BILL ANALYSIS Ó SB 474 Page 1 Date of Hearing: August 19, 2015 ASSEMBLY COMMITTEE ON APPROPRIATIONS Jimmy Gomez, Chair SB 474 (Wieckowski) - As Amended July 9, 2015 ----------------------------------------------------------------- |Policy |Judiciary |Vote:|10 - 0 | |Committee: | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | | | | | | | | | | | | | | | ----------------------------------------------------------------- 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 Page 2 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 SB 474 Page 3 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