BILL ANALYSIS                                                                                                                                                                                                    



                                                                            



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                                       CONSENT


          Bill No:  SB 310
          Author:   Calderon (D)
          Amended:  5/14/13
          Vote:     21

           
           SENATE BANKING & FINANCIAL INST. COMM.  :  9-0, 4/17/13
          AYES:  Correa, Berryhill, Beall, Calderon, Corbett, Hill, Hueso,  
            Roth, Walters

           SENATE JUDICIARY COMMITTEE  :  6-0, 5/7/13
          AYES:  Evans, Anderson, Corbett, Jackson, Leno, Monning
          NO VOTE RECORDED:  Walters


           SUBJECT  :    Mortgages:  foreclosure notices:  title companies

           SOURCE  :     California Land Title Association


           DIGEST  :    This bill exempts 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; and provides that nothing in this  
          bill shall 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.

           ANALYSIS  :    Existing law provides several rules that must be  
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          followed in order to nonjudicially foreclose on single-family,  
          residential real property.  

          This bill:

          1. Provides that, until January 1, 2018, a licensed title  
             company or underwritten title company, unless acting in the  
             capacity of a trustee, shall not be liable for a violation of  
             Civil Code (CIV) Section 2923.5, 2923.55, 2923.6, 2924.11,  
             2924.18, or 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. Provides that, on and after January 1, 2018, a licensed title  
             company or underwritten title company, unless acting in the  
             capacity of a trustee, shall not be liable for a violation of  
             CIV Section 2923.5 or 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.  

          3. Provides that nothing in this bill shall 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.

           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 (Eng, et al., Chapter 86, Statutes of 2012) and SB 900  
          (Leno, et al., Chapter 87, Statutes of 2012).  


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          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 sponsor of this  
          bill is 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  
          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 Governor Brown.  This bill is an attempt to make the  
          changes initially sought by the title insurance industry last  
          year.  

           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.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   Local:  
           No

           SUPPORT  :   (Verified  5/13/13)

          California Land Title Association (source)
          Fidelity National Financial

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          First American Financial Corporation


           ARGUMENTS IN SUPPORT  :    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's office asserts that this bill will 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.

          The bill's sponsor, California Land Title Association (CLTA),  
          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 note that 
          SB 900 and AB 278 created a "loop hole in which mortgage  
          servicers, mortgagees, trustees, or beneficiaries can shift  

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          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."


          MW:k  5/14/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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