BILL ANALYSIS Ó
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THIRD READING
Bill No: SB 708
Author: Corbett (D), et al.
Amended: 1/11/12
Vote: 21
PRIOR VOTES NOT RELEVANT
SENATE BANKING & FINANCIAL INST. COMM. : 6-0, 1/9/12
AYES: Vargas, Blakeslee, Evans, Kehoe, Liu, Padilla
NO VOTE RECORDED: Walters
SENATE JUDICIARY COMMITTEE : 5-0, 1/10/12
AYES: Evans, Harman, Blakeslee, Corbett, Leno
SENATE APPROPRIATIONS COMMITTEE : 6-0, 1/17/12
AYES: Kehoe, Alquist, Emmerson, Lieu, Pavley, Steinberg
NO VOTE RECORDED: Walters, Price, Runner
SUBJECT : Residential mortgage loans: foreclosure
procedures
SOURCE : Author
DIGEST : This bill extends the provisions of law that
established requirements that mortgage lenders had to
adhere to before issuing a notice of default on a homeowner
ÝSB 1137 (Perata, Corbett, and Machado), Chapter 69,
Statutes of 2008], from January 1, 2013 to January 1, 2018,
and revises the contents of the notice relating to the
rights of residents.
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ANALYSIS :
Existing law, until January 1, 2013:
1. Provides that a Notice of Default (NOD), the first step
in the non-judicial foreclosure process, may not be
filed on covered residential loans until either 30 days
after contacting the delinquent homeowner to discuss
his/her financial situation and explore options to avoid
foreclosure, or 30 days after satisfying specified due
diligence requirements.
2. Requires a trustee to mail and post a statutory notice
that informs tenants that the foreclosure process has
begun and of specified statutory rights that apply if
the home is sold at a foreclosure sale.
3. Requires a legal owner to maintain vacant foreclosed
residential homes and authorizes government entities to
impose a civil fine of up to $1,000 per day for
violations, as specified.
4. Requires that tenants renting a foreclosed home be given
60 days' written notice before the tenant may be removed
from the property.
This bill:
1. Extends the sunset date of the above provisions to
January 1, 2018.
2. Revises the notice given to tenants renting a foreclosed
home to reference the potential for the continuation of
the lease and a 90-day eviction notice.
Background
In California, mortgages typically contain a "power of
sale" clause that pre-authorizes the sale of property to
pay off the loan balance in the event of default. Lenders
exercising that power of sale must first record an NOD with
the county recorder (typically after the loan is three or
more months delinquent). The lender or servicer must then
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wait three months after filing the NOD before setting a
sale date for the property by filing a notice of sale. In
continued response to the present housing and economic
crisis outlined below, this bill extends the sunset on SB
1137 (Perata, Corbett, and Machado), Chapter 69, Statutes
of 2008, which enhanced foreclosure protections for
borrowers, tenants, and neighborhoods.
California, as well as the nation, is facing an
unprecedented threat to the economy and housing market due
to high numbers of foreclosures caused by mortgage payment
defaults. Over 300,000 California homeowners received NODs
from their lenders in 2010 with more than 170,000 completed
foreclosure sales. Across the state, housing values have
plummeted, and areas hardest hit by foreclosure have become
blighted with vacant, uncared-for homes. For the month of
November 2011, one in every 211 housing units received a
foreclosure filing, a number that reflects over 63,000
properties. Although the earliest mortgage defaults and
foreclosures were generally limited to risky sub-prime
mortgages originated during the boom years of 2005 and
2006, California's high unemployment rate has caused
defaults and foreclosures to spread to all types of loans,
and to all types of borrowers.
Over the past few years, the California Legislature has
passed legislation in an effort to respond to the ongoing
foreclosure crisis. In 2008, the Legislature passed and
the Governor signed SB 1137, an urgency measure intended to
encourage loan modifications in order to prevent avoidable
foreclosures. SB 1137, which sunsets January 1, 2013,
requires the lender or loan servicer, at least 30 days
prior to filing an NOD, to contact the borrower, or try
with due diligence to contact the borrower in order to
assess the borrower's financial situation and explore
options for the borrower to avoid foreclosure. Those
requirements applied to loans recorded between January 1,
2003 and December 31, 2007 that were secured by
owner-occupied residential real property. In addition to
those contact requirements, SB 1137 included provisions to
empower local governments to protect residents from blight
caused by foreclosed properties and to enhance protections
for tenants of foreclosed properties.
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Prior and Related Legislation
SB 1137 (Perata, Corbett, and Machado), Chapter 69,
Statutes of 2008. See Background above.
SB 7X2 (Corbett), Chapter 4, Statutes of 2009, and AB 7X2
(Lieu), Chapter 5, Statutes of 2009, required, until
January 1, 2011, that mortgage servicers wait 90 days
before recording an NOD in an effort to provide borrowers
with additional time to work out a loan modification with
their lender. Servicers could apply for an exemption from
the 90-day delay by demonstrating to their relevant
regulator that they have implemented a comprehensive loan
modification program.
SB 1149 (Corbett), Chapter 641, Statutes of 2010,
prohibited the release of court records in a
foreclosure-related eviction unless the landlord prevailed,
as specified, and required that a prescribed cover sheet,
notifying a tenant of his or her rights and
responsibilities, be attached to any eviction notice that
is served within one year after a foreclosure.
SB 1275 (Leno, Steinberg), 2009-10 Session, would have
required a foreclosing financial institution to process an
application for a loan modification prior to recording an
NOD, and, among other things, have required a declaration
of compliance to be recorded to certify compliance with the
bill's provisions. The bill failed passage on the Assembly
Floor.
SB 729 (Leno, Steinberg), 2011-12 Session, would have
enacted substantially similar requirements as SB 1275. The
bill failed passage in the Senate Banking and Financial
Institutions Committee.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2012-13 2013-14
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2014-15 Fund
Dept. of Financial Institutions -------minor,
absorbable------- Special*
Dept. of Real Estate -------minor,
absorbable-------Special**
Dept. of Corrections
--------------minor---------------Special***
* Financial Institutions Fund
** Real Estate Fund
*** Corporations Fund
SUPPORT : (Verified 1/18/12)
American Federation of State, County and Municipal
Employees
California Labor Federation
Center for Responsible Lending
Consumer Federation of California
League of California Cities
Western Center on Law & Poverty
ARGUMENTS IN SUPPORT : The author notes that this bill
extends the sunset of SB 1137 (Perata, Corbett, and
Machado), of 2008, in order to continue to reduce the
number of foreclosures in California, ensure that
foreclosed properties do not become a source of blight, and
continue to protect vulnerable tenants. According to the
author:
"The original problems that prompted SB 1137 in 2008
continue to persist today. The committee noted the
'severe housing crisis' and the 'significant negative
ripple effects on housing values, local economics, and
the state economy' as the problems that SB 1137 was
introduced to solve. These same problems continue to
persist today. A recent report, 'Lost Ground, 2011' by
the Center for Responsible Lending, notes that the
country is 'not even halfway through the foreclosure
crisis.' The report further notes that the on-going
crisis has had significant impact on low- and
moderate-income neighborhoods with high concentrations of
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minorities. . . .
"Without this law, come January 1, 2013, distressed
homeowners will wade through an incredibly difficult
situation alone - without initial contact from their
lenders and without the resources available to so many
homeowners since the passage of SB 1137. Without the
extension of the provisions in SB 1137, Californians can
expect foreclosed properties in their neighborhoods to
threaten the safety of families, decrease surrounding
housing values, and undermine the state's economic
recovery."
JJA:mw 1/18/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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