BILL ANALYSIS                                                                                                                                                                                                    






                  SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
                              Senator Lou Correa, Chair
                              2013-2014 Regular Session

          SB 310 (Calderon)                       Hearing Date:  April 17,  
          2013  

          As Amended: March 21, 2013
          Fiscal:             No
          Urgency:       No
          

           SUMMARY    Would provide that title insurers are not liable for  
          violations of specified portions of the 2012 Homeowners' Bill of  
          Rights, when they record notices of default or notices of sale  
          in good faith, at the direction of others, and in the normal  
          course of their business activities.  
          
           DESCRIPTION
           
            1.  Would provide that, until January 1, 2018, a licensed title  
              company or underwritten title company shall not be liable  
              for a violation of Civil Code Sections 2923.5, 2923.55,  
              2923.6, 2924.11, 2924.18, and 2924.19, if it records or  
              causes to record a notice of default or notice of sale at  
              the request of a trustee, substitute trustee, or  
              beneficiary, in good faith and in the normal course of its  
              business activities.  

           2.  Would provide that, on and after January 1, 2018, a  
              licensed title company or underwritten title company shall  
              not be liable for a violation of Civil Code Sections 2923.5  
              and 2924.11, if it records or causes to record a notice of  
              default or notice of sale at the request of a trustee,  
              substitute trustee, or beneficiary, in good faith and in the  
              normal course of its business activities.  


           EXISTING LAW  provides several rules that must be followed in  
          order to nonjudicially foreclose on single-family, residential  
          real property.  A subset of the rules that are relevant to this  
          bill is provided immediately below.

           3.  Provides for two versions of Section 2923.5, one of which  
              is operative from January 1, 2013 through December 31, 2017  
              (see 1a immediately below), and one of which is operative  




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              beginning on January 1, 2018 (see 1b immediately below).  

               a.     From January 1, 2013 through December 31, 2017, with  
                 respect to specified entities that foreclose on 175 or  
                 fewer, single-family, residential real properties in a  
                 calendar year, Section 2923.5 prohibits a mortgage  
                 servicer, mortgagee, trustee, beneficiary, or authorized  
                 agent from recording a notice of default until at least  
                 30 days after establishing contact with a delinquent  
                 borrower or complying with specified due diligence  
                 requirements to establish contact, and, if a borrower  
                 submits a complete application for a first lien loan  
                 modification, before that borrower has been provided with  
                 a written determination by the servicer regarding that  
                 borrower's eligibility for that loan modification.  

               b.     Beginning on January 1, 2018, without the limitation  
                 to entities that foreclose on 175 or fewer, single-family  
                 residential real properties, Section 2923.5 prohibits a  
                 mortgage servicer, mortgagee, trustee, beneficiary, or  
                 authorized agent from recording a notice of default until  
                 at least 30 days after establishing contact with a  
                 delinquent borrower or complying with specified due  
                 diligence requirements to establish contact, and, if a  
                 borrower submits a complete application for a foreclosure  
                 prevention alternative, before that borrower has been  
                 provided with a written determination by the servicer  
                 regarding that borrower's eligibility for the requested  
                 alternative.

           4.  Pursuant to Section 2923.55, from January 1, 2013 through  
              December 31, 2017, with respect to specified entities that  
              foreclose on more than 175 residential real properties in a  
              calendar year, prohibits a mortgage servicer, mortgagee,  
              trustee, beneficiary, or authorized agent from recording a  
              notice of default:

               a.     Until the servicer provides specified information to  
                 the borrower about special rights afforded to members of  
                 the military and their dependents, and informs the  
                 borrower about information he/she is eligible to request  
                 from their servicer about their loan. 

               b.     Until at least 30 days after the servicer  
                 establishes contact with a delinquent borrower or  
                 complies with specified due diligence requirements to  




                                              SB 310 (Calderon), Page 3




                 establish contact. 

               c.     While a complete first lien loan modification is  
                 pending review.

               d.     If a complete first lien loan modification  
                 application has been submitted by a borrower, until any  
                 of the following occurs:

                     i.          The servicer makes a written  
                      determination that the borrower is not eligible for  
                      a first lien loan modification, and any appeal  
                      period has expired;

                     ii.         The borrower does not accept an offered  
                      first lien loan modification within 14 days of its  
                      offer; or, 

                     iii.        The borrower accepts a written first lien  
                      loan modification, but defaults on or otherwise  
                      breaches his or her obligation under that loan  
                      modification agreement.  

           5.  Pursuant to 2923.6, from January 1, 2013 through December  
              31, 2017, with respect to specified entities that foreclose  
              on more than 175 residential real properties in a calendar  
              year, prohibits a mortgage servicer, mortgagee, trustee,  
              beneficiary, or authorized agent from recording a notice of  
              default or notice of sale, or from conducting a trustee's  
              sale:

               a.     While a complete first lien loan modification is  
                 pending review. 

               b.     If a complete first lien loan modification  
                 application has been submitted by a borrower, until any  
                 of the following occurs:

                     i.          The servicer makes a written  
                      determination that the borrower is not eligible for  
                      a first lien loan modification, and any appeal  
                      period has expired;

                     ii.         The borrower does not accept an offered  
                      first lien loan modification within 14 days of its  
                      offer; or, 




                                              SB 310 (Calderon), Page 4





                     iii.        The borrower accepts a written first lien  
                      loan modification, but defaults or otherwise  
                      breaches his or her obligation under that loan  
                      modification agreement.  

           6.  Provides for two versions of Section 2924.11 one of which  
              is operative from January 1, 2013 through December 31, 2017  
              (see 4a immediately below), and one of which is operative  
              beginning on January 1, 2018 (see 4b immediately below).

               a.     From January 1, 2013 through December 31, 2017, with  
                 respect to specified entities that foreclose more than  
                 175 single-family, residential real properties in a  
                 calendar year, Section 2923.11 prohibits a mortgage  
                 servicer, mortgagee, trustee, beneficiary, or authorized  
                 agent from recording a notice or default or notice of  
                 sale, or conducting a trustee's sale, once a borrower has  
                 been approved for a foreclosure prevention alternative in  
                 writing, and as long as one of the following two  
                 conditions is met:  

                     i.          The borrower is in compliance with the  
                      terms of a written trial or permanent loan  
                      modification, forbearance, or repayment plan; or

                     ii.         A foreclosure prevention alternative has  
                      been approved in writing by all parties, and proof  
                      of funds or financing has been provided to the  
                      servicer.  

               b.     Beginning on January 1, 2018, without the limitation  
                 to entities that foreclose on more than 175 residential  
                 foreclosures, Section 2923.11 prohibits a mortgage  
                 servicer, mortgagee, trustee, beneficiary, or authorized  
                 agent from:

                     i.          Recording a notice of sale or conducting  
                      a trustee's sale while a complete application for a  
                      foreclosure prevention alternative is pending, and  
                      until the borrower has been provided with a written  
                      determination by the servicer regarding that  
                      borrower's eligibility for the requested foreclosure  
                      prevention alternative;

                     ii.         Recording a notice of default or notice  




                                              SB 310 (Calderon), Page 5




                      of sale, or conducting a trustee's sale, once a  
                      foreclosure prevention alternative is approved in  
                      writing, and as long as one of the following two  
                      conditions is met:  

                         1.               The borrower is in compliance  
                           with the terms of a written trial or permanent  
                           loan modification, forbearance, or repayment  
                           plan; or

                         2.               A foreclosure prevention  
                           alternative has been approved in writing by all  
                           parties, and proof of funds or financing has  
                           been provided to the servicer.  

           7.  Pursuant to Section 2924.18, from January 1, 2013 through  
              December 31, 2017, with respect to specified entities that  
              foreclose on 175 or fewer residential real properties in a  
              calendar year, prohibits a mortgage servicer, trustee,  
              mortgagee, beneficiary, or authorized agent from recording a  
              notice of default or notice of sale, or from conducting a  
              trustee's sale:

               a.     While a complete first lien loan modification  
                 application is pending, and until the borrower has been  
                 provided with a written determination by the servicer  
                 regarding that borrower's eligibility for that loan  
                 modification.  

               b.     Under either of the following circumstances, if a  
                 borrower has been approved for a foreclosure prevention  
                 alternative in writing by the servicer:  

                     i.          The borrower is in compliance with the  
                      terms of a written trial or permanent loan  
                      modification, forbearance, or repayment plan; or

                     ii.         A foreclosure prevention alternative has  
                      been approved in writing by all parties, and proof  
                      of funds or financing has been provided to the  
                      servicer.   

           COMMENTS

          1.  Purpose:   This bill is intended to protect title insurers  
              from incurring liability pursuant to last year's foreclosure  




                                              SB 310 (Calderon), Page 6




              conference committee report (AB 278, Eng et al., Chapter 86,  
              Statutes of 2012, and SB 900, Leno et al., Chapter 87,  
              Statutes of 2012), when performing ministerial acts in good  
              faith, at the direction of trustees, substitute trustees, or  
              beneficiaries, and in the normal course of their business  
              activities.

           2.  Background:   After several years of extensive discussion and  
              debate, California enacted a comprehensive package of  
              reforms in 2012, intended to improve communication between  
              mortgage servicers and delinquent borrowers, eliminate the  
              practice of dual-tracking (the act of simultaneously working  
              with a borrower to avoid foreclosure while moving forward in  
              the foreclosure process), codify responsible mortgage  
              servicing practices, minimize avoidable nonjudicial  
              foreclosures, ensure the accuracy of recorded documents, and  
              make other homeowner-friendly changes to the nonjudicial  
              foreclosure process.  These reforms were contained in a  
              conference committee report, which was codified as AB 278  
              and SB 900.  

          Shortly before the final conference committee language was  
              adopted, representatives of the title insurance industry  
              expressed concern that the language of the legislation could  
              result in unintended liability for title insurers.  Their  
              concerns were based on the fact that title insurers  
              routinely record notices of default at the direction of  
              beneficiaries and trustees.  The title insurers assert that  
              they cannot verify "off the record" (unrecorded) matters  
              involving lenders and mortgage servicers, because they rely  
              on searches of recorded documents to determine the status of  
              title and compliance with the law.  

          The new obligations imposed by AB 278 and SB 900 are all "off  
              record" responsibilities, which title companies have no  
              ability to verify.  As a result, title companies are left  
              with assurances by lenders and servicers that those entities  
              have complied with all of the new requirements.  The  
              sponsors of this bill are seeking assurances that title  
              companies' inability to independently verify whether the  
              third parties directing them to record documents have  
              complied with the new rules does not result in liability for  
              the title companies under AB 278 and SB 900.  They do not  
              believe that they should incur liability for carrying out  
              the ministerial act of delivering documents to county  
              recorders' offices for recordation, in reliance on a good  




                                              SB 310 (Calderon), Page 7




              faith belief that the entity directing them to record the  
              documents has complied with the law.  

          There was insufficient time to address the title insurers'  
              concerns by amending the conference committee report, before  
              it was sent to the Governor for signature.  SB 310 is an  
              attempt to make the changes initially sought by the title  
              insurance industry last year.  

           3.  Summary of Arguments in Support:   This bill is sponsored by  
              the California Land Title Association for the reasons stated  
              immediately above.  It cites language in the analysis of  
              last year's SB 900 and AB 278, which stated, "the conference  
              committee amendments are not intended to impose liability on  
              an entity that records documents at the direction of a  
              trustee, substitute trustee, or beneficiary who is acting  
              within the scope of authority designated by the holder of  
              the beneficial interest and where the entity is carrying out  
              its recording duties in good faith in the normal course of  
              their activity."  CLTA is seeking to clarify that intent in  
              statute, to remove any potential ambiguity.  

          First American Financial Corporation and Fidelity National  
              Financial also support the bill.  SB 900 and AB 278 created  
              a "loop hole in which mortgage servicers, mortgagees,  
              trustees, or beneficiaries can shift liability for their own  
              failure to comply with the pre-notice of default provisions  
              on to title companies or underwritten title companies,  
              simply by virtue of the fact that they are acting as  
              'authorized agents' when recording notices of default."  SB  
              310 will close this loophole.

          4.  Summary of Arguments in Opposition:    None received.
               
          5.  Amendments:    

               a.     The current language of the bill uses the word "and"  
                 where it should use the word "or."  While a very small  
                 distinction, use of the word "and" could be read as  
                 relieving title insurers from liability, only if they  
                 violate all of the code sections listed in the bill.  If  
                 a title insurer were alleged to have violated only one or  
                 two of the sections listed in the bill, a strict reading  
                 of this bill could result in that insurer being found  
                 liable for the violation.  Striking the word "Sections"  
                 and replacing it with "Section" and striking the word  




                                              SB 310 (Calderon), Page 8




                 "and" and replacing it with "or" on page 2, lines 4, 5,  
                 and 14, will provide the sponsors with the legal  
                 protection they are seeking.

               b.     The Western Center on Law and Poverty has also  
                 requested an amendment to clarify that the language of  
                 the bill does not apply to title companies that are  
                 acting in the capacity of a trustee.  To accomplish this  
                 intent, the author has agreed to add the word, "Unless  
                 acting in the capacity of a trustee," at the beginning of  
                 both code sections being added by this bill.

           6.  Prior and Related Legislation:   

               a.     AB 278 (Eng et al.), Chapter 86, Statutes of 2012,  
                 and SB 900 (Leno et al.), Chapter 87, Statutes of 2012:   
                 Enacted comprehensive changes to California's nonjudicial  
                 foreclosure process, and to California's mortgage loan  
                 servicing requirements.

           
          LIST OF REGISTERED SUPPORT/OPPOSITION
          
          Support
           
          California Land Title Association (sponsor)
          First American Financial Corporation
          Fidelity National Financial
           
          Opposition
               
          None received

          Consultant: Eileen Newhall  (916) 651-4102