BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1191|
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THIRD READING
Bill No: SB 1191
Author: Simitian (D)
Amended: 5/8/12
Vote: 21
SENATE JUDICIARY COMMITTEE : 3-2, 5/1/12
AYES: Evans, Corbett, Leno
NOES: Harman, Blakeslee
SUBJECT : Landlord-tenant: disclosure of notice of
default
SOURCE : Author
DIGEST : This bill requires a landlord who has received a
notice of default (NOD) to disclose that notice to any
prospective tenant prior to entering into a lease agreement
for the property. This bill specifies the remedies
available for a violation and the notice that must be given
to prospective tenants.
ANALYSIS : Existing law regulates the non-judicial
foreclosure of properties pursuant to the power of sale
contained within a mortgage contract. To commence the
process, existing state law requires the trustee,
mortgagee, or beneficiary to record a NOD and allow three
months to lapse before setting a date for sale of the
property. (Civil Code (CIV) Sections 2924 and 2924f.)
Existing law governs the issuance of the notice of sale,
and requires the notice to be recorded at least 14 days
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prior to the date of sale. (CIV Section 2924f)
Existing law generally regulates the judicial foreclosure
process, and states that a notice of sale may not be given
for at least 120 days after the notice of levy was served
on the judgment debtor. (Code of Civil Procedure (CCP)
Section 701.510 et seq.)
Existing law requires a trustee or authorized agent, upon
posting a notice of sale, to also post, and mail, a
statutory notice informing tenants that they are residents
of a property subject to a foreclosure sale. (CIV Section
2924.8)
Existing 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. (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-day 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-day 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. These provisions sunset on December
31, 2014. ("Protecting Tenants at Foreclosure Act of
2009," Public Law 111-22)
Existing law contains various provisions regulating the
hiring of real property, as specified. (CIV Section 1940
et seq.)
This bill requires a landlord who is in default under a
mortgage or a deed of trust and who has received an NOD to
notify a prospective tenant of that default in writing
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prior to executing a lease agreement for the property.
This provision applies only to single-family dwellings or a
multifamily dwelling not exceeding four units.
This bill provides that a violation of the bill voids the
lease at the election of the tenant and entitles the tenant
to recovery of twice the monthly rent or twice the actual
damages, whichever is greater, and all prepaid rent from
the landlord.
This bill specifies that in lieu of the remedies described
immediately above, if the tenant elects not to terminate
the lease and the foreclosure sale has not occurred, the
tenant may elect to deduct twice the monthly rent from
future rent obligations.
This bill provides that the required notice be in
substantially the following form:
The foreclosure process has begun on this property, and
this property may be sold at foreclosure. If you rent
this property, and a foreclosure sale occurs, the sale
may affect your right to continue to live in this
property in the future. Your tenancy may continue after
the sale. In order for the new owner to evict you, the
new owner must provide you with at least 60 days' written
eviction notice or 90 days if required by any other
provision of state or federal law. However, some laws
may prohibit eviction.
Background
California leads the nation with one of the highest rates
of foreclosure. According to RealtyTrac, in California,
one in every 303 housing units received a foreclosure
filing in March 2012, and 48,422 houses received a
foreclosure notice in February alone. Tenants living in
those homes have overwhelmingly been impacted. A November
18, 2007 New York Times article, "As Owners Feel Mortgage
Pain, So Do Renters," noted "thousands of American families
are losing their homes without ever missing a payment.
They are renters in houses whose owners default on their
mortgages - a large but little noticed class of
casualties." In January 2011, Tenants Together released
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its third annual report entitled "California Renters in the
Foreclosure Crisis." The report estimated that at least
38% of homes in foreclosures were rentals and more than
200,000 California renters were directly affected by home
foreclosures in 2010 alone. Tenants Together further
estimated that these numbers, based on data from
Foreclosure Radar, likely undercount the number of
foreclosed homes that are in fact rentals. The report
indicated that the counties with the highest foreclosed
rental units (5,000 or more) were Los Angeles, Riverside,
Sacramento, and San Bernardino. In those counties, 45,860
renters were affected in Los Angeles; 18,823 in Riverside;
17,033 in Sacramento; and 17,356 in San Bernardino. In San
Francisco, 61% of foreclosed units were renter occupied.
The report listed other counties with comparatively high
percentages of renter-occupied foreclosed units including:
Alameda (40%); Fresno (42%); Humboldt (42%); Mono (41%);
Napa (40%); and San Mateo (41%). (See "California Renters
in the Foreclosure Crisis, Third Annual Report," January
2011, Tenants Together, available at
http://tenantstogether.org/.)
The impact of foreclosure on tenants has not gone unnoticed
by policymakers, and recent state and federal laws have
been enacted to provide tenants with additional time to
move when the home in which they are living is the subject
of a foreclosure. In 2008, the Legislature passed and the
Governor signed SB 1137 (Perata, Corbett, and Machado,
Chapter 69, Statutes of 2008), which requires that tenants
receive 60-days' notice before they may be evicted after
the rental unit in which they are living is foreclosed.
These provisions sunset on January 1, 2013.
Federal lawmakers have also acted to protect tenants in
foreclosure situations. On May 20, 2009, President Obama
signed S. 896, Public Law 111-22, which included the
"Protecting Tenants at Foreclosure Act of 2009" (PTFA).
The PTFA generally requires a successor in interest in a
property subject to foreclosure to provide bona fide
tenants with a 90-day notice to vacate and, with limited
exceptions, to honor the tenant's lease until the end of
the lease term. In 2010, the President signed the
Dodd-Frank Wall Street Reform and Consumer Protection Act
(Public Law 111-203), which extended the PTFA until
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December 31, 2014, and clarified that its protections
extend to tenants who have entered into leases before the
date on which complete title is transferred as the result
of a foreclosure.
This bill is similar to AB 331 (Hall, 2009), which would
have required a landlord to disclose any of the following
circumstances to a prospective tenant before the execution
of a rental agreement: (1) any outstanding notice of
default, or notice of trustee's sale; (2) any pending suit
to foreclose a mortgage, trust deed, or vendor's lien under
a contract of sale; (3) any pending declaration of
forfeiture or suit for specific performance of a contract
of sale; or (4) any pending proceeding to foreclose a tax
lien. The author did not move AB 331 out of the Senate
Judiciary Committee.
This bill similarly requires a landlord who has received a
notice of default (NOD) to disclose that notice to any
prospective tenant prior to entering into a lease agreement
for the property.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 5/9/12)
Asian Law Caucus
California Apartment Association
California Nurses Association
California Public Interest Research Group
California Rural Legal Assistance Foundation
EAH Housing
Housing Leadership Council of San Mateo County
Law Foundation of Silicon Valley
Legal Aid Society of San Mateo County
MidPen Housing
National Housing Law Project
Neighborhood Housing Services Silicon Valley
Non-Profit Housing Association of Northern California
Palo Alto Housing Corporation
Santa Cruz County
Tenants Together
Western Center on Law & Poverty
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OPPOSITION : (Verified 5/8/12)
Apartment Association, California Southern Cities
Apartment Association of Greater Los Angeles
Apartment Association of Orange County
East Bay Rental Housing Association
NOR CAL Rental Property Association
San Diego County Apartment Association
Santa Barbara Rental Housing Association
ARGUMENTS IN SUPPORT : The author writes, "ÝM]any
individuals sign leases on properties for which there is a
scheduled foreclosure sale, or for which the foreclosure
process has already begun. The scope of this problem is
potentially large in California; as of March 2012, there
were 88,000 properties with a scheduled or postponed
foreclosure sale, and there were 93,000 properties that
have begun the foreclosure process but have not yet been
scheduled for sale. There are several risks associated
with leasing a property for which the foreclosure process
has already begun. First, in advance of the foreclosure
sale, tenants often experience decreased services from
landlords facing financial difficulties. For example,
owners may fail to pay utilities, or ignore requests for
maintenance or repairs. Second, after the foreclosure sale,
tenants face a tremendous amount of uncertainty. Tenants
may not know to whom they should send rent, or direct
requests, regarding the property. Similarly, tenants may
not be aware of the protections guaranteed to them under
federal and state law, and so may feel pressured to vacate
the property, or to voluntarily terminate leases through
'cash for keys' offers. Third, there are several
circumstances where a tenant's lease may be invalidated by
the foreclosure sale. For example, if the new owner
intends to move into the property the tenant will have only
90 days to vacate, regardless of the terms of the lease.
In addition, the federal Protecting Tenants at Foreclosure
Act excludes certain types of leases from its protections,
meaning that tenants may face eviction before the lease
concludes. Fourth, in practice, it is especially difficult
for tenants to recover security deposits during or after a
foreclosure. The defaulting landlord may lack the
financial resources to return it, and the new owner -
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though legally obligated to return the deposit - is often
reluctant to do so. Finally, tenants in recently
foreclosed properties often face exposure to bad actors.
Tenant advocates report that their clients are frequently
subject to harassment and misinformation from individuals
seeking to remove tenants from recently foreclosed
properties."
Tenants Together writes, "This is an important tenant
protection bill. The fact that the foreclosure process is
underway is a material fact that should be disclosed to
renters. A landlord's foreclosure has significant impacts
on tenants and their rights. Foreclosure may affect the
length of the tenancy, the housing conditions experienced
by tenants, and the likelihood that tenants get back their
security deposits after vacating. It is only fair that
tenants be notified of foreclosure activity so they can
make an informed choice about their housing."
ARGUMENTS IN OPPOSITION : Opponents (various apartment
associations) argue that the bill's "proposed civil remedy
far exceeds the alleged failure to disclose the notice of
default. NODs are the first among many legal steps that
must be followed prior to foreclosure. Failure of a
landlord to provide this preliminary notice to a
prospective tenant will entitle that person who becomes a
tenant to permanent lifetime rent reduction. ? Even
though a NOD is cured, a tenant who takes possession and
who does not receive the notice is fully entitled to
receive free rent. This is an excessive civil remedy."
In addition to the arguments described above, these
apartment associations write:
The bill will accelerate the foreclosure process because
landlords who would comply with this proposed change in
law would frighten prospective tenants from renting
property for fear of Ýlosing] their rental unit.
SB 1191 scares tenants from ever renting single family or
one-to-four properties where landlords are experiencing
difficulties.
Notices of default are issued for a variety of reasons
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including the nonpayment of a mortgage, nonpayment of
insurance premium, and issuance of a nuisance abatement.
Many of the actions are cured yet the bill does not
recognize this fact.
The bill requires ? no showing of disadvantage or harm
to the tenant.
RJG:mw 5/9/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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