BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 827
                                                                  Page  1

          Date of Hearing:  June 10, 2014

                           ASSEMBLY COMMITTEE ON JUDICIARY
                                Bob Wieckowski, Chair
                       SB 827 (Liu) - As Amended: April 8, 2014

           SENATE VOTE  :  25-10

           SUBJECT  :  LOCAL GOVERNMENT: LOS ANGELES COUNTY: NOTICE OF  
          RECORDATION

           KEY ISSUE  :  IN ORDER TO CONTINUE PREVENTION OF FORECLOSURE AND  
          LOAN MODIFICATION SCAMS, SHOULD THE SUNSET DATE BE EXTENDED  
          ANOTHER FIVE YEARS FOR THE CURRENT PILOT PROGRAM THAT AUTHORIZES  
          THE LOS ANGELES COUNTY RECORDER TO NOTIFY OWNERS AND OCCUPANTS  
          OF PROPERTY BY MAIL WHEN A NOTICE OF DEFAULT OR NOTICE OF SALE  
          HAS BEEN RECORDED ON THE PROPERTY?

                                      SYNOPSIS
          
          Under SB 62 (Liu), Ch. 141, Stats. 2011, the Los Angeles County  
          Recorder is authorized to: (1) notify owners and occupants of a  
          property by mail when a notice of default or notice of sale has  
          been recorded on the property; and (2) collect a fee of up to  
          $7, as specified, in order to cover the costs of notifying the  
          parties, as well as providing information about housing  
          assistance and counseling to callers to a telephone hotline  
          publicized on the mailed notice.  SB 62 expanded and enhanced  
          the Homeowner Notification Program that has been employed in Los  
          Angeles since the 1990's to combat foreclosure and loan  
          modification fraud, but the expanded SB 62 component is set to  
          expire on January 1, 2015.  

          This bill, sponsored by Los Angeles County, would simply  
          reauthorize, until January 1, 2020, the additional SB 62 owner  
          notification and the accompanying fee that covers the cost of  
          the program.  In addition, this bill shortens by six days the  
          time that the Recorder must send the notification to affected  
          parties, and expands reporting requirements to facilitate more  
          comprehensive evaluation of the program by the Legislature in  
          2020.  Supporters of the bill, including several consumer  
          advocate groups and the city and county attorneys representing  
          Los Angeles, contend that this bill will continue to enable  
          homeowners to act promptly to protect themselves from possible  
          fraud and property-related scams.  This bill was approved by the  








                                                                  SB 827
                                                                  Page  2

          Assembly Local Government Committee by a 7-1 vote and has no  
          registered opposition.

           SUMMARY  :  Extends by five years the sunset date for a pilot  
          program in Los Angeles County that authorizes the County  
          Recorder, to notify occupants and other persons when a notice of  
          default or sale has been recorded on a property.  Specifically,  
           this bill  :    

          1)Extends, until January 1, 2020, the pilot authority of the Los  
            Angeles County Recorder (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.

          2)Reduces, from 20 days to 14 days of recordation, the time by  
            which the Recorder is to notify the party or parties subject  
            to a notice of default or a notice of sale.

          3)Requires the Los Angeles County Board of Supervisors to submit  
            a report on or before January 1, 2019 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.

          4)Requires the above report to include the following additional  
            information:

             a)   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.

             b)   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.

             c)   An evaluation of whether L.A. County's homeowner  
               notification program is an effective way to inform tenants  
               of an impending foreclosure and to combat abusive  








                                                                  SB 827
                                                                  Page  3

               post-foreclosure practices by property owners.

             d)   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.

          5)Finds and declares that a special law is necessary and that a  
            general law cannot be made applicable within the meaning of  
            Section 16 of Article IV of the California Constitution  
            because the County of L.A. is experiencing a unique and  
            prolonged recovery from the financial and real estate fraud  
            crisis.

           EXISTING LAW  :  

          1)Authorizes the Los Angeles County 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.  (Government Code Section 27297.6(a)(1)(A).  All  
            further references are to this code unless otherwise stated.)

          2)Authorizes the Recorder, upon adoption of an authorizing  
            resolution by the Los Angeles County Board of Supervisors, to  
            mail a notice to the party or parties subject to a notice of  
            default or notice of sale, including the occupants of that  
            property, within five days, but in any event no more than 20  
            days, of the recording of those documents. (Section  
            27297.6(a)(1)(B).)

          3)Permits the Recorder to collect an additional fee from the  
            party filing a deed, quitclaim deed, deed of trust, notice of  
            default, or notice of sale, for implementing the above  
            provisions, in an amount not to 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,  
            but in no case more than $7.  (Section 27387.1(a).)

          4)Provides that the fee may include specified administrative  
            costs to carry out the notification program so long as they do  
            not exceed ten percent of the total fee collected.  (Section  
            27387.1(b).)

          5)Provides that the authority of the Recorder to provide such  








                                                                  SB 827
                                                                  Page  4

            notification upon recordation, 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.   
            (Section 27297.6(e) and Section 27387.1(c).)

          6)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.  (Civil Code Section  
            2924.8.)

           FISCAL EFFECT  :  As currently in print this bill is keyed  
          non-fiscal.

           COMMENTS  :  This bill, sponsored by the Los Angeles County Board  
          of Supervisors, seeks to extend, until January 1, 2020,  
          authority for the Los Angeles County Recorder (Recorder) to  
          notify by mail any party subject to a notice of default or a  
          notice of sale, including the occupants of that property, and to  
          collect fees for this purpose from those recording such  
          documents.  Current authority for this notification program,  
          pursuant to SB 62 (Liu), Ch. 141, Stats. 2011, expires on  
          January 1, 2015.  According to the author:

               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.  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 implement the SB 62 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.








                                                                  SB 827
                                                                  Page  5


          Background on longstanding homeowner notification program in Los  
          Angeles.   The non-judicial foreclosure process in California  
          begins with the filing of a notice of default, which usually  
          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, at minimum, should receive 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.  

          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.  
           According to the author, 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.  Under this program, the 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  
          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.

          With SB 62 (Liu) becoming operative law in January 2012, the  
          homeowner notification program expanded to allow the 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  








                                                                  SB 827
                                                                  Page  6

          beginning of the non-judicial foreclosure process (notice of  
          default), or the announcement of the sale date (notice of sale),  
          indicating 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 SB  
          62 notification program authorizes the Recorder to collect a  
          specified 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 SB 62  
          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.   
          The 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 for the  
          purpose of assessing the performance of the expanded program one  
          year before its proposed termination date of January 1, 2020.
           
          Analysis of fee provision under 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.  It  
          appears that the bill allows those fees to also fund counseling  
          and assistance programs, thereby providing 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  








                                                                  SB 827
                                                                  Page  7

          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.   
          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.  They contend that the  
          notification program, to include the notice to homeowners in  
          default, benefits lenders as well because lenders lose on  
          average tens of thousands of dollars on each foreclosed home.  

          DCA notes that for a $7.00 fee, which includes the cost of  
          mailing a notification, it can work 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.

          It should also be noted that the fee re-authorized by this bill  
          is reasonably limited to actual costs incurred by the county for  








                                                                  SB 827
                                                                  Page  8

          mailing and providing services.  Consistent with the existing SB  
          62 program, the re-authorized may not exceed the cost of mailing  
          the notice and the actual cost to provide information,  
          counseling, or assistance to recipients of the notice, and may  
          not in any case exceed $7.  Under the program, the notification  
          letter must continue to be sent to the appropriate parties  
          whenever the fee is collected from the party filing the notice  
          of default or notice of sale, without exception.  Furthermore,  
          the actual costs may include administrative costs incurred by  
          the County Recorder in performing its duties, but under this  
          bill these administrative costs may still not exceed 10 percent  
          of the total fee collected.  Because the re-authorized program  
          would continue to limit the fee to no more than the actual  
          costs, including modest administrative costs of operating the  
          notification program, it appears that the fee re-authorized by  
          this bill meet the criteria under either exception (1) or (2)  
          that would exempt the fee from having to be placed on the ballot  
          for voter approval pursuant to Proposition 26.

          This bill expands reporting requirements to facilitate better  
          evaluation of the program by the Legislature in 2020.   In order  
          to give the Legislature an opportunity to review the expanded  
          Homeowner Notification program and evaluate the SB 62 program's  
          effectiveness, this bill expands existing reporting requirements  
          that Los Angeles County must meet on or before January 1, 2019,  
          to include the following additional information about the  
          county's homeowner notification program: (1) documented examples  
          showing how the 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; (2) an evaluation of  
          whether the 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; (3) an  
          evaluation of whether the program is an effective way to inform  
          tenants of an impending foreclosure and to combat abusive  
          post-foreclosure practices by property owners; and (4) an  
          assessment of how the program compares to real estate fraud and  
          foreclosure prevention programs being implemented in at least  
          three other large, urban California counties.  According to the  
          author, 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.   









                                                                 SB 827
                                                                  Page  9

          Prior Legislation  :  SB 62 (Liu, Ch. 141, Stats. 2011) authorizes  
          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 then-Governor Schwarzenegger.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          Consumer Federation of America
          Consumer Federation of California
          Los Angeles County District Attorney's Office
          Los Angeles County Sheriff's Department
          SEIU
          Western Center on Law and Poverty
           
            Opposition 
           
          None on file

           Analysis Prepared by  :   Anthony Lew / JUD. / (916) 319-2334