BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 1473 (Hancock)
As Amended March 29, 2012
Hearing Date: April 17, 2012
Fiscal: Yes
Urgency: No
SK:rm
SUBJECT
Residential Tenancies: Foreclosure
DESCRIPTION
This bill, which is part of the six-bill package sponsored by
Attorney General Kamala Harris entitled the "California
Homeowner Bill of Rights," is intended to provide additional
protections to tenants living in foreclosed homes. Under
existing federal law, new purchasers of foreclosed homes must
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 or 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).
State law, on the other hand, provides a tenant in a foreclosed
home with only 60 days' notice before eviction. This bill would
revise this notice and instead provide, in the case of a
month-to-month lease, for 90 days' notice for these tenants.
This bill would also provide that new owners of a foreclosed
property must honor a tenant's lease, except in certain cases,
and unless the new owner will occupy the property as his or her
primary residence. In that case, the new owner must give the
tenant a 90-day notice to vacate. The bill would revise the
notice that is sent to tenants when the property is noticed for
a foreclosure sale to reflect these changes and would also
delete the January 1, 2013 sunset date that would otherwise
apply to these sections. This bill would also permit a tenant
in a foreclosed property to file a postjudgment claim of right
to possession, as specified.
(more)
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(This analysis reflects author's amendments to be offered in
Committee.)
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 its third annual
report entitled "California Renters in the Foreclosure Crisis."
The report estimated that at least 38 percent 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
percent of foreclosed units were renter occupied. The report
listed other counties with comparatively high percentages of
renter-occupied foreclosed units including: Alameda (40
percent); Fresno (42 percent); Humboldt (42 percent); Mono (41
percent); Napa (40 percent); and San Mateo (41 percent). (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, Machado, Ch. 69, Stats. 2008), which requires
that tenants receive 60-days notice before they may be evicted
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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 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 seeks to ensure that tenants who are living in
foreclosed homes be given sufficient notice of their rights and
responsibilities under these state and federal laws by removing
the sunset dates on the state law provisions described above.
This bill also ensures that state law is consistent with federal
law by requiring that tenants of foreclosed properties receive
either 90-days written notice before they may be evicted or the
remainder of their lease term, except as specified.
CHANGES TO EXISTING LAW
1.Existing state 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. (Code Civ. Proc. Sec.
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 or 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
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there is no lease or the lease is terminable at will. Federal
law provides that a lease or tenancy shall be "bona fide" only
if: (1) the tenant is not the mortgagor or the child, spouse,
or parent of the mortgagor; (2) the lease or tenancy is the
result of an arms-length transaction; and (3) the rent for the
lease or tenancy is not substantially less than fair market
rent for the property or the unit's rent is reduced or
subsidized by a federal, state, or local subsidy. These
provisions sunset on December 31, 2014. ("Protecting Tenants
at Foreclosure Act of 2009," Public Law 111-22.)
This bill would revise existing law's requirement of 60-days'
notice to instead provide, in the case of a month-to-month
lease, for 90-days' notice for these tenants.
This bill would specify that a tenant holding possession under a
residential lease of a rental housing unit at the time the
property is sold in foreclosure shall have the right to
possession until the end of the lease term. This provision
would not apply if the new owner will occupy the property as
his or her primary residence or if the lease was entered into
within 15 days prior to the posting of the notice of sale. In
either case, however, the new owner must give the tenant a
90-day notice to vacate.
This bill would require that a residential lease that is entered
into after the expiration of 75 days following a notice of
default must contain a notice in English and the languages
described in Section 1632 that alerts the prospective tenant
that the foreclosure process has started on the property and
the property may be sold at foreclosure in as soon as 20 days,
which will terminate the lease. The notice also informs
tenants that if they rent the property, the new owner may
evict them after a 90-day eviction notice.
This bill would also revise existing law's notice that is sent
to tenants when a notice of sale is posted on the property to
ensure that it accurately reflects the revisions proposed
above. This bill would provide that the changes in this
notice would not become operative until March 1, 2013 or 60
days following the issuance of an amended new translation by
the Department of Consumer Affairs, whichever occurs later.
This bill would remove the January 1, 2013 sunset date that
would otherwise apply to these sections.
2.Existing law provides that a former owner of a foreclosed
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property who holds over and remains in the property after it
has been sold through foreclosure may be removed after a
three-day notice to quit has been served. (Code Civ. Proc.
Sec. 1161a.)
Existing law provides that if an owner uses a prejudgment claim
of right of possession, no occupant of the premises, whether
or not that person is named in the judgment for possession,
may object to the enforcement of the judgment. (Code Civ.
Proc. Sec. 415.46.)
This bill would specify that Code of Civil Procedure Section
415.46 does not limit the right of a tenant to file a
prejudgment claim of right of possession at any time before
judgment or to object to enforcement of a judgment for
possession whether or not the tenant was served with the claim
of right to possession.
COMMENT
1. Stated need for the bill
The author writes that "Ýt]enants' rights in the foreclosure
process under California law do not match protections provided
by federal law. Under California law, tenants residing in
foreclosed properties are given 60 days from the date of a
foreclosure sale before eviction proceedings may begin. Under
federal law, this period is 90 days."
The sponsor, Attorney General Kamala Harris, notes that:
As more and more homes are sold through foreclosure, tenants
increasingly face the specter of sudden dislocation of
themselves, their families, and their belongings. Renters are
usually the last to know of foreclosure, and many renters,
including families with children, are ending up homeless due
to foreclosure evictions . . . ÝD]ue to inconsistency in
state law, and between state and federal law, tenants are
often confused, or misled, about their legal protections, and
about how much time they have to move when served with a
notice to vacate after a foreclosure sale.
Consumers Union writes in support of the bill, "Ýt]enants have
been silent victims in the foreclosure crisis, often kept in the
dark by their landlords and unsure as to who owns the property
they live in. This bill will help ensure that innocent tenants
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receive adequate notice of the foreclosure status impacting
their residences, and will protect tenants across the state from
unjust eviction by new owners of foreclosed properties."
2. Additional time to relocate
Under SB 1137 (Perata, Corbett, Machado, Ch. 69, Stats. 2008),
purchasers of foreclosed homes at a foreclosure sale must give
at least 60-days' notice before evicting tenants in those homes.
To ensure that the extended time period cannot be exploited by
a former owner who rents the property to another person but
remains in the foreclosed home, SB 1137 provided that the
extended time period does not apply if any party to the mortgage
note remains in the property as a tenant, subtenant, or
occupant.
As mentioned in the Background section above, after the
enactment of SB 1137, President Obama signed S. 896, P.L.
111-22, which included the "Protecting Tenants at Foreclosure
Act of 2009" (PTFA). The PTFA, which sunsets on December 31,
2014, generally requires the purchaser of a home at a
foreclosure sale to honor a bona fide tenant's lease unless the
purchaser intends to occupy the home as their primary residence.
If there is no lease, the lease is terminable at will (a
month-to-month tenancy), or if the purchaser will occupy the
home as their primary residence, the tenant must be provided
with a 90-day notice to vacate (unless a longer period is
required by state or local law). The PTFA also made a
conforming change to federal provisions relating to Section 8
tenancies for which California law already requires a 90-day
notice. (See Civ. Code Sec. 1954.535.) As a result, currently
federal law generally provides greater protection to tenants
than state law by providing additional time (90 vs. 60 days) and
imposes a requirement that the lease be honored under certain
circumstances.
This bill would make the state law provisions described above
similar to federal law by providing that a new owner of a
foreclosed property must honor a tenant's lease. Under the
bill, this provision would not apply if the new owner will
occupy the property as his or her primary residence or if the
lease was entered into within 15 days prior to the posting of
the notice of sale. In either of those instances, the new owner
must give the tenant a 90-day notice to vacate.
A coalition of trade associations (California Bankers
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Association, California Chamber of Commerce, California Credit
Union League, California Financial Services Association,
California Independent Bankers, California Mortgage Association,
California Mortgage Bankers Association, and United Trustees
Association) has a "Support if Amended" position on this bill.
The organizations argue that these changes are not sufficiently
consistent with federal law, which requires that the additional
time given to tenants in foreclosed properties, including
honoring the lease terms, be given only to tenants with bona
fide leases. Federal law defines a "bona fide" lease or tenancy
as one where all of the following are true: (1) the tenant is
not the mortgagor or the child, spouse, or parent of the
mortgagor; (2) the lease or tenancy is the result of an
arms-length transaction; and (3) the rent for the lease or
tenancy is not substantially less than fair market rent for the
property or the unit's rent is reduced or subsidized by a
federal, state, or local subsidy. As a result, these
associations seek an amendment that would incorporate the
federal law definition of "bona fide lease or tenancy." In
addition, the California Association of Realtors opposes the
bill and seeks an amendment that would incorporate by reference
the federal law requirements and definition relating to bona
fide tenancy.
Tenant advocates raise concerns that, despite the protections
envisioned by Congress under the PTFA, landlords have taken
advantage of the ambiguity of the "bona fide" definition and
have taken eviction action against tenants despite the fact that
they arguably are entitled to additional time in the property.
In many cases, tenants do not challenge these actions because
they are unaware of their rights or they cannot afford legal
representation.
In light of the concerns expressed by all stakeholders, this
bill would require that new purchasers who will not occupy the
property as a primary residence are required to honor the
remaining lease term, except where the lease was entered into
within 15 days prior to the posting of the notice of sale. This
language provides clarity and avoids the ambiguity of what it
means to be a "bona fide" tenant.
3. Notice provisions
This bill contains two provisions which act to protect tenants
in foreclosed properties and give them notice of what was
occurring in their rental home. The first provision revises a
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notice created by SB 1137 that is given to tenants at the time
of a notice of sale, and the second requires a notice to be
provided to tenants when they enter into a lease after the
expiration of 75 days following a notice of default.
a) Changes to SB 1137 notice
SB 1137 required a notice to be posted and mailed to tenants
at the time the property was noticed for a foreclosure sale.
That notice (which is in English, Spanish, Chinese, Tagalog,
Vietnamese, and Korean) acts to provide notice to tenants that
the home they are renting may be sold in a foreclosure sale in
around three weeks, and, that they have a statutory right to
stay in the property for a specified amount of time after that
sale. The enclosed notice would give tenants early warning of
the potential foreclosure of their rental property, and the
multiple language requirement would ensure that the majority
of recipients receive a readily understandable notice
(according to the United States Census of 2000, those
languages represent the top five languages other than English
spoken by approximately 83 percent of all Californians who
speak a language other than English in their homes). In
recognition of the time required of lenders and servicers to
update their systems and begin using the required notice, SB
1137 provided that the notice section shall become operative
60 days after enactment.
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This bill would make changes to the notice that must be sent
to tenants in foreclosed properties when the property is
noticed for a foreclosure sale. The changes ensure that the
notice is accurate and reflective of state and federal law.
For example, the existing notice states that the new property
owner may provide the tenant with a 60-day eviction notice,
however the bill would revise this provision to require that a
tenant's lease be honored, except in certain cases, and
tenants in month-to-month leases be provided with 90-days'
notice. As a result, the bill would then revise the notice
accordingly so that tenants are accurately advised of state
law.
In order to address concerns raised by the trade associations
described above in Comment 2, the bill would delay the
operation of this section until March 1, 2013, or 60 days
following the issuance of a form by the Department of Consumer
Affairs, whichever is later.
b) Notice when entering leases within 15 days of a notice
of sale
As described above, this bill would provide that new owners of
foreclosed properties would not be required to honor a
tenant's lease if the lease was entered into within 15 days
prior to the posting of the notice of sale. In that case, the
new owner must give the tenant a 90-day notice to vacate. As
a result, this bill would require that a residential lease,
that is entered into after the expiration of 75 days following
a notice of default, contain a notice in English, Spanish,
Chinese, Tagalog, Vietnamese, and Korean that alerts the
prospective tenant that the foreclosure process has started on
the property, and the property may be sold at foreclosure in
as soon as 20 days, which will terminate the lease. The
notice would inform tenants that, if they rent the property,
the new owner may evict them after a 90-day eviction notice.
This information is important to the prospective tenant who
may be weighing whether to rent the property and give the
landlord a sizable security deposit. Because the tenant may
be signing a yearlong (or longer) lease that will be
invalidated by the foreclosure sale, it is critical that he or
she be informed of that fact.
4. Sunset date
This bill deletes the January 1, 2013 sunset date on existing
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law's 60-days' notice provision as well as its accompanying
notice. The coalition of trade associations detailed above and
the California Association of Realtors all request that, rather
than delete the sunset date entirely, the bill should be amended
to include a January 1, 2018 sunset date. In support of this
position, they point out that federal law sunsets on December
31, 2014. The author and her sponsor would prefer not to
include a sunset date in the bill so that tenants in foreclosed
properties receive the full protection of these important
provisions.
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5. Prejudgment claim of right to possession
Under existing law, a former owner of a foreclosed property who
holds over and remains in the property after it has been sold
through foreclosure may be removed after a three-day notice to
quit has been served. (Code Civ. Proc. Sec. 1161a.)
These holdover provisions are used against former owners when
banks or servicers obtain the property through a foreclosure.
In that instance, the entity that now owns the property serves a
three-day notice to quit and an unlawful detainer eviction
action naming the borrower and Doe defendants. The entity may
also use a prejudgment claim of right to possession which is
designed to evict non-tenant occupants of a rental property. If
the prejudgment claim form is served on the defaulting owner, a
tenant who is not named in the complaint must file a prejudgment
claim of right form in court within 10 days or risk being
evicted without further hearing. In many foreclosed property
cases, eviction papers directed to holdover former owner do not
name and are not addressed to the tenants. As a result, tenants
typically do not receive notice of the eviction. The foreclosed
owner is often no longer in possession of the premises and
generally does not contest the eviction, resulting in a default
judgment that binds the tenants as well. At this point, it is
too late for the tenants to contest their eviction because
existing law provides that service of a prejudgment claim of
right to possession bars the filing of a postjudgment claim of
right to possession to object to enforcement of the judgment for
possession. As a result, innocent tenants who live in
foreclosed properties are being prematurely removed from their
homes without the required notice and before the 90-day period
guaranteed by federal law has expired.
This bill would specify that existing law, which permits an
owner to use a prejudgment claim of right of possession against
a holdover former owner when the property has been sold at
foreclosure, does not limit the right of a tenant to file a
prejudgment claim of right of possession at any time before
judgment or to object to enforcement of a judgment for
possession, whether or not the tenant was served with the claim
of right to possession. This change would permit a tenant in a
foreclosed property to file a postjudgment claim of right to
possession or a claim of right to possession pursuant to Code of
Civil Procedure Section 1174.3.
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Support : California Nurses Association; Consumers Union; County
of Santa Cruz; over 200 individuals
Support if amended : California Bankers Association; California
Chamber of Commerce; California Credit Union League; California
Financial Services Association; California Independent Bankers;
California Mortgage Association; California Mortgage Bankers
Association; United Trustees Association
Oppose unless amended : California Association of Realtors;
California Apartment Association
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HISTORY
Source : Attorney General Kamala Harris
Related Pending Legislation :
AB 2610 (Skinner), which is identical to this bill, is scheduled
to be heard in the Assembly Judiciary Committee on April 17,
2012.
SB 708 (Corbett), which would extend the sunset date to January
1, 2018 on existing provisions of law which provide tenants
renting a foreclosed home with 60-days' written notice before
the tenant may be removed from the property, is awaiting
referral in the Assembly. This bill also would revise the
notice given to tenants renting a foreclosed home so that they
are made aware that their tenancy may continue after the
foreclosure sale and the new owner must give them at least
60-days written eviction notice or 90 days if required by any
other provision of state or federal law.
Prior Legislation : SB 1137 (Perata, Corbett, Machado, Ch. 69,
Stats. 2008) See Background, Comments 2, and 3.
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