BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2013-2014 Regular Session
SB 310 (Calderon)
As Amended April 22, 2013
Hearing Date: May 7, 2013
Fiscal: No
Urgency: No
BCP
SUBJECT
Mortgages: Foreclosure Notices: Title Companies
DESCRIPTION
This bill would exempt a licensed title company or underwritten
title company, except when it is acting as a trustee, from
liability for a violation of the Homeowners' Bill of Rights 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.
BACKGROUND
On June 27, 2012, the Conference Committee on the California
Foreclosure Crisis passed the Homeowners' Bill of Rights (HBR)
in order to protect homeowners in the mortgage market, help keep
families in their homes, and revive the state's economy
following historic foreclosure rates and rampant abuse, fraud,
and deception that caused more than one million Californian's to
lose their homes. That bill package sought to: (1) stop the
practice of "dual-tracking;"<1> (2) establish a single point of
contact for homeowners with their lenders; and (3) mandate a
chain of title of the property. The HBR also included various
remedies for violations of its provisions, including treble and
statutory damages.
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<1> "Dual tracking" generally refers the practice of a lender
pursue foreclosure even though the homeowner is applying for a
mortgage modification.
(more)
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Since the provisions of the HBR are violated if foreclosure
documents (a notice of default or notice of sale) are recorded
without satisfying the requirements of the act, the title
insurance industry expressed concern that the language of the
legislation could result in unintended liability for title
insurers. That concern is based on the assertion that title
insurers routinely record foreclosure documents at the direction
of mortgage servicers and trustees - title insurers assert that
they cannot verify information about the compliance of a
mortgage servicer or trustee because that information does not
appear in recorded documents. As a result of those concerns,
Assemblymember Mike Eng, co-chair of the Conference Committee,
submitted the following letter to the Journal on September 1,
2012 to clarify the issue of liability for title companies:
On July 2, 2012, the California State Assembly passed
Assembly Bill 278 and Senate Bill 900. Both bills were
Chaptered by the Secretary of State on July 11, 2012, as
Chapter 86 and Chapter 87, Statutes of 2012, respectively. I
am providing this letter to the Journal to clarify the
intent of those bills.
Under existing law, pursuant to Civil Code Section 2924(b),
trustees do not have liability for any good faith error when
relying on information provided by the beneficiary regarding
the nature and amount of a default. Similarly, the
conference committee amendments were 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.
Accordingly, this bill seeks to codify the intent, as stated
in that letter to the journal, that title companies not be
held liable for a violation of HBR when they record a notice
of default or notice of sale in good faith and in the normal
course of their business activities.
This bill was approved by the Senate Committee on Banking &
Finance on April 17, 2013 by a vote of 9-0.
CHANGES TO EXISTING LAW
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Existing law regulates the nonjudicial foreclosure of properties
pursuant to the power of sale contained within a mortgage
contract. To commence the process, existing law requires the
trustee, mortgagee, or beneficiary to record a notice of default
(NOD) and allow three months to lapse before setting a date for
sale of the property. Existing law requires a notice of
nonjudicial foreclosure sale to be officially noticed in a
newspaper of general circulation, posted on the property, and
recorded at least 20 days before the sale date. (Civ. Code
Secs. 2924, 2924f.)
Existing law , from January 1, 2013 through December 31, 2017,
generally prohibits a mortgage servicer, mortgagee, trustee,
beneficiary, or authorized agent from recording an NOD 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. (Civ. Code Sec. 2923.5.)
Existing law , beginning on January 1, 2018, generally prohibits
a mortgage servicer, mortgagee, trustee, beneficiary, or
authorized agent from recording an NOD 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 eligibility for the requested alternative. (Civ. Code
Sec. 2923.5.)
Existing law , from January 1, 2013 through December 31, 2017,
generally prohibits a mortgage servicer, mortgagee, trustee,
beneficiary, or authorized agent from recording an NOD: (1)
until the servicer provides specified information to the
borrower; (2) until at least 30 days after the servicer
establishes contact with a delinquent borrower or complies with
specified due diligence requirements to establish contact; (3)
while a complete first lien loan modification is pending review;
and (4) if a complete first lien loan modification application
has been submitted by a borrower, until any of the following
occurs: the servicer makes a written determination that the
borrower is not eligible for a first lien loan modification, and
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any appeal period has expired; the borrower does not accept an
offered first lien loan modification within 14 days of its
offer; or, the borrower accepts a written first lien loan
modification, but defaults on or otherwise breaches his or her
obligation under that loan modification agreement. (Civ. Code
Sec. 2923.55.)
Existing law , from January 1, 2013 through December 31, 2017,
generally prohibits a mortgage servicer, mortgagee, trustee,
beneficiary, or authorized agent from recording an NOD or notice
of sale (NOS), or from conducting a trustee's sale: (1) while a
complete first lien loan modification is pending review; (2) if
a complete first lien loan modification application has been
submitted by a borrower, until any of the following occurs: (a)
the servicer makes a written determination that the borrower is
not eligible for a first lien loan modification, and any appeal
period has expired; (b) the borrower does not accept an offered
first lien loan modification within 14 days of its offer; or,
(3) the borrower accepts a written first lien loan modification,
but defaults or otherwise breaches his or her obligation under
that loan modification agreement. (Civ. Code Sec. 2923.6.)
Existing law , from January 1, 2013 through December 31, 2017,
generally prohibits a mortgage servicer, mortgagee, trustee,
beneficiary, or authorized agent from recording an NOD or NOS,
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: (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. (Civ. Code Sec. 2924.11.)
Existing law , beginning on January 1, 2018, prohibits a mortgage
servicer, mortgagee, trustee, beneficiary, or authorized agent
from: (1) recording a NOS 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; and (2) recording an NOD or NOS, 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: (a) the borrower is in compliance with the
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terms of a written trial or permanent loan modification,
forbearance, or repayment plan; or (b) a foreclosure prevention
alternative has been approved in writing by all parties, and
proof of funds or financing has been provided to the servicer.
(Civ. Code Sec. 2924.11.)
Existing law , from January 1, 2013 through December 31, 2017,
generally prohibits a mortgage servicer, trustee, mortgagee,
beneficiary, or authorized agent from recording an NOD or NOS,
or from conducting a trustee's sale: (1) 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; and (2) under either of the following
circumstances, if a borrower has been approved for a foreclosure
prevention alternative in writing by the servicer: (a) the
borrower is in compliance with the terms of a written trial or
permanent loan modification, forbearance, or repayment plan; or
(b) a foreclosure prevention alternative has been approved in
writing by all parties, and proof of funds or financing has been
provided to the servicer. (Civ. Code Sec. 2924.18.)
Existing law provides for various remedies for violations of the
above provisions, including treble actual damages and statutory
damages. (Civ. Code Secs. 2924.12, 2924.19.)
This bill , until January 1, 2018, would provide that a licensed
title company or underwritten title company shall not be liable
for a violation of Section 2923.5, 2923.55, 2923.6, 2924.11,
2924.18, or 2924.19 if it records or causes to record an NOD or
NOS at the request of a trustee, substitute trustee, or
beneficiary, in good faith and in the normal course of its
business activities.
This bill , as of January 1, 2018, would provide that a licensed
title company or underwritten title company shall not be liable
for a violation of Section 2923.5 or 2924.11 if it records or
causes to record an NOD or NOS at the request of a trustee,
substitute trustee, or beneficiary, in good faith and in the
normal course of its business activities.
This bill would not apply if the licensed title company or
underwritten title company is acting in the capacity of a
trustee.
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COMMENT
1. Stated need for the bill
According to the author:
Civil Code Sections 2923.5, 2923.55 and 2924.11 provide that
"[a] mortgage servicer, mortgagee, trustee, beneficiary, or
authorized agent may not record a notice of default pursuant
to Section 2924 until?" specified pre-notice of default
requirements have been satisfied. Additionally, Civil Code
Section 2924 (a) (6) provides that "[n]o entity shall record
or cause a notice of default to be recorded?" unless
specified pre-notice of default requirements have been
satisfied.
. . . Licensed title companies and underwritten title
companies routinely record notices of default at the
direction of and acting as an "authorized agent" to a
mortgage servicer, mortgagee, trustee or beneficiary. The
recordation is a ministerial act and the title company or
underwritten title company does so in the regular course of
their business and in reliance upon a good faith belief that
the mortgage servicer, mortgagee, trustee or beneficiary
complied with law.
The author asserts that this bill would close a loophole that
could otherwise result in liability for the title company if
they record a notice of default, in good faith, but in violation
of the Homeowners' Bill of Rights.
2. Liability for title companies
As noted in the letter to the Journal, existing law provides
that trustees shall have no liability for any good faith error
resulting from reliance on information provided by the
beneficiary regarding the nature and the amount of the default.
(Civ. Code Sec. 2924.) This bill would similarly exempt a
licensed title company or underwritten title company from
liability for violations of specified sections of the
Homeowners' Bill of Rights (HBR) 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 business activities. The First American
Financial Corporation, in support, asserts that:
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Title companies and underwritten title companies routinely
record notices of default, so parties may assert that the
title company or underwritten title company is liable if any
of the pre-notice of default requirements were not properly
satisfied by the mortgage services, mortgagee, trustee or
beneficiary. Because the title company or underwritten
title company has no direct contract with the borrower as it
relates to the notice of default, the title company or
underwritten title company has no ability to correct any
deficiencies. Potential penalties if found liable can
include, but are not limited to, a private right of action,
tort action, or naming as an additional litigant in an
Attorney General action against a mortgage servicer,
mortgagee, trustee or beneficiary.
Considering that title companies likely only have knowledge of
the information presented to them, or that is actually recorded
with the county recorder, it is appears reasonable to not hold
them liable for a violation of law by another party (the
mortgage servicer), provided that the title company acted in
good faith. By including the requirement of good faith, this
bill's protection would arguably not apply if a title company
knew that the servicer was requesting the title company to
record the document in violation of the law.
Staff also notes that while the Committee has received no
opposition to the proposed change, the recent amendments include
a requested change from the Western Center on Law & Poverty to
clarify that the liability language does not apply to title
companies that are acting in the capacity of a trustee.
3. Ensuring liability for entities that do violate the
requirements of the HBR
As noted by the author, Civil Code Sections 2923.5, 2923.55 and
2924.11 provide that a mortgage servicer, mortgagee, trustee,
beneficiary, or authorized agent may not record a notice of
default pursuant to Section 2924 until specified criteria are
met. Thus, a title company could violate those sections when
acting as an authorized agent (and the mortgage servicer failed
to comply with the HBR). By now exempting the title company
from liability, it is important to ensure that the entity that
requested the title company to record the document remains
liable for any violation (to the extent their actions were a
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violation of the HBR). In other words, the statute prohibits
various entities from recording a notice of default or notice of
sale unless certain steps are taken, and, if the title company
is the one recording the document, it is important that this
bill not affect the liability of the person or entity who
requests a title company to record a document in violation of
the HBR. Accordingly, the following amendment is suggested to
clarify that nothing in this bill shall be construed to limit
the liability of the trustee or beneficiary that requested
recordation of the notice of default or notice of sale:
Suggested amendment :
On page 1, after line 21, insert:
SEC. 3. Sections 2924.25 and 2924.26 shall not be
construed to affect the liability of a trustee, substitute
trustee, or beneficiary that requests a licensed title
company or underwritten title company to record a notice of
default or notice of sale.
Support : Fidelity National Financial; First American Financial
Corporation
Opposition : None Known
HISTORY
Source : California Land Title Association
Related Pending Legislation : None Known
Prior Legislation : AB 278 (Eng et al., Chapter 86, Statutes of
2012) and SB 900 (Leno et al., Chapter 87, Statutes of 2012)
enacted the Homeowner's Bill of Rights.
Prior Vote : Senate Committee on Banking & Financial
Institutions (Ayes 9, Noes 0)
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