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.

          --------------------------
          <1> "Dual tracking" generally refers the practice of a lender  
          pursue foreclosure even though the homeowner is applying for a  
          mortgage modification.

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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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