BILL ANALYSIS                                                                                                                                                                                                    




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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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