BILL ANALYSIS Ó
SB 1473
Page 1
Date of Hearing: July 3, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 1473 (Hancock) - As Amended: June 19, 2012
As Proposed to be Amended
SENATE VOTE : 25-13
SUBJECT : RESIDENTIAL TENANCIES: FORECLOSURE
KEY ISSUE : SHOULD STATE LAW BE CONSISTENT WITH FEDERAL LAW
REGARDING PROTECTION OF TENANTS WHEN RESIDENTIAL RENTAL PROPERTY
IS SUBJECT TO FORECLOSURE?
FISCAL EFFECT : As currently in print this bill is keyed
fiscal.
SYNOPSIS
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. As the
result of recent amendments all known opposition has been
removed.
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). Federal law
applies to essentially every rental property in foreclosure.
However, the rights and obligations of property owners and
tenants is confusing because state law 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
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revise the notice that is sent to tenants when the property is
noticed for a foreclosure sale to reflect these changes and
would also extend these provisions for six years beyond the
current January 1, 2013 sunset date. This bill would also
permit a tenant in a foreclosed property to file a postjudgment
claim of right to possession, as specified.
SUMMARY : Protects residential tenants when their landlord's
property is foreclosed upon. Specifically, this bill :
1)Revises the existing state requirement of 60-days' notice to
instead provide, in the case of a month-to-month lease, for
90-days' notice for these tenants, consistently with federal
law.
2)Specifies that a tenant holding possession under a fixed-term
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 in
the following instances, although the new owner must give the
tenant a 90-day notice to vacate:
a) The purchaser or successor in interest will occupy the
housing unit as a primary residence.
b) The lessee is the mortgagor or the child, spouse, or
parent of the mortgagor.
c) The lease was not the result of an arms' length
transaction.
d) The lease requires the receipt of rent that is
substantially less than fair market rent for the property,
except when rent is reduced or subsidized due to a federal,
state, or local subsidy or law.
3)Revises 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.
4)Extends the January 1, 2013 sunset date to 2019.
5)Clarifies that Code of Civil Procedure Section 415.46 does not
limit the right of a tenant to file a prejudgment claim of
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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.
EXISTING LAW :
1)Provides under state law 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 of Civil Proc. Sec. 1161b.)
2)Provides under federal law that 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
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.)
3)Provides that 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 of Civil Proc. Sec. 1161a.)
4)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 of Civil Proc. Sec.
415.46.)
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COMMENTS : In support of the measure, the author states:
SB 1473 addresses the increasing hardship and confusion
faced by tenants during one of the worst foreclosure crises
in decades. Too often, tenants are the unwitting victims
when a home they are renting is foreclosed on. Tenants -
usually the last to know of foreclosure - often face the
specter of sudden dislocation of their homes, their
families, and their belongings. In particular, the
inconsistency between state and federal law has left
tenants confused and, at times, misled about their legal
protections.
Under existing California law, a tenant in possession of
rental housing that has been sold through foreclosure is
generally entitled to a 60-day written eviction notice. In
contrast, current federal law requires the successor to a
foreclosed property to provide tenants with at least a
90-day eviction notice.
Federal law also sets out certain factors to determine
whether a preexisting lease on a foreclosed property can be
maintained for the remainder of its term. Current state law
provides no similar protections.
SB 1473 addresses these discrepancies and aligns state law
more closely with relevant federal law.
Need For The Bill: The Impact Of The Foreclosure Crisis.
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
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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
after the rental unit in which they are living is foreclosed.
These provisions are currently scheduled to 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
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responsibilities under these state and federal laws by extending
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.
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
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."
Lastly, the bill addresses a related problem that has arisen
regarding rental property foreclosures. 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 of Civil 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
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directed to the 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.
Author's Technical Amendments . The author proposes to strike
section 4 of the bill, the language of which has been added to
SB 825 (Corbett) to be heard by the Committee today. In
addition, the author proposes the following technical
amendments:
On page 6, line 19, strike "However, the" and insert "However,
an"
Add Sen. Corbett as a joint-author.
Related Pending Legislation : AB 2610 (Skinner) is identical to
this bill. It previously passed this Committee and is currently
pending in the Senate Judiciary Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
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Attorney General Kamala Harris (sponsor)
Alameda County Board of Supervisors
California Apartment Association
California Bankers Association
California Chamber of Commerce
California Credit Union League
California Independent Bankers
California Mortgage Association
California Mortgage Bankers Association
California Nurses Association
Consumers Union
County of Santa Cruz
National Asian American Coalition
Public Counsel Law Center
Tenants Together
United Trustees Association
Oppose
None on file
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334