BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 2610| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 2610 Author: Skinner (D), et al. Amended: 8/20/12 in Senate Vote: 21 SENATE JUDICIARY COMMITTEE : 5-0, 7/3/12 AYES: Evans, Harman, Blakeslee, Corbett, Leno SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 ASSEMBLY FLOOR : 56-14, 5/31/12 - See last page for vote SUBJECT : Tenants: foreclosure and unlawful detainer SOURCE : Attorney General Kamala Harris DIGEST : 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. This bill revises the requirement of existing law providing 60 days' notice to instead provide, in the case of a month-to-month lease or periodic tenancy, for 90 days' notice for tenants in a foreclosed property. This bill provides 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/her primary residence. In those cases, the new owner must give the tenant a 90 days' notice to vacate. The bill revises the notice that is sent to tenants when the property is noticed CONTINUED AB 2610 Page 2 for a foreclosure sale to reflect these changes. This bill also permits a tenant in a foreclosed property to file a post-judgment claim of right to possession, as specified. Senate Floor Amendments of 8/20/12 add coauthors and make a technical, non-substantive change. Senate Floor Amendments of 8/8/12 reinsert the statutory "Prejudgment Claim of Right of Possession" form which was inadvertently stricken. The amendments also remove Section 4 of the bill, which have extended the sunset date on Section 1161c of the Code of Civil Procedure, because that same section is being extended by SB 825 (Corbett). ANALYSIS : 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 Civil Procedure (CCP) Section 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-days' 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/her primary residence. In that case, the tenant must be provided with a 90 days' 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) CONTINUED AB 2610 Page 3 This bill revises 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, in the case of a fixed-term lease, requires 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 will bear the burden of proving that one of these conditions apply: The new owner intends to live in the property as his/her 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. This bill 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 provides that the changes in this notice does not become operative until March 1, 2013 or 60 days following the posting of a dated notice incorporating the revisions on the Web site of the Department of Consumer Affairs, whichever occurs later. 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. (CCP Section 1161a.) 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 CONTINUED AB 2610 Page 4 possession, may object to the enforcement of the judgment. (CCP Section 415.46.) This bill specifies 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. Background Additional time to relocate; recent amendments address oppositions' concerns . Under SB 1137 (Perata, Corbett, Machado), Chapter 69, Statutes of 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 Section 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 CONTINUED AB 2610 Page 5 imposes a requirement that the lease be honored under certain circumstances. This bill makes 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 requires 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 will bear the burden of proving that one of these conditions apply: The new owner intends to live in the property as his/her 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. CONTINUED AB 2610 Page 6 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. Related/Prior Legislation SB 825 (Corbett, 2011), which would remove the sunset date on the provisions of law requiring a form cover sheet to be attached to eviction notices served within one year of foreclosure sale, is on Senate Unfinished Business. SB 1473 (Hancock), which is identical to this bill, is on the Assembly Floor. SB 1137 (Perata, Corbett, Machado), Chapter 69, Statutes of 2008) See Background. SB 1149 (Corbett), Chapter 641, Statutes of 2010, passed the Senate on 8/26/10 with a vote of 22-14. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: Yes SUPPORT : (Verified 8/20/12) Attorney General Kamala Harris (source) 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 CONTINUED AB 2610 Page 7 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 ARGUMENTS IN SUPPORT : 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. . CONTINUED AB 2610 Page 8 . . 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, and often devastating, effects of foreclosure." ASSEMBLY FLOOR : 56-14, 5/31/12 AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, Block, Blumenfield, Bonilla, Bradford, Brownley, Buchanan, Butler, Charles Calderon, Campos, Carter, Cedillo, Chesbro, Davis, Dickinson, Eng, Feuer, Fong, Fuentes, Furutani, Galgiani, Gatto, Gordon, Gorell, Halderman, Hall, Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, Lara, Bonnie Lowenthal, Ma, Mitchell, Monning, Nestande, Pan, Perea, V. Manuel Pérez, Portantino, Skinner, Smyth, Solorio, Swanson, Torres, Wieckowski, Williams, Yamada, John A. Pérez NOES: Bill Berryhill, Conway, Donnelly, Beth Gaines, Garrick, Grove, Hagman, Jeffries, Jones, Knight, Logue, Nielsen, Olsen, Wagner NO VOTE RECORDED: Cook, Fletcher, Harkey, Mansoor, Mendoza, Miller, Morrell, Norby, Silva, Valadao RJG:d 8/21/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED