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) SB 827 (Liu) Page 2 of ? 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 SB 827 (Liu) Page 3 of ? 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 SB 827 (Liu) Page 4 of ? 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 SB 827 (Liu) Page 5 of ? 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 SB 827 (Liu) Page 6 of ? 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" SB 827 (Liu) Page 7 of ? 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. SB 827 (Liu) Page 8 of ? 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 SB 827 (Liu) Page 9 of ? 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 SB 827 (Liu) Page 10 of ? 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. SB 827 (Liu) Page 11 of ? 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) **************