BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 474|
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CONSENT
Bill No: SB 474
Author: Wieckowski (D)
Amended: 4/6/15
Vote: 27 - Urgency
SENATE JUDICIARY COMMITTEE: 7-0, 5/5/15
AYES: Jackson, Moorlach, Anderson, Hertzberg, Leno, Monning,
Wieckowski
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SUBJECT: Auctions
SOURCE: California Association of Realtors
DIGEST: This bill eliminates the creditor bid exemption to the
existing prohibition on announcing or allowing an auction bid
offered for the sole purpose of increasing the bid amount, and
re-casts the existing prohibition to apply only to increased
bids offered by the auctioneer.
ANALYSIS:
Existing law:
1)States that a person shall not cause or allow a person to bid
at a sale for the sole purpose of increasing the bid on any
real property being sold by the auctioneer, including, but not
limited to, stating any increased bid greater than that
offered by the last highest bidder when, in fact, no person
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has made an increased bid. (Civ. Code Sec. 1812.610(b).)
2)Provides that, notwithstanding the above prohibition, an
auctioneer or another authorized person may place a bid on the
seller's behalf during an auction of real property, if both of
the following are true:
notice is given to all auction participants, including
all other bidders, that liberty for that type of bidding is
reserved and that type of bid will not result in the sale
of the real property; and
the person placing that type of bid contemporaneously
discloses to all auction participants, including all other
bidders, that the particular bid has been placed on behalf
of the seller. (Civ. Code Sec. 1812.610(b).)
1)States that the prohibition on placing auction bids on behalf
of the seller shall not apply to credit bids made by creditors
holding a deed of trust, mortgage, or other lien on the
property that is the subject of auction when the credit bid
can result in the transfer of title to property to the
creditor. (Civ. Code Sec. 1812.610(d).)
This bill:
1)Strikes the existing prohibition on placing auction bids on
behalf of the seller and provide, instead, that an auctioneer
shall not state at an auction that an increased bid greater
than that offered by the last highest bidder has been made
when, in fact, no person has made an increased bid. This bill
additionally strikes the existing exemption for credit bids.
2)Provides that, notwithstanding the foregoing, an auctioneer or
another authorized person may place a bid on the seller's
behalf during an auction of real property that would not
result in a sale of the real property, if both of the
following are true:
notice is given to all auction participants, including
all other bidders, that liberty for that type of bidding is
reserved and that type of bid will not result in the sale
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of the real property; and
the person placing that type of bid contemporaneously
discloses to all auction participants, including all other
bidders, that the particular bid has been placed on behalf
of the seller.
Background
A short sale describes a type of real estate transaction where a
homeowner sells their home for less than the balance remaining
on a mortgage. Short sales require sellers to find a buyer
willing to purchase their property at its current market value,
either with or without the assistance of a real estate agent,
and require the seller's lender to agree to accept the proceeds
from the sale as payment in full for the outstanding mortgage
debt. Lenders are willing to agree to short sales, particularly
for homeowners facing foreclosure, because they receive current
market value for the property, which is often more than they
would receive when a property is sold through the nonjudicial
foreclosure process. With a short sale, a lender avoids all of
the costs associated with the foreclosure process, the risk of
receiving less than market value at a foreclosure sale, as well
as the costs associated with selling the property should the
property revert back to the lender upon foreclosure. Short
sales are often a better alternative than foreclosure for
homeowners as well - a seller that avoids foreclosure through a
short sale escapes the negative credit impact that comes with
being foreclosed upon, and is usually able to eliminate some or
all of their mortgage debt.
Since a lender must typically agree to accept the short sale
proceeds in lieu of the amount owed under a mortgage or in lieu
of going through nonjudicial foreclosure, lenders often
condition the acceptance of a sale offer upon certain terms and
conditions. Some lenders have started requiring homeowners to
agree to have their property put out for bid using an auction
company to see if the property fetches a higher price at auction
before a short sale offer will be accepted - a process known as
validating the sale price. In some of these auctions, the
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auctioneer will "counter-bid" or place bids on behalf of the
seller when the highest bid fails to meet an auction's set
reserve price, which is the minimum selling price set by the
seller of a property prior to the auction. One such company-
Auctions.com- states on its auction Web sites for certain
properties that "[u]ntil the seller's reserve price is met,
Auction.com may counter bid on behalf of the seller. . . Counter
bids do not occur after the seller's reserve price is met."
(See [as of Apr. 30, 2015].)
Last year, the Legislature passed AB 2039 (Muratsuchi, Chapter
893, Statutes of 2014) which prohibited any person, including
the seller, auctioneer, or their agents, from bidding at a real
property auction for the sole purpose of increasing the bid,
unless all auction participants receive advance notice that such
bidding will be allowed during the auction, and the auctioneer
or other person placing the bid contemporaneously discloses to
all auction participants that the bid has been placed on behalf
of the seller. That bill provided an exception to the above
prohibition for credit bids made by a creditor holding a deed of
trust, mortgage, or other lien on the property when the credit
bid could result in the transfer of title to property to the
creditor.
This bill simplifies the changes enacted through AB 2039 by
eliminating the creditor bid exemption and re-casting the
prohibition on placing a bid on behalf of the seller to apply
only to bids offered by an auctioneer.
Comments
The author writes:
Previous legislation, specifically AB 2039 (Mursatsuchi,
Chapter 893, Statutes of 2014), has updated regulations on the
aspects of real estate short sale transactions, which are
sales where a lender accepts less than what is owed on a
property in order to facilitate the sale of the property.
Lenders may hire auction companies to take bids in proposed
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short sales in order to obtain the highest price for property.
AB 2039 intended to ensure transparency in real estate
auctions, giving consumers a better understanding of who is
bidding and whether a particular bid can constitute a winning
bid. During the stakeholder process of AB 2039, the banking
industry voiced concern that this bill would unintentionally
impact the activities of foreclosure and auction sales of real
estate properties.
SB 474 will recast these regulations in relation to activities
of auctioneers and auction companies. Specifically, this
bill will recast the reference to an "auctioneer" in relation
to auctions under civil code section 1812.610 (a) and (b) for
purposes of ensuring clarity in its interpretation and remove
the reference to the exception of credit bids.
According to the California Association of Realtors:
Last year, AB 2039 (Chapter 893, Statutes of 2014) brought
real estate auctions under the state's auction law. That law,
beginning July 1, 2015, now governs the submittal of a "shill
bid" (i.e., a bid intended to increase the bidding above the
last legitimate bid). In order that a "credit bid" (i.e., a
bid submitted by a mortgage note holder at a foreclosure sale)
not be confused with a "shill bid," an exception was made for
"credit bids" in the real estate auction statute. SB 474 will
recast the statute governing real estate auctions so that the
exception for "credit bids" - which are unrelated to the
conduct of real estate transactions - is eliminated.
Related/Prior Legislation
AB 2039 (Muratsuchi, Chapter 893, Statutes of 2014) rendered
void and unenforceable any condition imposed by a lender or
auction company that requires, as a condition of receiving the
lender's approval for a transaction, that a homeowner or listing
agent defend or indemnify the lender or auction company from
liability allegedly resulting from the actions of the lender or
auction company. The bill also prohibited any person, including
the seller, auctioneer, or their agents, from bidding at a real
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property auction for the sole purpose of increasing the bid on
property being sold by an auctioneer, except as provided.
SB 109 (Calderon, 2009) would have removed the exception
provided for real estate from the definition of "auction" in
California's statutes regulating auctioneers and auction
companies (Civ. Code Sec. 1812.600 et seq.), thereby bringing
real property auctions within those provisions, with specified
exceptions. The bill would have also required an auction
company and auctioneer to post or distribute to the audience a
description of all fees, both refundable and nonrefundable, that
would be levied on bidders, as well as any changes to those
fees. With respect to auctions of real property, the bill would
have required an auction company and auctioneer to post or
distribute to the audience a clear explanation of the terms
"auctioned with reserve" and "sale subject to seller
confirmation, approval, or acceptance," and the procedures and
timelines to be used in connection with sales that are subject
to those requirements. The bill was vetoed by Governor
Schwarzenegger because it would "impose unnecessary restrictions
and fees upon real estate auctioneers."
AB 2331 (Wayne, Chapter 815, Statutes of 2002) added anti-waiver
provisions to several consumer protection statutes, including
California's statutes regulating auctioneers and auction
companies.
AB 259 (Hannigan, Chapter 1170, Statutes of 1993) repealed the
Auctioneer and Auction Licensing Act, which provided for the
licensing and regulation of auctioneers and auctions under the
jurisdiction of the California Auctioneer Commission. The bill
instead required every auctioneer and auction company to
maintain a $20,000 surety bond with the Secretary of State, and
also enacted provisions related to the conduct of auctions and
prohibited certain acts.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: Yes
SUPPORT: (Verified5/5/15)
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California Association of Realtors (source)
California Bankers Association
OPPOSITION: (Verified5/5/15)
None received
Prepared by:Tobias Halvarson / JUD. / (916) 651-4113
5/19/15 15:50:31
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