BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 2610 (Skinner)
As Amended May 30, 2012
Hearing Date: July 3, 2012
Fiscal: Yes
Urgency: No
SK
SUBJECT
Residential Tenancies: Foreclosure
DESCRIPTION
This bill, which is part of the "California Homeowner Bill of
Rights" sponsored by Attorney General Kamala Harris, is intended
to provide additional protections to tenants living in
foreclosed homes. Under existing federal law, new purchasers of
foreclosed homes must 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).
State law, on the other hand, provides a tenant in a foreclosed
home with only 60 days' notice before eviction. This bill would
revise this notice and instead provide, in the case of a
month-to-month lease, for 90 days' notice for these tenants.
This bill would also provide that new owners of a foreclosed
property must honor a tenant's lease, except in certain cases
such as if the new owner will occupy the property as his or her
primary residence. In those cases, 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
extend the January 1, 2013 sunset date that applies to these
sections to December 31, 2019. This bill would also permit a
tenant in a foreclosed property to file a postjudgment claim of
right to possession, as specified.
(more)
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BACKGROUND
California leads the nation with one of the highest rates of
foreclosure. According to RealtyTrac, in California, one in
every 324 housing units received a foreclosure filing in May
2012, compared to one in every 639, nationwide, and 42,243
houses received a foreclosure notice in the last month. Tenants
living in those homes have overwhelmingly been impacted. A
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/ .)
The impact of foreclosure on tenants has not gone unnoticed by
policymakers, and recent state and federal laws have been
enacted to provide tenants with additional time to move when the
home in which they are living is the subject of a foreclosure.
In 2008, the Legislature passed and the Governor signed SB 1137
(Perata, Corbett, Machado, Ch. 69, Stats. 2008), which requires
that tenants receive 60-days notice before they may be evicted
after the rental unit in which they are living is foreclosed.
These provisions sunset on January 1, 2013.
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Federal lawmakers have also acted to protect tenants in
foreclosure situations. On May 20, 2009, President Obama signed
S. 896, Public Law 111-22, which included the "Protecting
Tenants at Foreclosure Act of 2009" (PTFA). The PTFA generally
requires a successor in interest in a property subject to
foreclosure to provide bona fide tenants with a 90-day notice to
vacate and, with limited exceptions, to honor the tenant's lease
until the end of the lease term. In 2010, the President signed
the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Public Law 111-203), which extended the PTFA until December 31,
2014 and clarified that its protections extend to tenants who
have entered into leases before the date on which complete title
is transferred as the result of a foreclosure.
This bill seeks to ensure that tenants who are living in
foreclosed homes be given sufficient notice of their rights and
responsibilities under these state and federal laws by extending
the sunset dates on the state law provisions described above.
This bill would also ensure that state law is consistent with
federal law by requiring that tenants of foreclosed properties
receive either 90-days written notice before they may be evicted
or the remainder of their lease term, except as specified.
CHANGES TO EXISTING LAW
1.Existing state law provides 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 Civ. Proc. Sec.
1161b.)
Existing federal law requires 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
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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.)
This bill would revise existing law's requirement of 60-days'
notice to instead provide, in the case of a month-to-month
lease, for 90-days' notice for these tenants.
This bill would, in the case of a fixed-term lease, require a
new owner of a foreclosed property, where the lease was
entered into prior to the transfer of title at the foreclosure
sale, to honor the remainder of the tenant's lease unless any
of the conditions described below apply, in which case the
tenant would be entitled to 90-days' notice. The new owner
would bear the burden of proving that one of these conditions
apply:
a) The new owner intends to live in the property as his/her
principal residence;
b) The tenant is the mortgagor, or is the child, spouse, or
parent of the mortgagor;
c) The lease was not the result of an arms' length
transaction; or
d) The rent is substantially less than fair market rent for
the property except when the rent is reduced or subsidized
by a federal, state, or local subsidy or law.
This bill would also revise 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 posting of a dated notice incorporating the
revisions on the website of the Department of Consumer
Affairs, whichever occurs later.
This bill would extend the January 1, 2013 sunset date that
would otherwise apply to these sections to December 31, 2019.
2.Existing law 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.)
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Existing law provides that if an owner uses a prejudgment claim
of right of 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.)
This bill would specify that, in an action for unlawful detainer
resulting from a foreclosure sale of a rental housing unit,
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.
COMMENT
1. Stated need for the bill
The author writes that "Ýa]s 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."
The sponsor, Attorney General Kamala Harris, notes that:
After acquiring property through foreclosure, many banks and
servicers routinely serve a single eviction notice upon all
occupants of the property, reciting various timeframes, legal
rights, and requirements that apply differently depending on
the type of occupant. . . . 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.
The National Housing Law Project supports the bill because it
"will help ensure that tenants, at a minimum, receive adequate
notice and time to make an orderly transition after foreclosure.
Tenants are the innocent victims of the foreclosure crisis, and
this bill will directly protect their housing from the jarring,
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and often devastating, effects of foreclosure."
2. Additional time to relocate; recent amendments address
oppositions' concerns
Under SB 1137 (Perata, Corbett, Machado, Ch. 69, Stats. 2008),
purchasers of foreclosed homes at a foreclosure sale must 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.
As mentioned in the Background section above, 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 sunsets on December 31,
2014, generally requires the purchaser of a home at a
foreclosure sale to honor a bona fide tenant's lease unless the
purchaser intends to occupy the home as their primary residence.
If there is no lease, 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.
This bill would make the state law provisions described above
consistent with federal law by providing that in a
month-to-month lease a tenant in a foreclosed property must be
given 90-days' notice before eviction. In the case of a
fixed-term lease, the bill would require a new owner of a
foreclosed property, where the lease was entered into prior to
the transfer of title at the foreclosure sale, to honor the
remainder of the tenant's lease unless any of the conditions
described below apply, in which case the tenant would be
entitled to 90-days' notice. The new owner would bear the
burden of proving that one of these conditions apply:
the new owner intends to live in the property as his/her
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principal residence;
the tenant is the mortgagor, or is the child, spouse, or
parent of the mortgagor;
the lease was not the result of an arms' length transaction;
or
the rent is substantially less than fair market rent for the
property except when the rent is reduced or subsidized by a
federal, state, or local subsidy or law.
The provisions described above were added to the bill in the
most recent set of amendments and, as a result, a number of
trade associations removed their opposition to the measure and
instead now support it. Specifically, the California Apartment
Association, 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, and United Trustees Association all now support the
measure. In addition, the California Association of Realtors
has withdrawn its opposition to the bill and is now neutral.
3. Notice provisions
This bill contains two provisions which act to protect tenants
in foreclosed properties and give them notice of what was
occurring in their rental home. The first provision revises a
notice created by SB 1137 that is given to tenants at the time
of a notice of sale, and the second extends the sunset date on a
provision of law which requires a new property owner to attach a
cover sheet to any eviction notice that is served on a tenant
within one year of a foreclosure sale.
a) 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 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
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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
60 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-day 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 trade associations
described above in Comment 2, the bill would delay the
operation of this section until March 1, 2013, or 60 days
following the posting of a dated notice incorporating the
revisions on the website of the Department of Consumer
Affairs, whichever occurs later.
b) Cover sheet attached to eviction notices served within
one year of foreclosure sale
Existing law requires a new property owner to attach a form
cover sheet to any eviction notice that is served on a tenant
within one year of a foreclosure sale. This provision, added
by SB 1149 (Corbett, Ch. 641, Stats. 2010), sunsets on January
1, 2013, and this bill would extend this sunset date to
December 31, 2019. This provision of law was added to provide
tenants with accurate information regarding
their tenancies when the property in which they are living has
been sold due to foreclosure. The form cover sheet lets
tenants know that they generally have the right to stay in the
rental unit for 90 days, but the new owner may be required to
honor the lease under many circumstances. The cover sheet
clearly tells tenants that they must take proper legal steps
to protect their rights. In addition, the sheet makes clear
that tenants must respond to any court papers, even if they do
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not contain the tenant's name. These provisions are meant to
address the concern that innocent tenants do not realize that
they must act to protect their rights, even if the eviction
notice and other legal papers are addressed only to the
homeowner/landlord and not to the tenant. Because many of
these situations are likely to implicate important tenant
protections that affect the tenant's living situation and also
involve the court process, the cover sheet advises the tenant
to seek legal assistance immediately and contains suggestions
regarding free legal services if the tenant cannot afford an
attorney.
4.Prejudgment claim of right to possession
Under existing law, 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.)
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
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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 provision would apply in an action
for unlawful detainer resulting from a foreclosure sale of a
rental housing unit. 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.
Support : American Federation of State, County & Municipal
Employees (AFSCME), AFL-CIO; California Apartment Association;
California Bankers Association; California Chamber of Commerce;
California Conference Board of Amalgamated Transit Union;
California Conference of Machinists; California Credit Union
League; California Federation of Teachers; California Financial
Services Association; California Independent Bankers; California
Labor Federation; California Mortgage Association; California
Mortgage Bankers Association; California Nurses Association;
California Professional Firefighters; California Rural Legal
Assistance Foundation; California School Employees Association;
California State Building & Construction Trades Council;
California Teamsters Public Affairs Council; Consumers Union;
County of Santa Cruz; Engineers and Scientists of California;
International Longshore & Warehouse Union; Los Angeles County
Democratic Party; National Housing Law Project; National Nurses
Organizing Committee; PICO California; Professional & Technical
Engineers, Local 21; Public Counsel; Service Employees
International Union, Local 1000; UNITE HERE; United Food and
Commercial Workers Union, Western States Council; United
Trustees Association; Utility Works Union of America, Local 132;
Western Center on Law and Poverty
Oppose : None Known
HISTORY
Source : Attorney General Kamala Harris
Related Pending Legislation :
SB 825 (Corbett), which would remove the sunset date on the
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provisions of law requiring a form cover sheet to be attached to
eviction notices served within one year of foreclosure sale, is
set for hearing in the Assembly Judiciary Committee on July 3,
2012.
SB 1473 (Hancock), which is identical to this bill, is pending
hearing in the Assembly Judiciary Committee.
Prior Legislation :
SB 1137 (Perata, Corbett, Machado, Ch. 69, Stats. 2008) See
Background, Comments 2, and 3.
SB 1149 (Corbett, Ch. 641, Stats. 2010) See Comment 3.
Prior Vote :
Assembly Floor (Ayes 56, Noes 14)
Assembly Appropriations Committee (Ayes 11, Noes 5)
Assembly Housing & Community Development Committee (Ayes 5, Noes
2)
Assembly Judiciary Committee (Ayes 7, Noes 3)
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