a CID that has recently changed ownership through foreclosure. As proposed to be amended, the bill simply requires the mortgagee or trustee to mail to the HOA a copy of any trustee's deed upon sale of the separate interest, and to do so within 15 business days following the date of the trustee's sale. The bill also requires, in any case, the sale to be recorded no later than 30 days after the date of the sale in the recorder's office of the county where the property is located. The bill is sponsored and supported by the California Conference of Bar Associations and homeowner's associations, whose individual members have provided the Committee with hundreds of letters of support. It is believed but not known for certain at the time of this analysis that the proposed amendments, taken together, substantially address concerns raised by the bankers, trustees, and title companies and are sufficient to remove their opposition to the bill. If that is the case, then the bill would have no other known opposition. SUMMARY : Streamlines the process for the mortgagee or trustee for a separate interest in a CID to provide information about the new owner to the HOA necessary for the purpose of invoicing AB 2273 Page 2 HOA assessments. Specifically, this bill : 1)Requires the sale of a property in a CID, executed under the power of sale contained in a deed of trust or mortgage, to be recorded within 30 days after the date of the sale in the recorder's office of the county where the property is located, except that failure to comply shall not affect the validity of a sale in favor of a bona fide purchaser. 2)Requires a mortgagee, trustee, or other person authorized to record a notice of default regarding a separate interest in a CID to mail to the association a copy of any trustee's deed upon sale of the separate interest, and to do so within 15 business days following the date of the trustee's sale, provided that the HOA has filed a proper request, as specified, with the county recorder. EXISTING LAW : 1)Pursuant to the Davis-Stirling Common Interest Development Act, defines and regulates common interest developments (CIDs), including the ability of the association to levy regular and special assessments sufficient to perform its obligations. (Civil Code Section 1350 et seq. All further references are to this code unless otherwise stated.) 2)Authorizes an HOA to record a lien on an owner's separate interest in the CID for any delinquent assessments owed by the owner, including delinquent assessment, any costs of collection, late charges, and interest. Provides that amount is a lien on the owner's interest in the common interest development from the time the association records a notice of delinquent assessment with the county recorder. (Section 1367.) 3)Allows an HOA to record a request that a mortgagee, trustee, or other person authorized to record a notice of default regarding any separate interest governed by the HOA, mail to the association a copy of any trustee's deed upon sale concerning the separate interest. (Section 2924b, subd.(f).) 4)Requires the above request to include a legal description or the assessor's parcel number of the separate interests, the name and address of the association, and a statement that it is a homeowners' association. Further provides that AB 2273 Page 3 subsequent requests of a HOA shall supersede prior requests, and a request shall be recorded before the filing of a notice of default. (Section 2924b, subd.(f).) 5)Requires the mortgagee or trustee to mail the requested information to the HOA within 15 business days following the date the trustee's deed is recorded. (Section 2924b, subd.(f).) COMMENTS : This bill seeks to assist homeowners associations with problems they reportedly face in collecting unpaid assessments upon a separate interest in a CID that has recently changed ownership through foreclosure. As proposed to be amended, the bill simply requires the mortgagee or trustee to mail to the HOA a copy of any trustee's deed upon sale of the separate interest, and to do so within 15 business days following the date of the trustee's sale. The bill also requires, in any case, the sale to be recorded no later than 30 days after the date of the sale in the recorder's office of the county where the property is located. Stated Need for the Bill . The bill is co-sponsored by the California Conference of Bar Associations (CCBA) and the Community Associations Institute (CAI), a group representing HOAs. According to CCBA, "even prior to the current housing crisis, it has been a struggle for homeowners associations in CIDs to keep track of new owners within the development. All too often, in the current market, a beneficiary under a deed of trust will acquire title to a separate interest through foreclosure, or under a deed in lieu, and will provide no notice to the HOA whose interest is of record that the beneficiary has acquired title. Following foreclosure the acquiring beneficiary may fail to maintain the property or comply with the HOA's Covenants, Conditions, and Restrictions (CC&Rs)." According to CAI, homeowner associations are funded solely through the assessments paid by owners in the CID, and it is unfair for lenders who own units through foreclosure to avoid their fair share of HOA assessments when common benefits from maintenance and upkeep continue to flow to the foreclosed separate interests even while unpaid. Foreclosing lenders are not required to record a trustee deed when taking a property back as a credit bidder, which contributes to the difficulty the HOA faces in determining who to hold responsible for the assessments. According to a February 2012 survey of 125 of its AB 2273 Page 4 member HOAs, CAI reports that 73% of delayed foreclosure recordations were delayed more than 60 days, and that 76% of the time, it takes over 60 days before the foreclosing party starts paying any assessments. When a foreclosing lender fails to record a deed after the sale, the HOA does not know from whom to collect assessments. As a result, in its survey CAI reports that its member HOAs have been forced to increase the assessments on existing homeowners to cover the loss 63% of the time, as well as to defer maintenance expenses 55% of the time. As proposed to be amended, the bill seeks to speed up the time frame for identifying the new owner to the HOA. Under existing law, provided that the HOA has filed a proper request with the county recorder, as specified, the mortgagee or trustee is required to mail the requested information (i.e. a copy of the trustee's deed) to the HOA within 15 business days following the date the trustee's deed is recorded. As proposed to be amended, this bill instead requires the same mailing of the requested information to occur within 15 business days following the date of the trustee's sale itself-an earlier point in time that is no longer conditioned upon recordation of the deed. This proposed amendment seeks to streamline the existing process for the mortgagee or trustee to provide this information in a timely manner to the HOA, a process which was established with the participation of HOAs, banks, and other stakeholders through discussions over SB 1511 (Ducheny) of 2008. Since SB 1511 became law, HOAs have reported continued difficulties in obtaining the information they need to invoice the new owner its fair share of assessments, and this proposed amendment is intended to address the negative impact to HOAs that reportedly arises from excessive delays in recording the deed. As proposed to be amended, the bill also requires in every case the sale to be recorded no later than 30 days after the date of the sale, but without liability for any liens for unpaid assessments on the foreclosed property. This is intended to ensure that the HOA may obtain that information about the new owner from the record of the deed no later than 30 days after the sale, even in cases where the 15-day requirement was not complied with. This amendment proposed by the author is intended to address concerns about potential unintended consequences arising from holding the foreclosing lender responsible for any lien for assessments unpaid by the foreclosed former owner of the CID separate interest. AB 2273 Page 5 It is believed but not known for certain at the time of this analysis that the proposed amendments, taken together, substantially address the concerns raised by the bankers, trustees, and title companies and are sufficient to remove their opposition to the bill. Previous Legislation : SB 1511 (Ducheny), Ch. 527, Stats. 2008, requires a mortgagee, trustee, or other person authorized to record a notice of default regarding a separate interest in a CID to mail to the association a copy of any trustee's deed upon sale of the separate interest, and to do so within 15 business days following the date of the trustee's sale, provided that the HOA has filed a proper request, as specified, with the county recorder. ARGUMENTS IN SUPPORT : The Congress of California Seniors (CCS) supports the bill, writing that it "supports efforts to protect senior members of HOAs from the negative effects that follow property title changes within the HOA that are not recorded in a timely manner." CCS further contends that "the results of lenders' failure to record or provide notice of the sale transfer are: (1) HOA assessments are not paid; (2) HOA maintenance is crippled; (3) Remaining homeowners are forced to pay higher assessments to make up for the lenders' unpaid fair share portion, thus jeopardizing their own personal finances; (4) Entire neighborhoods can turn into blight; and (5) County assessors are (unable) to bill for property tax, depriving municipalities of much needed revenue." REGISTERED SUPPORT / OPPOSITION : Support Community Associations Institute (co-sponsor) Conference of California Bar Associations (co-sponsor) Associa Equity Management Congress of California Seniors Executive Council of Homeowners (ECHO) Southwest California Legislative Council Hundreds of letters from HOA boards of directors and individual members of HOAs across California Opposition (to the previous version of the bill) AB 2273 Page 6 California Bankers Association California Land Title Association California Mortgage Bankers Association United Trustees Association Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334