BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 4
                                                                  Page  1

          Date of Hearing:   June 27, 2011

                      ASSEMBLY COMMITTEE ON BANKING AND FINANCE
                                   Mike Eng, Chair
                SB 4 (Calderon & Vargas) - As Amended:  June 21, 2011

           SENATE VOTE  :   40-0
           
          SUBJECT  :   Mortgages.

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

          1)Requires a notice of sale on real property containing one to 
            four single family residences to contain language informing 
            potential bidders on the nature of the process, potential 
            risks, and resources to assist them.  

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

          3)Requires a mortgagee, beneficiary, trustee or authorized agent 
            to make a good faith effort in providing up-to-date 
            information regarding sale dates and postponements.  

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

           EXISTING LAW  

          1)Regulates the non-judicial foreclosure process pursuant to the 
            power of sale contained within a mortgage contract, and 
            provides that in order to commence the process, a trustee, 
            mortgagee, or beneficiary must record a notice of default 
            (NOD) and allow three months to lapse before setting a notice 
            of sale for the property.  (Civil Code, Section 2924)

          2)Provides that the mortgagee, trustee or other person 
            authorized to make the sale must give notice of sale, and 
            requires notice of the sale to be made, as specified, at least 
            20 days prior to the date of sale. (Civil Code, Section 2924f)

          3)Provides that a mortgage, trustee, beneficiary, or authorized 








                                                                  SB 4
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            agent (entities) may not file a NOD until 30 days after 
            contact has been made with the borrower who is in default.  
            (Civil Code, Section 2923.5a)

          4)Requires an entity to maintain a toll-free number for  
            borrowers that will provide access to a live representative 
            during business hours and requires the entity to maintain a 
            link on the main page of its Internet Web site containing the 
            following information:

             a)   Options that may be available to borrowers who are 
               unable to afford their mortgage payments and who wish to 
               avoid foreclose, and instructions to borrowers advising 
               them on steps to take to explore these options; and,

             b)   A list of documents borrowers should collect and be 
               prepared to submit when discussing options to avoid 
               foreclosure. (Civil Code, Section 2923g (5))

          5)Provides that a notice of sale postponement may occur at any 
            time prior to the completion of a sale for any period of time 
            not to exceed a total of 365 days from the date set in the 
            notice of sale.  (Civil Code, Section 2924g)

          6)Specifies that if sale proceedings are postponed for a period 
            totaling more than 365 days, the scheduling of any further 
            proceedings shall be preceded by giving a new notice of sale.  
            (Civil Code, Section 2924g)

           FISCAL EFFECT  :   None.

           COMMENTS  :   

          The foreclosure crisis raised a number of issues related to the 
          loan modification and foreclosure process.  This bill attempts 
          to clarify two issues.  First, beginning on or after April 1, 
          2012, applying to all deeds of trust or mortgage containing a 
          power of sale secured by real property containing one to four 
          single family residences, the notice of sale shall include 
          language that notifies potential bidders of the risks associated 
          with bidding on foreclosed homes.  Second, beginning on or after 
          April 1, 2012, applying to all deeds of trust or mortgages 
          containing a power of sale secured by real property containing 
          one to four single family residences, the notice of sale shall 
          also include information informing the property owner of the 








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          sale date and ways to get information regarding a postponement. 

          This measure also requires mortgagee, beneficiaries, trustees or 
          authorized agents to make a good faith effort in providing up to 
          day information regarding sale dates and postponements.   It is 
          a lot noted in SB 4 that failing to comply with any portions of 
          this measure would not invalidate any sale that would otherwise 
          be valid under Civil Code, Section 2924f. 

           Notice to Property Owner  : Often a notice of sale is postponed 
          for various reasons.  Under existing law, a homeowner must be 
          notified 20 days before the notice of sale is set, but the law 
          is unclear on whether this 20 day requirement applies if a 
          notice of sale is postponed.  While homeowners receive the 
          initial notification of the notice of sale, it seems many do not 
          receive another notification of the new notice of sale date and 
          instead find out after the fact that their home has been 
          auctioned off.  

          Under existing law, there may be a postponement or postponements 
          of the sale proceedings, including a postponement upon 
          instruction by the beneficiary to the trustee that the sale 
          proceedings be postponed, at any time prior to the completion of 
          the sale for any period of time not to exceed a total of 365 
          days from the date set forth in the notice of sale. The trustee 
          can postpone the sale for any of the following reasons: upon the 
          order of any court of competent jurisdiction; if stayed by 
          operation of law; by mutual agreement, whether oral or in 
          writing, of any trustor and any beneficiary or any mortgagor and 
          any mortgagee; at the discretion of the trustee.  
            
          According to the author, most homeowners who receive notices of 
          sale in the mail are unaware of the postponement rules.  If a 
          few days pass, following the sale date and time listed in their 
          notice of sale, and there is no knock on the door from someone 
          with an official-looking piece of paper, ordering them to leave 
          their home, most homeowners breathe a sigh of relief, and 
          believe that they have avoided the loss of their home.  They are 
          often unaware that the date and time of their foreclosure sale 
          was merely postponed and equally unaware how they might learn 
          when that new sale date and time have been scheduled.  

          This measure does not require an additional notice if the 
          foreclosure sale is postponed but requires on the initial notice 
          of sale additional information that should help property owners 








                                                                  SB 4
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          find the necessary information regarding a postponement.  While 
          this measure does initially put the burden on the mortgagee, 
          trustee, beneficiary or authorized agent to put the notice in 
          the notice of sale, the measure then puts the responsibility 
          onto the property owner to look on a website or make a phone 
          call to determine if the sale has been postponed and to what 
          date is has been postponed to.  
          
           Notice to Potential Bidders  : According to the author, when a 
          trustee sale auction is held, the sale is made to the party that 
          offers the highest bid, subject to the rules set forth in 
          California statute.  Generally speaking, these rules require any 
          third party bidder (i.e., any bidder other than the foreclosing 
          beneficiary) to supply the amount of his or her winning bid in 
          cash or via cashier's check.  Most individuals understand that 
          they must come to an auction, prepared to pay cash or bring 
          cashier's checks in the full amount they bid.  However, 
          unsophisticated bidders incorrectly believe that their "winning" 
          bid entitles them to free and clear ownership of the property 
          that is the subject of the sale; these bidders are often unaware 
          that, under the law, their "winning" bid entitles them only to 
          whatever interest in the property was held by the foreclosing 
          beneficiary.  

          In a few recent instances, a lender foreclosed on a junior lien, 
          and an unwitting bidder purchased that junior lien at the 
          foreclosure sale, only to learn that they were now responsible 
          for satisfying the outstanding, senior lien(s) on the property, 
          before they could take clear title.  In both known instances, 
          neither "winning" bidder was able to afford to pay off the 
          outstanding senior lien(s) against the property, and both ended 
          up losing all of the money - several hundred thousand dollars - 
          that they had bid at the foreclosure sale.  The situations in 
          which these unknowing bidders lost money are perfectly legal.  
          SB 4 attempts to notify bidders of the potential consequences 
          when placing a bid at a foreclosure sale.  

           PREVIOUS LEGISLATION
           
          AB 2678 (Fuentes, 2010 Legislative Session) would have 
          prohibited a mortgagee, trustee, beneficiary, or authorized 
          agent from giving notice of sale if the mortgagee, trustee, 
          beneficiary, or authorized agent is currently in negotiations to 
          modify the existing loan and would have provided that if the 
          sale proceedings have been postponed, the borrower shall receive 








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          a new notification of the notice of sale before the date of the 
          actual sale. Failed Passage in the Assembly Banking and Finance 
          Committee. 

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Bankers Association (CBA)
          United Trustees Association (UTA)
           
            Opposition 
           
          None on file.

           Analysis Prepared by  :    Kathleen O'Malley / B. & F. / (916) 
          319-3081