BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 2039|
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THIRD READING
Bill No: AB 2039
Author: Muratsuchi (D)
Amended: 6/24/14 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 6-0, 6/17/14
AYES: Jackson, Corbett, Lara, Leno, Monning, Vidak
NO VOTE RECORDED: Anderson
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 74-0, 5/5/14 - See last page for vote
SUBJECT : Real property sales: auctions
SOURCE : California Association of Realtors
DIGEST : This bill renders void and unenforceable any
condition imposed by a lender or auction company that requires,
as a condition of receiving the lender's approval for a
transaction, that a homeowner or listing agent defend or
indemnify the lender or auction company from liability allegedly
resulting from the actions of the lender or auction company.
This bill prohibits any person from bidding at a real property
auction for the sole purpose of increasing the bid on a property
being sold by an auctioneer. This bill also allows an
auctioneer or another person to place a bid on the seller's
behalf during an auction of real property if prior notice has
been given that liberty for that bidding is reserved and the
person placing that bid contemporaneously discloses to all
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auction participants that the particular bid has been placed on
behalf of the seller.
ANALYSIS : Existing law states that a contract between the
principal and agent may be modified or altered to change the
agency relationship at any time before the performance of the
act which is the object of the agency with the written consent
of the parties to the agency relationship.
This bill provides that a lender or an auction company retained
by a lender to control aspects of a transaction of real
property, including validating the sale price of that property,
shall not require, as a condition of receiving the lender's
approval of the transaction, the homeowner or listing agent to
defend or indemnify the lender or auction company from any
liability alleged to result from the actions of the lender or
auction company. This bill declares any clause, provision,
covenant, or agreement purporting to impose an obligation to
defend or indemnify a lender or an auction company in violation
of this provision as against public policy, void, and
unenforceable.
Existing law requires every auctioneer and auction company to
maintain a $20,000 surety bond, as specified, and to file a copy
of the bond with the Secretary of State. The bond must be in
favor of, and payable to, the people of the State of California
and shall be for the benefit of any person or persons damaged by
any fraud, dishonesty, misstatement, misrepresentation, deceit,
unlawful acts or omissions, or failure to provide the services
of the auctioneer or auction company in performance of the
auction by the auctioneer or auction company or its agents,
representatives, or employees while acting within the scope of
their employment. Existing law permits a deposit to be made in
lieu of a bond, as specified.
Existing law provides that if an auctioneer or auction company
fails to perform any of the duties imposed under Title 2.95
(Auctioneer and Auction Companies), any person may maintain an
action for enforcement of those duties or to recover a civil
penalty in the amount of $1,000, or both, for enforcement and
recovery, and allows a prevailing plaintiff to recover
reasonable attorney's fees and costs.
Existing law requires every auction company and auctioneer to,
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among other things: disclose their name, telephone number, and
bond number in all advertising; post a specified sign at the
main entrance to each auction; post or distribute the terms,
conditions, restrictions, and procedures whereby goods will be
sold at auction; disclose the existence and amount of any liens
or encumbrances immediately before offering an item for sale;
and return the blank check or deposit of each buyer who
purchased no goods at the sale. Existing law imposes specified
fines for violation of the above provisions.
Existing law prohibits placing or using of any misleading or
untruthful advertising or statements or making any substantial
misrepresentation in conducting auctioneering business.
Existing law also prohibits misrepresenting the terms,
conditions, restrictions, or procedures under which goods will
be sold at auction.
Existing law prohibits causing or allowing any person to bid at
a sale for the sole purpose of increasing the bid on any item or
items being sold by the auctioneer, except as otherwise
authorized. Existing law provides that a violation of this
prohibition includes:
Stating any increased bid greater than that offered by the
last highest bidder when, in fact, no person has made such a
bid; and
Allowing the owner, consignor, or agent thereof, of any item
or items to bid on the item or items, without disclosing to
the audience that the owner, consignor, or agent thereof has
reserved the right to so bid.
Existing law states that if the auctioneer knowingly receives a
bid on the seller's behalf or the seller makes or procures such
a bid, and notice has not been given that liberty for such
bidding is reserved, the buyer may at his/her option avoid the
sale or take the goods at the price of the last good faith bid
prior to the completion of the sale.
Existing law exempts the following from the definition of
"auction:" (a) wholesale motor vehicle auction; and (b) a sale
of real estate or a sale of real estate with personal property
or fixtures or both in a unified sale in accordance with Section
9604 of the Commercial Code.
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This bill provides that notwithstanding the above exemption, for
the purposes of this bill, an auction includes the sale of real
property and an "auctioneer" means any individual who is engaged
in, or who by advertising or otherwise holds himself/herself out
as being available to engage in, the calling for, the
recognition of, and the acceptance of, offers for the purchase
of real property at an auction.
This bill also provides that a person shall not cause or allow a
person to bid at a sale for the sole purpose of increasing the
bid on any real property being sold by the auctioneer, including
but not limited to, stating any increased bid greater than that
offered by the last highest bidder when, in fact, no person has
made an increased bid. This bill also allows an auctioneer or
another person to place a bid on the seller's behalf during an
auction of real property if prior notice has been given that
liberty for that bidding is reserved and the person placing that
bid contemporaneously discloses to all auction participants that
the particular bid has been placed on behalf of the seller.
Background
A short sale describes a type of real estate transaction where a
homeowner sells their home for less than the balance remaining
on a mortgage. Short sales require sellers to find a buyer
willing to purchase their property at its current market value,
either with or without the assistance of a real estate agent,
and require the seller's lender to agree to accept the proceeds
from the sale as payment in full for the outstanding mortgage
debt. Lenders are willing to agree to short sales, particularly
for homeowners facing foreclosure, because they receive current
market value for the property, which is often more than they
would receive when a property is sold through the non-judicial
foreclosure process. With a short sale, a lender avoids all of
the costs associated with the foreclosure process as well as the
risk of receiving less than market value at a foreclosure sale,
as well as the costs associated with selling the property should
the property revert back to the lender upon foreclosure. Short
sales are often a better alternative than foreclosure for
homeowners as well - a seller that avoids foreclosure through a
short sale escapes the negative credit impact that comes with
being foreclosed upon, and is usually able to eliminate some or
all of their mortgage debt.
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Since a lender must typically agree to accept the short sale
proceeds in lieu of the amount owed under a mortgage or in lieu
of going through non-judicial foreclosure, lenders often
condition the acceptance of a sale offer upon certain terms and
conditions. Some lenders have reportedly started requiring
homeowners to agree to have their property put out for bid using
an auction company to see if the property fetches a higher price
at auction before a short sale offer will be accepted - a
process known as validating the sale price. According to the
sponsor, the California Association of Realtors, some lenders
impose terms that require the seller to assume liability for
damages attributable to the auction company during this
validation process as a condition of agreeing to proceed with
the short sale.
Prior Legislation
SB 109 (Calderon, 2009) would have removed the exception
provided for real estate from the definition of "auction" in
California's statutes regulating auctioneers and auction
companies, thereby bringing real property auctions within those
provisions, with specified exceptions. The bill would have also
required an auction company and auctioneer to post or distribute
to the audience a description of all fees, both refundable and
nonrefundable, that would be levied on bidders, as well as any
changes to those fees. With respect to auctions of real
property, the bill would have required an auction company and
auctioneer to post or distribute to the audience a clear
explanation of the terms "auctioned with reserve" and "sale
subject to seller confirmation, approval, or acceptance," and
the procedures and timelines to be used in connection with sales
that are subject to those requirements. The bill was vetoed by
Governor Schwarzenegger because it would "impose unnecessary
restrictions and fees upon real estate auctioneers."
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/4/14)
California Association of Realtors (source)
Orange County Association of Realtors
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OPPOSITION : (Verified 8/4/14)
Auction.com
The Internet Association
ARGUMENTS IN SUPPORT : The author writes:
This bill addresses short sale transactions, which are sales
where a lender accepts less than what is owed on a property in
order to facilitate the sale of the property. Lenders may hire
auction companies to take bids in proposed short sales in order
to obtain the highest price for property. The contracts used in
these sales typically require the homeowners to hold the lender
and auctioneer harmless for negligence and other violations of
law, and require the homeowner to indemnify the lender and
auction company.
Indemnification clauses unfairly shift the burden of risk to the
homeowner and listing agent, who have no control over the
actions of the auction company. This bill will prohibit lenders
and auction companies from imposing indemnification clauses on
homeowners and listing agents. This places the responsibility
for liability with the party whose actions caused the liability,
thereby imposing accountability on the lender and the auction
company.
ARGUMENTS IN OPPOSITION : The Internet Association writes, "We
are unfortunately opposed to AB 2039 due to the newly added
Section 1812.610, which unnecessarily prohibits counter bidding,
a common practice that has been utilized successfully by online
auction sites and that, when properly disclosed, leads to
greater market efficiencies and better results in the auctioning
process. By
connecting buyers and sellers seamlessly in an online
marketplace, online auction sites are often able to achieve
successful transactions that better reflect the market
value of the item or property being sold. In the same way,
online auction sites for real estate that utilize counter
bidding can help buyers and sellers achieve a mutually
acceptable price point that benefits not only those parties, but
also neighboring communities, financial institutions, and the
ultimate lenders."
ASSEMBLY FLOOR : 74-0, 5/5/14
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AYES: Achadjian, Alejo, Allen, Atkins, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell,
Gray, Grove, Hagman, Hall, Harkey, Roger Hernández, Holden,
Jones, Jones-Sawyer, Levine, Linder, Lowenthal, Maienschein,
Medina, Mullin, Muratsuchi, Nazarian, Nestande, Olsen, Pan,
Patterson, Perea, V. Manuel Pérez, Quirk, Quirk-Silva, Rendon,
Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, John A.
Pérez
NO VOTE RECORDED: Ammiano, Donnelly, Logue, Mansoor, Melendez,
Vacancy
AL:e 8/4/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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