BILL ANALYSIS Ó
SB 983
Page 1
Date of Hearing: June 21, 2016
ASSEMBLY COMMITTEE ON JUDICIARY
Mark Stone, Chair
SB
983 (Morrell) - As Amended May 16, 2016
SENATE VOTE: 39-0
SUBJECT: MORTGAGES AND DEEDS OF TRUST: TRUSTEE FEES
KEY ISSUE: SHOULD THE statutory BASE FEES that A TRUSTEE MAY
CHARGE FOR CONDUCTING THE NONJUDICIAL FORECLOSURE PROCESS BE
INCREASED BY $50-the first such increase since 2002?
SYNOPSIS
This bill, sponsored by the United Trustees' Association, seeks
a modest $50 increase to four base fee amounts that trustees are
allowed to charge for carrying out their duties in executing the
nonjudicial foreclosure process. The author notes that these
particular fees have been capped at their current levels since
2002 and have not been increased in the 14 years since then,
despite a corresponding increase of 34% in the California CPI.
By contrast, the $50 increase in fees proposed by this bill
represents an increase ranging from 12% to 20% of the four
different base amounts-in every case, substantially lower than
the 34% increase that would have been imposed if the increase
were based strictly on the increase in the California CPI since
2002. Given the far greater increases in the costs of housing
and size of home loans since 2002, the $50 fee increase seems
modest and not unreasonable. After being significantly reduced
in scope by amendments taken in the Senate Judiciary Committee,
SB 983
Page 2
this bill was approved unanimously by the Senate and has no
known opposition.
SUMMARY: Increases by a total of $50 the statutory base fees
that a trustee is allowed to charge for carrying out his or her
duties in executing the nonjudicial foreclosure process-a 12% to
20% increase in the fees, depending on the unpaid sum of the
loan. Specifically, this bill:
1)Increases the base amount in the trustee's or attorney's fee
that may be charged during the nonjudicial foreclosure process
or until the notice of sale is deposited in the mail to the
trustor at any time prior to the decree of foreclosure, from
$300 to $350 if the unpaid principal sum of the loan is
$150,000 or less, or from $250 to $300 if the unpaid principal
sum of the loan exceeds $150,000.
2)Increases the base amount in the trustee's or attorney's fee
that may be charged for executing the trustee sale of the
property through the nonjudicial foreclosure process, from
$425 to $475 if the unpaid principal sum of the loan is
$150,000 or less, or from $360 to $410 if the unpaid principal
sum of the loan exceeds $150,000.
3)Eliminates an unnecessary reference to rescission of a pending
trustee's sale, and makes other clarifying and technical
changes.
EXISTING LAW:
1)Provides that trustee's or attorney's fees which may be
charged during the non-judicial foreclosure process or until
the notice of sale is deposited in the mail to the trustor or
at any time prior to the decree of foreclosure, shall not
exceed $300 if the unpaid principal sum secured is $150,000 or
less, or $250 if the unpaid principal sum secured exceeds
$150,000, plus a specified percentage of the unpaid principal
sum. (Civil Code Section 2924c. All further references are
to this code unless otherwise stated.)
SB 983
Page 3
2)Provides that commencing with the date that the notice of sale
is deposited in the mail and until the property is sold
pursuant to the power of sale contained in the mortgage or
deed of trust, a beneficiary, trustee, or mortgagee may demand
and receive from a trustor or mortgagor reasonable costs and
expenses actually incurred in enforcing the terms of the
obligation, as specified, and trustee's or attorney's fees in
an amount that does not exceed $425 if the unpaid principal
sum secured is $150,000 or less, or $360 if the unpaid
principal sum secured exceeds $150,000, plus a specified
percentage of the unpaid principal sum. (Section 2924d.)
3)Requires a mortgagee, beneficiary, or authorized agent to
record a rescission of a notice of default or cancel a pending
trustee sale, if applicable, upon the borrower executing a
permanent foreclosure prevention alternative, and then, in the
case of a short sale, requires the rescission or cancellation
of the pending trustee's sale to occur when the short sale has
been approved and proof of funds or financing has been
provided, as specified. (Section 2924.11 (f).)
FISCAL EFFECT: As currently in print this bill is keyed
non-fiscal.
COMMENTS: This bill, sponsored by the United Trustees'
Association, seeks a modest $50 increase to the base fees that
trustees are allowed to charge for carrying out their duties in
executing the nonjudicial foreclosure process. According to the
author:
The purpose of SB 983 is to permit nonjudicial
foreclosure trustees to regain a modest percentage of
purchasing power eroded due to the effects of cost of
living increases since the last increases authorized
in 2001, by providing $50 dollar increases in base
trustees' fees contained in Civil Code sections 2924c
and 2924d. The bill makes no changes in the formulas
establishing additions to the base fees based upon
SB 983
Page 4
percentages on unpaid principal balances. . . These
fees have not been increased since 2001 (effective
January 1, 2002). Like all businesses, trustees have
seen cost increases in the past 15 years, and we
believe that modest increases in these fees are
appropriate at this time.
Background on Non-Judicial Foreclosure. Non-judicial
foreclosure (sometimes referred to as a "private trustee's
sale") is the preferred method used by lenders in California to
exercise the remedy of foreclosure when the loan is not repaid
by the borrower according to the terms of a mortgage agreement.
The procedural requirements for non-judicial foreclosure are set
forth in Civil Code Sections 2924 to 2924 (h). As the author
notes, the procedures must be precisely complied with under
existing case law because "substantial compliance" is not
enough.
Ordinarily, the borrower will execute a deed of trust in favor
of the lender which makes the real property the security for the
loan and names someone to act as trustee. The function of this
trustee under a deed of trust is either to initiate foreclosure
at the lender's direction in the event of a breach, or to
reconvey the trust deed once the obligation has been satisfied
in full. The trustee initiates the foreclosure process by
preparing, executing, and recording the Notice of Default. For
the next three months, there is a redemption period in which the
borrower may attempt to cure the default. If the borrower were
unsuccessful, a Notice of Sale would be recorded and the process
would culminate in a trustee's sale where the property would be
sold to the highest bidder.
The auctioneer conducts this sale as instructed by the trustee
and reports the results back to the trustee. The trustee
notifies the beneficiary and prepares the Trustee's Deed, which
vests title inthe name of the successful bidder. If there are
no bids for the property that exceed the opening bid, the
property reverts to the beneficiary (in this case, the bank or
lender) who then takes title to the property under the Trustee's
SB 983
Page 5
Deed. Because there is no statutory right of redemption
following a non-judicial foreclosure under California law, the
property at this point becomes officially "bank-owned."
Existing law specifies statutory base fee amounts and the method
for calculating the total amount of those fees. Existing law,
specifically Civil Code Sections 2924c and 2924d, specifies the
maximum allowable fees that a trustee may receive in
compensation for executing his or her duties in the nonjudicial
foreclosure process. According to the author, the law permits
trustees to charge a base fee based upon the unpaid principal
balance of the loan, which declines as the unpaid principal
amount of the loan increases. The trustee may also charge a
percentage of the unpaid principal balance, which again declines
as the unpaid principal balance increases. Different fees are
established based upon the stage of the foreclosure: one set
covers foreclosures after the recording of notices of default
but prior to notices of sale; a second set applies after notices
of sale but prior to trustee's sales; a third set applies upon
trustee's sales. This fee differentiation is intended to
compensate for additional work performed by trustees as the
foreclosure moves forward. It is important to note that these
fees are not cumulative: each set of fees goes away and the new
fees apply as the foreclosure process unfolds.
Under current law, allowable trustee fees are capped at various
stages of the foreclosure process. For foreclosure proceedings
that are resolved at the Notice of Default stage, a trustee may
charge no more than $300 if the unpaid principal sum secured is
$150,000 or less. If the unpaid principal sum secured exceeds
$150,000, a trustee may charge $250 plus one-half of 1 percent
of the unpaid principal sum secured between $50,000 and
$150,000, plus one-quarter of 1 percent of the unpaid principal
sum secured between $150,000 and $500,000, plus one-eighth of 1
percent of the unpaid principal sum secured in excess of
$500,000. For foreclosure proceedings that are resolved at or
after the Notice of Sale stage, a trustee may charge no more
than $425 if the unpaid principal sum secured is $150,000 or
less. If the unpaid principal sum secured exceeds $150,000, a
SB 983
Page 6
trustee may charge $360 plus 1 percent of the unpaid principal
sum secured between $50,000 and $150,000, plus one-half of 1
percent of the unpaid principal sum secured between $150,000 and
$500,000, plus one-quarter of 1 percent of the unpaid principal
sum secured in excess of $500,000.
This bill provides for a modest increase in the allowable base
fees trustees may charge for executing the nonjudicial
foreclosure process. This bill would increase each of the four
base fee amounts, described above, by $50 (i.e. $300 to $350,
$250 to $300, $425 to $475, and $360 to $410.) The author notes
that these amounts represent the maximum permissible base fee
amounts-trustees may impose fees that are less than these
maximum amounts if they choose.
The current trustee rate structure became effective January 1,
2002, as enacted by SB 958 (Ackerman), Ch. 438, Stats. 2001, and
has not been increased in the 14 years since then. Committee
staff notes that the cost of living, according to the California
CPI, has increased by approximately 34 percent since 2002, the
last year the trustee fees were adjusted. By contrast, the $50
fee increase proposed by this bill is substantially lower than
the amount that would be allowed if the increase were based
strictly on the California CPI. For example, this bill raises
the $425 base fee to $475, an increase of 11.7%. If the $425
base fee were increased based on CPI alone (i.e. at a 34% rate),
then the fee amount would be increased by $145.17 (instead of
$50), to a total of $570.17 (instead of the proposed $475).
Staff also notes that while a consumer who seeks to redeem a
property through non-judicial foreclosure would have to pay the
trustee the increased base rate as part of the redemption
process. However, the $50 increase almost assuredly will not
comprise a significant part of the redemption price. For all of
these reasons, the fee increases proposed under this bill seem
to represent a modest and reasonable adjustment in the fees that
trustees are authorized to charge for their duties in this
process.
SB 983
Page 7
REGISTERED SUPPORT / OPPOSITION:
Support
United Trustees Association
Opposition
None on file
Analysis Prepared by:Anthony Lew / JUD. / (916)
319-2334