BILL ANALYSIS                                                                                                                                                                                                    




                                                                  SB 310
                                                                  Page A
          Date of Hearing:   June 10, 2013

                      ASSEMBLY COMMITTEE ON BANKING AND FINANCE
                               Roger Dickinson, Chair
                    SB 310 (Calderon) - As Amended:  May 14, 2013

           SENATE VOTE  :   37-0
           
          SUBJECT  :   Mortgages: foreclosure notices: title companies.

           SUMMARY  :   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 (HOBR) if it records or causes to record a notice of  
          default (NOD) or notice of sale (NOS) at the request of a  
          trustee, substitute trustee, or beneficiary, in good faith and  
          in the normal course of its business activities.  Specifically,  
           this bill  :   

          1)Provides that when a title company or underwritten title  
            company records a NOD or NOS and is acting at the request of  
            the mortgage loan servicer then the title company or  
            underwritten title company shall not be liable for violations  
            of HOBR resulting from a failure to halt foreclosure when a  
            loan modification is under consideration.

          2)Clarifies that the limited liability should 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 NOD or NOS.

           EXISTING LAW  

          1)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.)

          2)Provides that from January 1, 2013 through December 31, 2017,  









                                                                  SB 310
                                                                  Page B
            generally prohibits a mortgage servicer, mortgagee, trustee,  
            beneficiary, or authorized agent from recording a 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.)

          3)States that 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.)

          4)Provides that from January 1, 2013 through December 31, 2017,  
            generally prohibits a mortgage servicer, mortgagee, trustee,  
            beneficiary, or authorized agent from recording a 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 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.)

          5)Requires that from January 1, 2013 through December 31, 2017,  
            generally prohibits a mortgage servicer, mortgagee, trustee,  
            beneficiary, or authorized agent from recording a NOD or NOS,  
            or from conducting a trustee's sale: (1) while a complete  









                                                                  SB 310
                                                                  Page C
            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.)

          6)States that from January 1, 2013 through December 31, 2017,  
            generally prohibits a mortgage servicer, mortgagee, trustee,  
            beneficiary, or authorized agent from recording a 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 are 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.)

          7)Mandates that 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 a 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 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.)

          8)Requires from January 1, 2013 through December 31, 2017,  
            generally prohibits a mortgage servicer, trustee, mortgagee,  
            beneficiary, or authorized agent from recording a NOD or NOS,  









                                                                  SB 310
                                                                  Page D
            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.)

          9)Provides for various remedies for violations of the above  
            provisions, including treble actual damages and statutory  
            damages.  (Civ. Code Secs. 2924.12, 2924.19.)

           FISCAL EFFECT  :   None

           COMMENTS  :   

          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  









                                                                  SB 310
                                                                  Page E
          could otherwise result in liability for the title company if  
          they record a NOD, in good faith, but in violation of HOBR.

          On June 27, 2012, the Conference Committee on the California  
          Foreclosure Crisis passed HOBR (AB 278 & SB 900) 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 HOBR also included various remedies for  
          violations of its provisions, including treble and statutory  
          damages.

          Since the provisions of the HOBR are violated if foreclosure  
          documents (a NOD or NOS) 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  

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








                                                                  SB 310
                                                                  Page F
            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 HOBR when they record a NOD or  
          NOS in good faith and in the normal course of their business  
          activities.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California Land Title Association (CLTA)
          Fidelity National Financial (FNF)
          First American Financial Corporation
           
            Opposition 
           
          None on file.

           Analysis Prepared by  :    Mark Farouk / B. & F. / (916) 319-3081