BILL ANALYSIS
AB 331
Page 1
Date of Hearing: May 12, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 331 (Hall) - As Amended: May 4, 2009
SUBJECT : Hiring of Real Property
KEY ISSUE : Should a landlord who rents out a single-family
dwelling be required to disclose to a prospective tenant any
lien and encumbrances on that property?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This bill, which is sponsored by the California Apartment
Association, is one of many recent measures that have attempted
to address the impact of the foreclosure crisis on tenants.
Specifically, this bill would require a landlord who rents a
single-family dwelling to disclose to any prospective tenant the
existence of any liens or other encumbrances on the property,
including any outstanding notices of default or any pending
suits of foreclosure. The bill also provides that if a tenancy
terminates as a result of the landlord's failure to disclose as
required, then the tenant may recover from the landlord twice
the actual damages or twice the monthly rent, whichever is
higher, and any pre-paid rent. The bill would not apply to
premises managed by a court appointed receiver. The bill
applies only to single-family dwellings; apartment properties
are exempt. According to the California Apartment Association,
the rationale for applying this bill only to single-family
dwelling, not apartment owners, is that the foreclosure-sale
purchasers of apartment buildings and other multi-family
dwellings are less likely to terminate tenancies. There is no
registered opposition to the bill.
SUMMARY : Requires a landlord, at the time of executing a rental
agreement for a single-family dwelling, to disclose to a
prospective tenant if the property is subject to any outstanding
liens or pending suits. Specifically, this bill :
1)Provides that, if at the time of execution of a rental
agreement of a single family dwelling, the premises are
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subject to any of the circumstances listed below, and the
landlord has received written notice regarding the existence
of any of those circumstances, then the landlord shall
disclose those facts to the tenant in writing before the
execution of the agreement:
a) Any outstanding notice of default under a trust deed,
mortgage, contract of sale, or notice of trustee's sale
under a trust deed.
b) Any pending suit to foreclose a mortgage, trust deed, or
vendor's lien under a contract of sale.
c) Any pending declaration of forfeiture or suit for
specific performance of a contract of sale.
d) Any pending proceeding to foreclose a tax lien.
1)Provides that if the tenancy terminates as a result of a
circumstance that the landlord failed to disclose as required,
then the tenant may recover from the landlord twice the actual
damages or twice the monthly rent, whichever is greater, and
all pre-paid rent, in addition to any other remedy at law.
2)Specifies that this bill does not apply to premises managed by
a court appointed receiver.
EXISTING LAW provides, generally, that a landlord must provide
various notices to a tenant relating to any physical defects or
hidden dangers in the property, but is silent on required
disclosure of legal defects. (Civil Code Section 1940 et seq.)
COMMENTS : This bill would give a tenant, who is seeking to rent
a single-family dwelling, timely information about any liens or
pending suits against the property, including any that may
result in a foreclosure. In particular, the author and sponsor
(the California Apartment Association) are concerned about
tenants who rent a home and then, shortly thereafter, learn that
the tenancy will be terminated because the home is being
foreclosed upon. Supporters claim that in light of the ongoing
foreclosure crisis, this is happening with greater frequency,
subjecting tenants to the hardships of eviction and displacement
through no fault of their own. If a tenant had known this
information at the time of executing the agreement, he or she
could have weighed the risks and possibly taken other options.
Specifically, if a landlord has received written notice that the
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property is subject to a lien or other encumbrance, then this
bill would require the landlord to disclose this fact to the
tenant in writing. If the landlord fails to disclose this
information, and the tenancy were to terminate because of a lien
or encumbrance known to the landlord, then the tenant would be
entitled to recover twice the actual damages or twice the
monthly rent, whichever is greater, plus any pre-paid rent. The
bill would not, however, apply to any premises under the
management of a court appointed receiver.
ARGUMENTS IN SUPPORT : According to the sponsor, the California
Apartment Association (CAA), this is a "fair and reasonable"
measure that will help potential tenants "make an informed
decision about whether to rent the property." CAA claims that,
as a result of the foreclosure crisis, some tenants have entered
into rental agreements "only to discover shortly thereafter that
the house may soon be foreclosed upon. The owners of these
properties," CAA claims, "provided no warning about the pending
foreclosure." The San Francisco Assessor-Recorders Office, the
Consumer Attorneys of California, and the Non-Profit Housing
Association of Northern California support this measure for
substantially similar reasons.
Why Does the Bill Apply Only to Single-Family Dwellings? This
bill would not protect tenants in an apartment complex, or other
multi-family dwelling, who also could, conceivably, be displaced
as a result of a foreclosure or the exercise of any other
outstanding right against the property. According to the
sponsor, this focused approach is sensible because the
subsequent owners of single-family dwellings are much more
likely to terminate the tenancy, while subsequent owners of
multi-dwelling units are more likely to want to keep the
existing tenants. It may indeed be the case that the purchaser
of an apartment complex may, more often than not, want to keep
the tenants in place, although it may not be clear whether
tenants in apartments have any less interest in knowing that the
apartment building is subject to liens or encumbrances, which
may result in foreclosure and a change of ownership. If it is
appropriate to exclude larger apartment complexes, for the
reasons the sponsor cites, the author may wish to consider
whether the purchasers of smaller multi-unit properties such as
duplexes, triplexes, or four-unit properties may be more like
the purchasers of single-family properties such that it may be
less persuasive that they also be exempt. Indeed, the Oregon
statute upon which this statute is based requires landlords with
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properties of four or fewer units to disclose liens and
encumbrances to the prospective tenants prior to execution of
the rental agreement. (Ore. Rev. Stats. Section 90.310.)
Pending and Recent Legislation : SB 120 (Lowenthal, current
session) provides various provisions to protect tenants who may
be subject to displacement as a result of foreclosure. It is
substantially similar to last year's AB 2586 (see below). This
bill passed out of the Senate and now awaiting Committee
referral in the Assembly.
AB 603 (Price) scheduled to be heard by this Committee today, is
a complementary measure that prohibits until January 1, 2013, an
owner a residential rental unit, who acquires property as a
result of a foreclosure, from terminating any tenancy within one
year, unless the owner in good faith intends to reside in the
unit or for other specified reasons. As with the other measures
noted here, AB 603 concerns obligations on the part of landlords
and rights on the part of tenants on the "back end" of
foreclosure - i.e., only after the fact of foreclosure, rather
than the approach taken by AB 331 which requires a landlord to
disclose the possibility that the property could be foreclosed
on the "front end" - i.e., before the tenant enters into the
lease.
AB 2568 (Torrico, 2008) would have provided various protections
for renters who are displaced as a result of foreclosure,
generally requiring the successor in interest (often a bank) to
assume some of the obligations of the former landlord, including
returning a tenant's security deposit. This bill was vetoed by
the Governor.
SB 1137 (Perata) provides, among other things, protections for
persons displaced by foreclosure, including requiring a bank to
send notice to residents (tenants or owners) of a property
subject to foreclosure and extending the time for notice of
termination of a tenancy from 30 days to 60 days for tenants of
a foreclosed upon property. (Chapter 69, Stats. of 2008.)
REGISTERED SUPPORT / OPPOSITION :
Support
California Apartment Association (sponsor)
Consumer Attorneys of California
AB 331
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Non-Profit Housing Association of Northern California
Opposition
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334