BILL ANALYSIS Ó
AB 2610
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Date of Hearing: April 17, 2012
ASSEMBLY COMMITTEE ON
Mike Feuer, Chair
AB 2610 (Skinner) - As Amended: March 29, 2012
As Proposed to be Amended
SUBJECT : RESIDENTIAL TENANCIES: FORECLOSURE
KEY ISSUE : SHOULD STATE LAW BE CONSISTENT WITH FEDERAL LAW IN
ALLOWING TENANTS A 90-DAY NOTICE WHEN BANKS FORECLOSURE UPON THE
HOMES THEY ARE RENTING AND IN REQUIRING RECOGNITION OF
LEGITIMATE LEASES IF THE NEW OWNER WILL NOT OCCUPY THE PROPERTY?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This measure, part of the six-bill foreclosure reform package
sponsored by Attorney General Kamala D. Harris entitled the
"California Homeowner Bill of Rights," is intended to provide
additional protections to tenants living in foreclosed homes.
Under existing federal law, new purchasers of foreclosed homes
must generally honor a tenant's legitimate lease until the end
of the lease term, unless the property is sold to a purchaser
who intends to occupy the home as his or her primary residence.
In that case, the tenant must be provided with a 90-day notice
to vacate (unless a longer period is required by state or local
law).
Although federal law applies to virtually every tenancy in
California, state law causes potential confusion because it does
not require recognition of valid leases and provides a tenant in
a foreclosed home with only 60 days' notice before eviction.
This bill would revise this notice and instead provide 90 days'
notice for tenants in a month-to-month lease. This bill would
also provide that new owners of a foreclosed property must honor
a tenant's lease, except in certain cases, and unless the new
owner will occupy the property as his or her primary residence.
In that case, the new owner must give the tenant a 90-day notice
to vacate. The bill would revise the notice that is sent to
tenants when the property is noticed for a foreclosure sale to
reflect these changes, and would also delete the January 1, 2013
sunset date that would otherwise apply to these sections.
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Finally, the bill would close a loophole under which some
unscrupulous mortgage servicers have sought to avoid compliance
with the existing eviction notice requirements by seeking to
evict tenants under the guise of evicting a holdover former
owner. In order to prevent this misuse of the law, this bill
would permit tenants in a foreclosed property to contest their
eviction if a servicer attempts to evade the notice requirements
by use of the former-owner eviction process.
SUMMARY : Improves notice to tenants in foreclosed properties.
Specifically, this bill :
1)Revises the requirement of existing law providing 60 days'
notice to instead provide, in the case of a month-to-month
lease, for 90 days' notice for tenants in a foreclosed
property.
2)Specifies that a tenant holding possession under a residential
lease of a rental housing unit at the time the property is
sold in foreclosure shall have the right to possession until
the end of the lease term. This provision would not apply if
the new owner will occupy the property as his or her primary
residence or if the lease was entered into within 15 days
prior to the posting of the notice of sale. In either case,
however, the new owner must give the tenant a 90-day notice to
vacate.
3)Requires that a residential lease that is entered into after
the expiration of 75 days following a notice of default must
contain a notice that alerts the prospective tenant that the
foreclosure process has started on the property and the
property may be sold at foreclosure in as soon as 20 days,
which will terminate the lease. The notice also informs
tenants that if they rent the property, the new owner may
evict them after a 90-day eviction notice.
4)Revises existing law's notice that is sent to tenants when a
notice of sale is posted on the property to ensure that it
accurately reflects the revisions proposed above. This bill
would provide that the changes in this notice would not become
operative until March 1, 2013 or 60 days following the
issuance of an amended new translation by the Department of
Consumer Affairs, whichever occurs later.
5)Eliminates the January 1, 2013 sunset date that would
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otherwise apply to these sections and the related provisions
of existing law.
6)Specifies that Code of Civil Procedure Section 415.46 does not
limit the right of a tenant to file a prejudgment claim of
right of possession at any time before judgment or to object
to enforcement of a judgment for possession whether or not the
tenant was served with the claim of right to possession.
EXISTING LAW :
1)Provides under state law that tenants living in a rental unit
at the time the property is sold in foreclosure must be given
60-days' notice before they may be evicted. This provision,
which does not apply if any party to the mortgage note remains
in the property as a tenant, subtenant, or occupant, sunsets
on January 1, 2013. (Code of Civ. Proc. Sec. 1161b.)
2)Provides under federal law that a successor in interest in a
property subject to foreclosure to provide a bona fide tenant
in the property with a 90-day notice to vacate. The successor
in interest must also honor the tenant's lease until the end
of the lease term unless the property is sold to a purchaser
who intends to occupy the home as his or her primary
residence. In that case, the tenant must be provided with a
90-day notice to vacate (unless a longer period is required by
state or local law). In addition, tenants of foreclosed
properties must be provided with 90-days' notice to vacate if
there is no lease or the lease is terminable at will. Federal
law provides that a lease or tenancy shall be "bona fide" only
if: (1) the tenant is not the mortgagor or the child, spouse,
or parent of the mortgagor; (2) the lease or tenancy is the
result of an arms-length transaction; and (3) the rent for the
lease or tenancy is not substantially less than fair market
rent for the property or the unit's rent is reduced or
subsidized by a federal, state, or local subsidy. These
provisions sunset on December 31, 2014. ("Protecting Tenants
at Foreclosure Act of 2009," Public Law 111-22.)
3)Provides that a former owner of a foreclosed property who
holds over and remains in the property after it has been sold
through foreclosure may be removed after a three-day notice to
quit has been served. (Code Civ. Proc. Sec. 1161a.)
4)Provides that if an owner uses a prejudgment claim of right of
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possession, no occupant of the premises, whether or not that
person is named in the judgment for possession, may object to
the enforcement of the judgment. (Code Civ. Proc. Sec.
415.46.)
COMMENTS : The author explains the reason for the bill as
follows:
As more and more homes are sold through foreclosure,
tenants increasingly face the specter of sudden dislocation
of themselves, their families and their belongings.
Renters are usually the last to know of foreclosure, and
many renters, including families with children, are ending
up homeless due to foreclosure evictions. Due to
inconsistency in state and federal law, tenants are often
confused or misled about their legal protections, and how
long they have to move when served with a notice to vacate
after a foreclosure sale.
AB 2610 would help alleviate the debilitating, sudden
upheaval of Californians who reside in foreclosed
properties by eliminating the inconsistency, confusion and
abuse of existing laws intended to protect them. AB 2610
would: Require purchasers of foreclosed homes to give
tenants at least 90 days before commencing eviction
proceedings; allow tenants in foreclosed homes under a
residential lease to stay until the end of the lease term,
except in cases where the new owner plans to use the
property as their primary residence; and eliminate the
existing sunset dates.
Consumers Union writes in support of the bill, "Ýt]enants have
been silent victims in the foreclosure crisis, often kept in the
dark by their landlords and unsure as to who owns the property
they live in. This bill will help ensure that innocent tenants
receive adequate notice of the foreclosure status impacting
their residences, and will protect tenants across the state from
unjust eviction by new owners of foreclosed properties."
Effects Of The Foreclosure Crisis On Tenants. California leads
the nation with one of the highest rates of foreclosure.
According to RealtyTrac, in California, one in every 303 housing
units received a foreclosure filing in March 2012, and 48,422
houses received a foreclosure notice in February alone. Tenants
living in those homes have been significantly affected. A
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November 18, 2007 New York Times article, "As Owners Feel
Mortgage Pain, So Do Renters," noted ". . . thousands of
American families are losing their homes without ever missing a
payment. They are renters in houses whose owners default on
their mortgages - a large but little noticed class of
casualties."
In January 2011, Tenants Together released its third annual
report entitled "California Renters in the Foreclosure Crisis."
The report estimated that at least 38 percent of homes in
foreclosures were rentals and more than 200,000 California
renters were directly affected by home foreclosures in 2010
alone. Tenants Together further estimated that these numbers,
based on data from Foreclosure Radar, likely undercount the
number of foreclosed homes that are in fact rentals. The report
indicated that the counties with the highest foreclosed rental
units (5,000 or more) were: Los Angeles, Riverside, Sacramento,
and San Bernardino. In those counties, 45,860 renters were
affected in Los Angeles; 18,823 in Riverside; 17,033 in
Sacramento; and 17,356 in San Bernardino. In San Francisco, 61
percent of foreclosed units were renter occupied. The report
listed other counties with comparatively high percentages of
renter-occupied foreclosed units including: Alameda (40
percent); Fresno (42 percent); Humboldt (42 percent); Mono (41
percent); Napa (40 percent); and San Mateo (41 percent). (See
"California Renters in the Foreclosure Crisis, Third Annual
Report," January 2011, Tenants Together, available at
http://tenantstogether.org/.)
Harmonizing State and Federal Notice Periods. California
enacted important protections in SB 1137 of 2008, requiring
purchasers of foreclosed homes at a foreclosure sale to give at
least 60 days' notice before evicting tenants in those homes.
To ensure that the extended time period cannot be exploited by a
former owner who rents the property to another person but
remains in the foreclosed home, SB 1137 provided that the
extended time period does not apply if any party to the mortgage
note remains in the property as a tenant, subtenant, or
occupant.
After the enactment of SB 1137, President Obama signed S. 896,
P.L. 111-22, which included the "Protecting Tenants at
Foreclosure Act of 2009" (PTFA). The PTFA, which is currently
scheduled to sunset on December 31, 2014, generally requires the
purchaser of a home at a foreclosure sale to honor a bona fide
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tenant's lease unless the purchaser intends to occupy the home
as their primary residence. If there is no lease, if the lease
is terminable at will (a month-to-month tenancy), or if the
purchaser will occupy the home as their primary residence, the
tenant must be provided with a 90-day notice to vacate (unless a
longer period is required by state or local law). The PTFA also
made a conforming change to federal provisions relating to
Section 8 tenancies for which California law already requires a
90 day notice. (See Civ. Code Sec. 1954.535.) As a result,
currently federal law generally provides greater protection to
tenants than state law by providing additional time (90 vs. 60
days) and imposes a requirement that the lease be honored under
certain circumstances.
Providing Clear Guidance Regarding Valid Lease Rights. This
bill would make the state law provisions described above similar
to federal law by providing that a new owner of a foreclosed
property must honor a tenant's lease. Under the bill, this
provision would not apply if the new owner will occupy the
property as his or her primary residence or if the lease was
entered into within 15 days prior to the posting of the notice
of sale. In either of those instances the new owner must give
the tenant a 90-day notice to vacate.
A coalition of business trade associations has a "Support if
Amended" position on this bill. These organizations argue that
the bill is not sufficiently consistent with federal law which
requires that a bank or other non-residential purchaser honor
the lease terms only for tenants with "bona fide" leases.
Federal law defines a "bona fide" lease or tenancy as one where
all of the following are true: (1) the tenant is not the
mortgagor or the child, spouse, or parent of the mortgagor; (2)
the lease or tenancy is the result of an arms-length
transaction; and (3) the rent for the lease or tenancy is not
substantially less than fair market rent for the property or the
unit's rent is reduced or subsidized by a federal, state, or
local subsidy. As a result, these associations seek an
amendment that would incorporate the federal law definition of
"bona fide lease or tenancy." In addition, the California
Association of Realtors opposes the bill and seeks an amendment
that would incorporate by reference the federal law requirements
and definition relating to bona fide tenancy.
Tenant advocates raise concerns that, despite the protections
envisioned by Congress under the PTFA, landlords have taken
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advantage of the ambiguity of the "bona fide" definition and
have taken eviction action against tenants despite the fact that
they arguably are entitled to additional time in the property.
In many cases, tenants do not challenge these actions because
they are unaware of their rights or they cannot afford legal
representation.
Following discussions with all stakeholders, this bill exempts
suspect leases while avoiding the vague terms under federal law
by which non-residential purchasers of foreclosed properties
have apparently misunderstood their obligations. In place of
the ambiguous and arguably subjective limitation to "bona fide"
leases, this bill provides bright-line guidance for all parties:
banks and investors will not be required to honor the remaining
lease term when the lease was entered into within 15 days prior
to the posting of the notice of sale. It is expected that this
clarity will reduce uncertainty, complaints and litigation.
Notice When Entering Leases Within 15 Days Of A Notice Of Sale.
As described above, this bill would provide that new owners of
foreclosed properties would not be required to honor a tenant's
lease if the lease was entered into within 15 days prior to the
posting of the notice of sale. In that case, the new owner must
give the tenant a 90-day notice to vacate. As a result, this
bill would require that a residential lease that is entered into
after the expiration of 75 days following a notice of default
contain a notice that alerts the prospective tenant that the
foreclosure process has started on the property and the property
may be sold at foreclosure in as soon as 20 days, which will
terminate the lease. The notice also informs tenants that if
they rent the property, the new owner may evict them after a
90-day eviction notice. This information is important to the
prospective tenant who may be weighing whether to rent the
property and give the landlord a sizable security deposit.
Because the tenant may be signing a yearlong (or longer) lease
that will be invalidated by the foreclosure sale, it is critical
that he or she be informed of that fact.
Changes to SB 1137 Notice. SB 1137 required a notice to be
posted and mailed to tenants at the time the property was
noticed for a foreclosure sale. That notice (which is in
English, Spanish, Chinese, Tagalog, Vietnamese, and Korean) acts
to provide notice to tenants that the home they are renting may
be sold in a foreclosure sale in around three weeks, and, that
they have a statutory right to stay in the property for a
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specified amount of time after that sale. The enclosed notice
would give tenants early warning of the potential foreclosure of
their rental property, and the multiple language requirement
would ensure that the majority of recipients receive a readily
understandable notice (according to the United States Census of
2000, those languages represent the top five languages other
than English spoken by approximately 83 percent of all
Californians who speak a language other than English in their
homes). In recognition of the time required of lenders and
servicers to update their systems and begin using the required
notice, SB 1137 provided that the notice section shall become
operative sixty days after enactment.
This bill would make changes to the notice that must be sent to
tenants in foreclosed properties when the property is noticed
for a foreclosure sale. The changes ensure that the notice is
accurate and reflective of state and federal law. For example,
the existing notice states that the new property owner may
provide the tenant with a 60 days' eviction notice, however the
bill would revise this provision to require that a tenant's
lease be honored, except in certain cases, and tenants in
month-to-month leases be provided with 90 days' notice. As a
result, the bill would then revise the notice accordingly so
that tenants are accurately advised of state law.
In order to address concerns raised by the business trade
associations, the bill would delay the operation of this section
until March 1, 2013, or 60 days following the issuance of a form
by the Department of Consumer Affairs, whichever is later.
Sunset Date. This bill deletes the January 1, 2013 sunset date
on existing law's 60 days' notice provision as well as its
accompanying notice. The coalition of trade associations
detailed above and the California Association of Realtors all
request that, rather than delete the sunset date entirely, the
bill should be amended to include a January 1, 2018 sunset date.
In support of this position, they point out that federal law
sunsets on December 31, 2014. The author and her sponsor would
prefer not to include a sunset date in the bill so that tenants
in foreclosed properties receive the full protection of these
important provisions.
This Bill Would Also Prevent Evasion Of Existing Notice
Requirements By Use Of The Prejudgment Claim Of Right To
Possession. Under existing law, a former owner of a foreclosed
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property who holds over and remains in the property after it has
been sold through foreclosure may be removed after a three-day
notice to quit has been served. (Code Civ. Proc. Sec. 1161a.)
These holdover provisions are used against former owners when
banks or servicers obtain the property through a foreclosure.
In that instance, the entity that now owns the property serves a
three-day notice to quit and an unlawful detainer eviction
action naming the borrower and Doe defendants. The entity may
also use a prejudgment claim of right to possession which is
designed to evict non-tenant occupants of a rental property. If
the prejudgment claim form is served on the defaulting owner, a
tenant who is not named in the complaint must file a prejudgment
claim of right form in court within 10 days or risk being
evicted without further hearing. In many foreclosed property
cases, eviction papers directed to holdover former owner do not
name and are not addressed to the tenants. As a result, tenants
typically do not receive notice of the eviction. The foreclosed
owner is often no longer in possession of the premises and
generally does not contest the eviction, resulting in a default
judgment that binds the tenants as well. At this point, it is
too late for the tenants to contest their eviction because
existing law provides that service of a prejudgment claim of
right to possession bars the filing of a postjudgment claim of
right to possession to object to enforcement of the judgment for
possession. As a result, innocent tenants who live in
foreclosed properties are being prematurely removed from their
homes without the required notice and before the 90-day period
guaranteed by federal law has expired.
This bill would specify that existing law which permits an owner
to use a prejudgment claim of right of possession against a
holdover former owner when the property has been sold at
foreclosure does not limit the right of a tenant to file a
prejudgment claim of right of possession at any time before
judgment or to object to enforcement of a judgment for
possession whether or not the tenant was served with the claim
of right to possession. This change would permit a tenant in a
foreclosed property to file a postjudgment claim of right to
possession or a claim of right to possession pursuant to Code of
Civil Procedure Section 1174.3.
Author's Amendments. Reflecting the results of negotiations
with landlord and tenant advocates, the author offers the
clarifying and limiting amendments in the bill mock-up that
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accompanies this analysis.
Related Pending Legislation : AB 1473 (Hancock), which is
identical to this bill, is scheduled to be heard in the Senate
Judiciary Committee on April 17, 2012.
SB 708 (Corbett), which would extend the sunset date to January
1, 2018 on existing provisions of law which provide tenants
renting a foreclosed home with 60 days' written notice before
the tenant may be removed from the property, is awaiting
referral in the Assembly. This bill also would revise the
notice given to tenants renting a foreclosed home so that they
are made aware that their tenancy may continue after the
foreclosure sale and the new owner must give them at least 60
days written eviction notice or 90 days if required by any other
provision of state or federal law.
REGISTERED SUPPORT / OPPOSITION :
Support
Attorney General Kamala D. Harris
California Nurses Association
California Professional Firefighters Association
Consumers Union
Santa Cruz County Board of Supervisors
Support if amended :
California Bankers Association
California Chamber of Commerce
California Credit Union League
California Financial Services Association
California Independent Bankers
California Mortgage Association
California Mortgage Bankers Association
United Trustees Association
Opposition
California Apartment Association
California Association of Realtors
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334
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