BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 4
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          Date of Hearing:  June 14, 2011

                           ASSEMBLY COMMITTEE ON JUDICIARY
                                  Mike Feuer, Chair
               SB 4 (Calderon and Vargas) - As Amended:  April 7, 2011

                    PROPOSED CONSENT (As Proposed to be Amended)

           SENATE VOTE  :  40-0
           
          SUBJECT  :  FORECLOSURE AUCTIONS: NOTICE TO BIDDERS AND PROPERTY 
          OWNERS

           KEY ISSUE  :  SHOULD TRUSTEES AND OTHERS BE REQUIRED TO PROVIDE 
          SPECIFIED INFORMATION TO BIDDERS AND OWNERS REGARDING 
          RESIDENTIAL FORECLOSURE AUCTIONS?

           FISCAL EFFECT  :   As currently in print this bill is keyed 
          non-fiscal.

                                      SYNOPSIS
          
          This modest and non-controversial measure is intended to provide 
          better information to both residential property owners whose 
          property is subject to a foreclosure sale, as well as to those 
          who wish to bid on the property at auction.  The bill provides 
          that a notice of non-judicial foreclosure sale contain language 
          notifying potential bidders of specified risks involved in 
          bidding on the property, as well as a notice to the property 
          owner informing the owner about how to obtain information 
          regarding any postponement of the sale.  Support is urged by the 
          mortgage industry.

           SUMMARY  :  Provides additional information to homeowners and 
          bidders regarding residential foreclosure auction sales.  
          Specifically,  this bill  :

          1)Requires a notice of sale on specified residential property to 
            contain language informing potential bidders on the nature of 
            the process, potential risks, and resources to assist them.

          2)Further requires the notice of sale to provide information to 
            the homeowner whose property is subject to auction regarding 
            the auction sale date and postponements that may occur.









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          3)Limits the rights and remedies for failure to comply with 
            these provisions.

           EXISTING LAW  regulates the non-judicial foreclosure of 
          properties pursuant to the power of sale; authorizes the 
          trustee, mortgagee, or beneficiary to provide a Notice of 
          Default, followed by a Notice of Sale at least 20 days before 
          the sale of the property; governs the manner in which the sale 
          must be conducted and permits the sale to be postponed at any 
          time prior to completion of the sale, requires that any 
          postponements may not exceed a total of 365 days from the date 
          set forth in the Notice of Sale or if the sale is postponed for 
          a total of more than 365 days, the sale must be re-noticed; 
          requires notice of each postponement and the reason therefore to 
          be given by public declaration by the trustee at the time and 
          place last appointed for sale.  That declaration must set forth 
          the new date, time, and place of sale, as specified.  (Civil 
          Code sections 2924f; 2924g.)

           COMMENTS  :  Foreclosures in California are generally 
          non-judicial, meaning that they are accomplished without court 
          involvement.  The first step in the foreclosure process is the 
          filing of a Notice of Default, which generally occurs after 
          three or more months of delinquency.  The foreclosing entity 
          must then generally wait at least three months before noticing 
          the sale of the property, which must be posted, published, and 
          filed with the county recorder.  The sale date contained in the 
          Notice of Sale may be postponed by public proclamation (given at 
          the time and date of sale) for a total of up to 365 days.  If 
          the property lien is actually sold at auction the bidder is 
          generally required to pay in cash or check, and takes the 
          property lien subject to any outstanding senior liens.

          This bill seeks to address two different issues that have arisen 
          regarding foreclosure sales by adding two new provisos to the 
          Notice of Sale.  First, this bill would inform homeowners that 
          their sale date may be postponed, provides them with direction 
          on how to receive updated information about that sale, and 
          imposes new duties on trustees consistent with that disclosure.  
          Second, this bill would inform a bidder of the nature of and 
          risks associated with foreclosure auctions.  Supporters believe 
          these provisions would help alleviate some of the most common 
          sources of confusion experienced by homeowners and bidders, 
          regarding the non-judicial foreclosure sale process.  









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          Since homeowners rarely attend the foreclosure sale of their 
          home and, as a result, are not aware of the public declaration, 
          the authors note that it is extremely common for property owners 
          to be caught by surprise when their home is sold months after 
          they receive the Notice of Sale.  For example, a homeowner could 
          have asked for a continuance of the sale date in order to 
          receive more time to complete a short sale, or the financial 
          institution could have continued the sale to ensure that the 
          necessary documents were in order before proceeding.  If the 
          sale is continued multiple times, the owner could easily lose 
          track of the next sale date and, at some unknown time in the 
          future when the trustee or foreclosing institution elects not to 
          postpone the sale, the home could be sold unbeknownst to the 
          homeowner.  

          For individuals who seek to buy properties at trustee sale 
          (non-judicial foreclosure) auctions, the auction offers the 
          potential for getting a good "deal" on a home, but carries 
          significant risks if the bidder has not done extensive research 
          on the property.  Most importantly, the legal right at auction 
          is not the property itself but a lien on the property, which may 
          be one of several liens.  Although bidders may look at the home 
          and the neighborhood, it is essential for them to also do a 
          title search on the property to see if there are any senior 
          liens that are not going to be wiped out by the foreclosure 
          sale.  Liens junior to the foreclosing lien are removed as a 
          result of the foreclosure sale, but senior liens remain intact.  
          If the bidder purchases a home subject to a senior lien, the 
          bidder must satisfy that senior lien or face foreclosure of 
          their interest by that lien.  

           Authors' technical amendments  .  In order to better capture the 
          intent of the bill the authors proposed the following helpful 
          amendments:

               NOTICE TO POTENTIAL BIDDERS: If you are considering bidding 
               on this property  lien  , you should understand that there are 
               risks involved in bidding at a trustee auction.  You will be 
               bidding on a lien, not on the property itself  . Placing the 
               highest bid at a trustee auction does not automatically 
               entitle you to free and clear ownership of the property. 
                You should also be aware that the lien being auctioned off 
               may be a junior lien.  If you are the highest bidder at the 
               auction, you are or may be responsible for paying off all 
               liens senior to the lien being auctioned off, before you 








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               can receive clear title to the property.  You should also be 
               aware that the lien being auctioned off may be a junior 
               lien.  You are encouraged to investigate the existence, 
               priority, and size of outstanding liens that may exist on 
               this property by contacting the county recorder's office or 
               a title insurance company, either of which may charge you a 
               fee for this information. If you consult either of these 
               resources, you should be aware that the same lender may 
               hold more than one mortgage or deed of trust on the 
               property.

               NOTICE TO PROPERTY OWNER: The sale date shown on this 
               notice of sale may be postponed one or more times by the 
               mortgagee, beneficiary, trustee, or a court, pursuant to 
               Section 2924g of the California Civil Code. The law 
               requires that information about trustee sale postponements 
               be made available to  you and to  the public as a courtesy to 
               those not present at the sale. If you wish to learn whether 
               your sale date has been postponed, and, if applicable, the 
               rescheduled time and date for the sale of this property, 
               you may call Ýtelephone number for information regarding 
               the trustee's sale] or visit this Internet Web site 
               ÝInternet Web site address for information regarding the 
               sale of this property], using the file number assigned to 
               this case Ýcase file number]. You may also attend the sale 
               to obtain postponement information. Information about 
               postponements that are very short in duration or that occur 
               close in time to the scheduled sale may not immediately be 
               reflected in the telephone information or on the Internet 
               Web site. The best way to verify postponement information 
               is to attend the scheduled sale.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Bankers Association
          United Trustees Association
           
            Opposition 
           
          None on file


           Analysis Prepared by  :    Kevin G. Baker / JUD. / (916) 319-2334 








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