BILL ANALYSIS                                                                                                                                                                                                    



                                                                     SB 474  


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          Date of Hearing:  August 19, 2015


                        ASSEMBLY COMMITTEE ON APPROPRIATIONS


                                 Jimmy Gomez, Chair


          SB 474  
          (Wieckowski) - As Amended July 9, 2015


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          Urgency:  Yes State Mandated Local Program:  YesReimbursable:   
          No


          SUMMARY:


          This bill revises and recasts recently enacted law governing  
          real estate auctions to make unnecessary a statutory exception  
          for "credit bids" from the meaning of "shill bids," and deletes  








                                                                     SB 474 


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          the existing and hence unnecessary exception.


          FISCAL EFFECT:


          Negligible fiscal impact.


          COMMENTS:


          1)Background. Last year, the Legislature passed AB 2039  
            (Muratsuchi) to regulate short sale transactions, including  
            measures to ensure greater transparency in real estate  
            auctions to protect bidders. Among other things, the bill  
            prohibits 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 two conditions are  
            met.  First, all auction participants must receive advance  
            notice that such bidding will be allowed during the auction,  
            and secondly, the auctioneer or other person placing the bid  
            must contemporaneously disclose to all auction participants  
            that the bid has been placed on behalf of the seller.  


            After these requirements were amended into the bill in the  
            Senate, the California Bankers Association (CBA) raised  
            concerns that the bill may impact the existing practice of  
            creditors who offer credit bids on property during a  
            foreclosure auction.  Unlike a bid placed on behalf of the  
            seller, a credit bid offered in a foreclosure auction can  
            result in the transfer of title to property since the bid is  
            backed by an interest in the property, such as a lien,  
            mortgage, or deed of trust.  In response to CBA's concerns,  
            the author amended AB 2039 to expressly exclude credit bids  
            from the scope of the bill's general prohibition on bids  
            placed on behalf of sellers.  According to CBA, this  
            exclusionary language "was offered instead of refining and  








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            clarifying the . . . underlying restrictions on auctioneer  
            practices."


          2)Purpose. This bill seeks to narrow AB 2039's prohibition on  
            any bids being placed on behalf of sellers to cover only those  
            bids made by an auctioneer.  Proponents contend that because  
            the auctioneer is never the same person as a creditor placing  
            a credit bid, the bill's narrower prohibition will have no  
            impact on credit bids made in a foreclosure auction.   
            According to CBA, the changes in this bill provide "clarity to  
            the confusing opening provision found in [existing law] and,  
            as amended, appropriately [focus] on the actions of the  
            auctioneer, making it clear that the auctioneer is prohibited  
            from stating an increased bid during an auction when one does  
            not exist."  As a result of this clarification, CBA asserts,  
            "the exclusion for credit bids . . . is no longer necessary."


            In short, this bill simplifies the changes enacted by 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.


          Analysis Prepared by:Chuck Nicol / APPR. / (916)  
          319-2081