BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
SB 827 (Liu)
As Amended March 24, 2014
Hearing Date: April 1, 2014
Fiscal: No
Urgency: No
TH
SUBJECT
Local Government: Los Angeles County: Notice of Recordation
DESCRIPTION
Existing law, until January 1, 2015, authorizes Los Angeles
County, and the Los Angeles County Recorder, to notify affected
parties, including occupants of the property, when a notice of
default or notice of sale has been recorded on a property. The
Los Angeles County Recorder may collect a fee of up to $7 in
order to cover the cost of notifying the parties and providing
information about housing assistance and counseling. This bill
would extend the sunset date to January 1, 2020.
BACKGROUND
The County of Los Angeles has, since 1992, operated a
county-specific "Homeowner Notification Program" that is
designed to help combat real estate fraud in Los Angeles County.
Under existing law, the Los Angeles County Recorder is
authorized to collect a distinct fee from parties that record
certain documents evidencing the transfer of title, specifically
deeds, quitclaim deeds, and deeds of trust. That fee is used to
mail a notice of recordation to the party that purportedly
executed the document, and to fund a help line at the Los
Angeles County Department of Consumer Affairs (DCA) that
property owners who receive these notices can call to receive
information and assistance. This notification program, enacted
in 1992 and renewed in 1996, seeks to address problems related
to forged real estate documents by notifying property owners
that their real estate is subject to a recently filed document
that could affect their property interests. By informing
(more)
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property owners about recently filed title transfer documents,
the notice allows these owners to contact law enforcement if
they suspect that the documents are fraudulent.
The Homeowner Notification Program was expanded in 2012 to allow
the Los Angeles County Recorder to also notify owners of a
property (and occupants of the home) when a notice of default or
notice of sale is recorded against the property. Those
documents signify either the beginning of the non-judicial
foreclosure process (notice of default), or the announcement of
the sale date (notice of sale), which means that the home could
be very close to being sold at auction. Although existing law
mandates mailing or posting several other statutory notices to
both property owners and tenants impacted by a non-judicial
foreclosure, this additional notice allows Los Angeles County to
send region-specific information to help affected individuals
both become aware of available resources, and aware of potential
scams that may target owners of distressed properties. As with
the recording of deeds, quitclaim deeds, and deeds of trust, the
expanded Homeowner Notification Program authorizes the Los
Angeles County Recorder to collect a distinct fee from parties
that record notices of default and notices of sale in order to
fund the program. These fees are used to cover the cost of
mailing the notices as well as to provide foreclosure avoidance
assistance and housing counseling via the DCA help line.
Authorization for this expanded component of the Homeowner
Notification Program is set to expire on January 1, 2015.
This bill would reauthorize the expanded component of the
Homeowner Notification Program for an additional five years.
This bill would also require the Los Angeles County Board of
Supervisors to submit a report to the Senate Committee on
Judiciary and the Assembly Committee on Local Government
assessing the performance of the expanded Homeowner Notification
Program one year before its scheduled termination.
CHANGES TO EXISTING LAW
Existing law permits the Los Angeles County Recorder (recorder),
upon the adoption of an authorizing resolution by the board of
supervisors, to mail a notice to the party or parties executing
a deed, quitclaim deed, or deed of trust, within 30 days of
recordation. (Gov. Code Sec. 27297.6.)
Existing law provides that failure to provide the above notice
shall not result in any liability against the recorder and the
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county, and requires the county recorder to use a competitive
bid process if it contracts for the processing or mailing of the
notice. (Gov. Code Sec. 27297.6.)
Existing law permits the recorder to collect an additional fee
from the party filing a deed, quitclaim deed, or deed of trust,
to implement the above provision. That fee shall not exceed the
mailing cost of the above notice, but in no case be greater than
$7. (Gov. Code Sec. 27387.1.)
Existing law requires the trustee, or authorized agent, that
represents the foreclosing financial institution to post and
mail a notice informing the residents of a property about a
pending foreclosure sale. That notice informs residents that
the property may be sold at a foreclosure sale, the requirements
of an eviction notice, and that they may wish to contact a
lawyer or a local legal aid or housing counseling agency to
discuss any rights they may have. (Civ. Code Sec. 2924.8.)
Existing law additionally permits the recorder, upon adoption of
an authorizing resolution by the Los Angeles County Board of
Supervisors, to notify the party or parties subject to a notice
of default or notice of sale, including the occupants of that
property. The recorder must notify those individuals by mail
within five days, but in any even no more than 20 days, of the
recording of those documents. (Gov. Code Sec. 27297.6.)
Existing law additionally authorizes the recorder to collect an
additional fee from a party filing a notice of default or notice
of sale. That fee, not to exceed $7, shall not exceed the
mailing cost of the notice and the actual cost, if any, to
provide information, counseling, or assistance to a person who
receives the notice. That fee may include specified
administrative costs to carry out the notification program, but
such administrative costs shall not exceed 10 percent of the
total fee collected. (Gov. Code Sec. 27387.1.)
Existing law provides that the authority of the recorder to
notify parties of the recording of a notice of default or a
notice of sale, and to collect an additional fee from the party
recording the notice, shall remain in effect only until January
1, 2015, and as of that date shall be repealed, unless a later
enacted statute, that is enacted before January 1, 2015, deletes
or extends that date. (Gov. Code Sec. 27297.6.)
This bill would extend the authority of the Los Angeles County
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Recorder to notify parties of the recording of a notice of
default or a notice of sale, and to collect an additional fee
from the party recording the notice, to January 1, 2020.
This bill would require the board of supervisors to submit a
report to the Senate Committee on Judiciary and the Assembly
Committee on Local Government that includes, but is not limited
to, a copy of the type of notices mailed, the number of recorded
notices of default and sale for which a fee was collected, the
amount of fees collected, and the amount of fees spent to
provide housing information, counseling, and assistance. That
report must be submitted on or before January 1, 2019.
This bill would additionally require the report submitted by the
board of supervisors to provide the following information:
documented examples showing how the county's homeowner
notification program led to successful investigations of real
estate fraud activity, referrals to prosecuting agencies,
avoided foreclosures, or helped property owners and residents
avoid falling victim to real estate fraud;
an evaluation of whether the county's homeowner notification
program, in comparison to other available policy tools in the
County of Los Angeles, is a cost-effective approach to
combating real estate fraud and reducing foreclosures; and
an assessment of how the county's homeowner notification
program compares to real estate fraud and foreclosure
prevention programs being implemented in at least three other
large, urban California counties.
COMMENT
1. Stated need for the bill
The author writes:
The home foreclosure crisis has created opportunities for
more fraudulent transactions, as well as displacing renters
who had no idea that the home they occupy was in the
process of foreclosure. A Los Angeles County Real Estate
Fraud/Predatory Lending Task Force in 2009 made a series of
recommendations, including adding notices about default and
sale to the existing state law for the County.
The County has established the initial framework to
implement the SB 62 notice program, but the original bill
expires on January 1, 2015. The County needs more time to
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implement the notice program, given the size of Los Angeles
County and the large number of foreclosures.
This bill will help prevent property sale fraud and protect
homeowners and renters in Los Angeles County. When the
County records a notice of default or notice of sale for a
home, the occupants will receive a notice in the mail.
Residents will know that a home is being sold, foreclosed
on, or is possibly involved in a fraudulent transaction.
This bill extends for five years the reporting requirements
and fraud-alert program authorized by SB 62, which Sen. Liu
authored in 2011.
2. Risk of Fraud in the Foreclosure Process
Foreclosures in California are generally non-judicial, meaning
that they are accomplished without court involvement. The first
step in the foreclosure process is the filing of a notice of
default, which generally occurs after three or more months of
delinquency. The foreclosing entity must then generally wait at
least three months before noticing the sale of the property,
which must be posted, published, and filed with the county
recorder. As a result, the property owner should receive (at a
minimum) a mailed copy of the notice of default and notice of
sale, which generally provide the owner with information about
his or her rights at that point in the foreclosure process. The
tenant of the property being foreclosed upon should also receive
a mailed copy of the notice of sale, and should see the same
physically posted on the property being sold. This bill would
additionally reauthorize Los Angeles County to send an
additional notice to parties subject to a notice of default or
notice of sale, including the occupants of the property.
As noted above, the author states that the intent of the
additional notice is to warn homeowners about potentially
fraudulent foreclosure activity and to provide owners and
occupants of distressed properties with counseling services to
avoid or mitigate the effects of foreclosure. Staff notes that
the additional notices reauthorized by this bill could provide
additional information specific to the Los Angeles region
regarding the existence of foreclosure scams, or region-specific
resources available to struggling homeowners. The notice could
also contain specific information regarding the rights of any
tenants who may be in the property, but that information may
duplicate the codified statement of rights that is already
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mailed to tenants (and posted on the property) at the time the
property is noticed for sale. (See Civ. Code Sec. 2924.8.)
Staff notes that while the program was authorized in 2011, it
was not actually implemented by the County of Los Angeles until
December 2013. Despite improvements in the housing market since
the program's authorization, the County asserts that foreclosure
fraud remains a serious threat. In the first three months
following the implementation of the expanded Homeowner
Notification Program, DCA received 1,657 calls from homeowners
requesting counseling services, opened 121 real estate fraud
cases and 86 foreclosure prevention cases. DCA credits the
program with helping a widow facing foreclosure establish
communication with her bank to confirm her right to pay and
negotiate a home loan on behalf of her late husband's estate,
and for helping a Spanish-speaking homeowner victimized by a
foreclosure rescue scam reinstate an expired trial loan
modification program and keep his home.
3. Timing of Notices
The Los Angeles County Recorder would be required to notify the
parties (including occupants) by mail within five days, but in
no event more than 20 days, of recordation of the notice of
default or sale. While that time frame would not appear to pose
any issue with regards to the filing a notice of default since
there is a statutory 90-day wait before proceeding to sell the
property, the timing as applied to a notice of sale is very
close. Those notices are given at least 20 days before the
sale, thus, a mailing from the Los Angeles County Recorder that
reaches an individual on or after the 20th day could leave a
distressed homeowner or tenant with minimal opportunity to take
advantage of the Homeowner Notification Program's resources.
Staff notes that the time frame would not pose issues in all
cases since sale dates are often postponed by the lender or
foreclosing entity for various reasons.
To address the timing issue, the Author offers the following
amendment to require notification within 14 days of recordation.
Author's Amendment:
On page 2, line 13, strike the number "20" and replace with
the number "14"
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4. Expansion of Translated Languages
Existing law requires trustees or other entities proceeding with
a foreclosure sale to both post on the property to be sold and
mail to the resident of the property subject to sale a copy of
the notice of sale. (See Civ. Code Sec. 2924.8.) Those notices
of sale must include specific language informing residents and
property owners that the subject property may be sold at a
foreclosure sale, the requirements of an eviction notice, and
that they may wish to contact a lawyer or a local legal aid or
housing counseling agency to discuss any rights they may have.
(Id.) Recognizing the number of languages other than English
spoken in California's diverse communities, the Legislature
requires notices of sale to be provided "in English and the
languages described in Section 1632," which include "Spanish,
Chinese, Tagalog, Vietnamese, [and] Korean." (See Civ. Code
Secs. 2924.8, 1632.) The County of Los Angeles has indicated
that it presently sends notices to affected individuals under
the Homeowner Notification Program in both English and Spanish,
and that it is working toward providing the notices in other
languages appropriate to the needs of its communities.
5. Collection of Fees; Proposition 26
This bill would authorize the county recorder to continue
collecting fees from parties filing notices of default and
notices of sale, not to exceed $7, to cover the cost of mailing
the county-specific homeowner notices and the actual cost, if
any, to provide information, counseling, or assistance to
recipients of the notices under the expanded Homeowner
Notification Program. Staff notes that by allowing those fees
to also fund counseling and assistance programs, the fee would
provide financial assistance to Los Angeles County housing
assistance programs that are losing funds due to budget
constraints. Recipients of the county-specific notices would
likely be given the contact information for those programs and
would therefore benefit from the collection of the fees to
assist in their funding.
Proposition 26, passed by the voters in 2010, may complicate the
continued imposition of the fee by potentially requiring that
the $7 fee be approved by a vote of the people. Proposition 26
amended the California Constitution to expand the scope of taxes
and tax increases that require approval by local voters.
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Proposition 26 defined "tax" as "any levy, charge or exaction of
any kind imposed by a local government" except as specified.
(Cal. Const. art. XIII C, Sec. 1(e) [emphasis added].) Of the
seven specific exceptions to the definition of tax included in
Proposition 26, the first two would appear to be most relevant
to Los Angeles County's notice of default and notice of sale
recordation fee:
(1) A charge imposed for a specific benefit conferred or
privilege granted directly to the payor that is not provided
to those not charged, and which does not exceed the
reasonable costs to the local government of conferring the
benefit or granting the privilege.
(2) A charge imposed for a specific government service or
product provided directly to the payor that is not provided
to those not charged, and which does not exceed the
reasonable costs to the local government of providing the
service or product. (Cal. Const. art. XIII C, Secs. 1(e)(1)
and (2).)
The County of Los Angeles asserts that placing the $7.00 fee on
the ballot is not required under Proposition 26 because the
foreclosure prevention programs financed by the fee confer a
direct benefit to the payor - typically a bank or trustee - that
is not provided to those not charged. The County states:
A report by the Federal Reserve Bank of Chicago, citing data
from GMAC-RFC (Residential Funding Corporation), estimates
that lenders lose more than $50,000 per foreclosed home. The
County's notification program, to include the notice to
homeowners in default, benefits lenders. For a $7.00 fee,
which includes the cost of mailing a notification, DCA works
with the lender and the homeowner to reach a resolution that
avoids foreclosure such as a loan modification, short sale, or
cash-for-keys agreement.
According to recent assessments of the program, DCA estimates
that it can successfully help homeowners, and, by extension,
lenders, avoid foreclosure in approximately 25 percent of cases
where homeowners request assistance, potentially saving lenders
an estimated $30 million annually.
6. Sunset Provision and Reporting Requirement
In order to give the Legislature an opportunity to review the
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expanded Homeowner Notification program and evaluate the
program's effectiveness against other foreclosure and real
estate fraud prevention programs, this bill includes a
requirement that the County of Los Angeles submit a report on or
before January 1, 2019, that includes, but is not limited to:
(1) a copy of each type of notice mailed under the notification
program; (2) the number of filed notices of default and notices
of sale for which a fee was collected; (3) the amount of fees
collected for the filing of the notices of default and notices
of sale; and (4) the amount of fees spent to provide housing
information, counseling, and assistance. Recent amendments
taken in the Senate Governance and Finance Committee add a
qualitative element to the bill's reporting requirements,
directing the County to also provide the following information
in the report:
documented examples showing how the county's homeowner
notification program led to successful investigations of real
estate fraud activity, referrals to prosecuting agencies,
avoided foreclosures, or helped property owners and residents
avoid falling victim to real estate fraud;
an evaluation of whether the county's homeowner notification
program, in comparison to other available policy tools in the
County of Los Angeles, is a cost-effective approach to
combating real estate fraud and reducing foreclosures; and
an assessment of how the county's homeowner notification
program compares to real estate fraud and foreclosure
prevention programs being implemented in at least three other
large, urban California counties.
These additional qualitative assessments of the expanded
notification program's performance will better help the
Legislature determine whether the program is effective and
fulfilling its goals. Upon receipt of the report, the
Legislature will be better equipped to decide whether this
bill's sunset date of January 1, 2020 for the expanded
notification program ought to be modified. This sunset date in
this bill would only be applicable to the expanded Homeowner
Notification Program components involving recordation of notices
of default and notices of sale. The pre-existing notification
program concerning recordation of deeds, quitclaim deeds, and
deeds of trust would remain unaffected by this bill.
7. Author's Amendments
The Author offers the following amendments to clarify the scope
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of the report to be submitted pursuant to subdivision (e):
(1) On page 3, between lines 37 and 38, insert "(7) An
evaluation of whether the county's homeowner notification
program is an effective way to inform tenants of an impending
foreclosure and to combat abusive post-foreclosure practices
by property owners."
(2) On page 3, line 38, strike "(7)" and replace with "(8)"
Support : California State Council of the Service Employees
International Union; Consumer Federation of America; Consumer
Federation of California; Los Angeles County District Attorney's
Office; Los Angeles County Sheriff's Department; Western Center
on Law and Poverty
Opposition : None Known
HISTORY
Source : County of Los Angeles
Related Pending Legislation : None Known
Prior Legislation :
SB 62 (Liu, Ch. 141, Stats. 2011) authorized the Los Angeles
County Recorder to notify affected parties, including occupants
of the property, when a notice of default or notice of sale has
been recorded on a property. This bill permits the Los Angeles
County Recorder to collect a fee of up to $7 in order to cover
the costs of notifying the parties and providing information
about housing assistance and counseling.
SB 878 (Liu, 2010) would have authorized a notification program
identical to that in SB 62 (Liu, Ch. 141, Stats. 2011), but was
vetoed by Governor Schwarzenegger out of concern that the
proposed notices would be redundant.
SB 1631 (Watson, Ch. 177, Stats. 1996) reauthorized the County
of Los Angeles to notify property owners whenever a deed,
quitclaim deed, or deed of trust is recorded on their title.
This bill permitted the Los Angeles County Recorder to collect a
fee not to exceed $7 from a party recording such deeds in order
to fund the notification program.
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SB 1842 (Watson, Ch. 815, Stats. 1992) permitted the Los Angeles
County Recorder, within 30 days of recordation of a deed,
quitclaim deed, or deed of trust, to notify by mail the party
executing the document. This bill permitted the Los Angeles
County Recorder to collect a fee not to exceed $10 from a party
recording such deeds in order to fund the notification program,
and included a repeal provision to sunset the bill on January 1,
1996.
Prior Vote : Senate Committee on Governance and Finance (Ayes 5,
Noes 2)
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