BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                     SB 983


                                                                    Page  1





          SENATE THIRD READING


          SB  
          983 (Morrell)


          As Amended  May 16, 2016


          Majority vote


          SENATE VOTE:  39-0


           ------------------------------------------------------------------ 
          |Committee       |Votes|Ayes                  |Noes                |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |----------------+-----+----------------------+--------------------|
          |Judiciary       |10-0 |Mark Stone, Wagner,   |                    |
          |                |     |Alejo, Chau, Chiu,    |                    |
          |                |     |Gallagher,            |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
          |                |     |Cristina Garcia,      |                    |
          |                |     |Holden, Maienschein,  |                    |
          |                |     |Ting                  |                    |
          |                |     |                      |                    |
          |                |     |                      |                    |
           ------------------------------------------------------------------ 


          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.   
          Specifically, this bill:   








                                                                     SB 983


                                                                    Page  2







          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.


          FISCAL EFFECT:  None.


          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  








                                                                     SB 983


                                                                    Page  3





               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  
               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  








                                                                     SB 983


                                                                    Page  4





          and reports the results back to the trustee.  The trustee  
          notifies the beneficiary and prepares the Trustee's Deed, which  
          vests title in the 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  
          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% of the  








                                                                     SB 983


                                                                    Page  5





          unpaid principal sum secured between $50,000 and $150,000, plus  
          one-quarter of 1% of the unpaid principal sum secured between  
          $150,000 and $500,000, plus one-eighth of 1% 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 trustee may charge  
          $360 plus 1% of the unpaid principal sum secured between $50,000  
          and $150,000, plus one-half of 1% of the unpaid principal sum  
          secured between $150,000 and $500,000, plus one-quarter of 1% 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), Chapter 438, Statutes of  
          2001, and has not been increased in the 14 years since then.   
          Committee staff notes that the cost of living, according to the  
          California consumer price index (CPI), has increased by  
          approximately 34% 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).  









                                                                     SB 983


                                                                    Page  6






          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.




          Analysis Prepared by:        Anthony Lew / JUD. / (916) 319-2334  
                                          FN: 0003503