BILL ANALYSIS Ó SB 4 Page 1 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. SB 4 Page 2 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. SB 4 Page 3 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 SB 4 Page 4 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 SB 4 Page 5