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
SB 310 (Calderon), Page 2
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