BILL ANALYSIS �
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|SENATE RULES COMMITTEE | SB 310|
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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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