BILL ANALYSIS Ó 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. (more) SB 310 (Calderon) PageB of? 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 SB 310 (Calderon) PageC of? 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 SB 310 (Calderon) PageD of? 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 SB 310 (Calderon) PageE of? 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. SB 310 (Calderon) PageF of? 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: SB 310 (Calderon) PageG of? 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 SB 310 (Calderon) PageH of? 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) ************** SB 310 (Calderon) PageI of?