BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 2347 (Feuer) Hearing Date: June 16, 2010
As Amended: May 28, 2010
Fiscal: No
Urgency: No
VOTES: Asm. Floor(06/01/10)50-25/Pass
Asm. B. & P. (05/03/10)08-01/Pass
Asm. Appr. (04/27/10)07-02/Pass
SUMMARY Would authorize local entities to postpone nonjudicial
foreclosures for up to 60 days, on certain multifamily
properties in which they hold ownership interests.
DIGEST
Existing law
1. Prescribes rules that govern the nonjudicial foreclosure
process in California (Civil Code Section 2924 et seq.). A
layman's description of the portions of the process that are
relevant to this bill follows immediately below.
a. The nonjudicial foreclosure process begins with the
recordation of a notice of default (NOD) by a mortgagee,
trustee, beneficiary, or authorized agent. The NOD must be
recorded in the county in which the property securing the
defaulted loan is located, and must be mailed to specified
persons with a financial interest in the property, including
the property owner. Existing law does not prescribe the
minimum amount of time that must pass between a delinquency
and the recordation of a NOD, although NODs are commonly
recorded only after a borrower is at least 90 days delinquent
on his or her mortgage loan;
b. At least three months must pass after recordation of a
NOD, before the mortgagee, trustee, beneficiary, or
authorized agent may record a notice of sale. Notices of
sale must be recorded in the county in which the property
securing the defaulted loan is located, mailed to the
AB 2347 (Feuer), Page 2
property owner and other specified persons with a financial
interest in the property, published in a newspaper of general
circulation, and posted on the property that is the subject
of the sale;
c. At least 20 days must pass after recordation of a notice
of sale, before a property may be sold. However, sale dates
may be, and often are, postponed. Under existing law, a sale
date may be postponed for any of the following reasons: 1)
upon the order of any court of competent jurisdiction; 2) if
stayed by operation of law; 3) by mutual agreement, whether
oral or in writing, of any trustor and any beneficiary or any
mortgagor and any mortgagee (i.e., by mutual agreement
between a borrower and his or her lender); and/or 4) at the
discretion of the trustee. A new notice of sale must be
recorded, if a postponement or postponements delay the sale
for more than 365 days following the first scheduled sale
date.
This bill
1. Would change the nonjudicial foreclosure process for
properties that contain five or more multifamily units, when
a public entity is a party to a regulatory agreement or a
recorded deed restriction on the property, as follows:
a. The public entity could postpone the trustee sale
date by up to 60 days, through written notice to the
trustee, as specified;
b. Power to postpone a trustee sale could be exercised
only once;
c. Power to postpone a trustee sale could be exercised
by only a single public entity, if two or more public
entities were parties to regulatory agreements or
recorded deed restrictions on the same property;
2. Would define a public entity, for purposes of the bill, as
a city, county, city and county, redevelopment agency, or
any political subdivision of one of these entities;
3. Would define a "recorded deed restriction," for purposes of
the bill, as a deed recorded as an encumbrance against title
to the property, which restricts all or a portion of the
property's usage to rental to lower income households, and
AB 2347 (Feuer), Page 3
identifies the number of units restricted for this use;
4. Would define a "regulatory agreement," for purposes of the
bill, as a recorded agreement with a public entity that has
provided financing for the acquisition, rehabilitation,
construction, development, or operation of a low-income
housing property, and which specifies the number of units
restricted for this use.
COMMENTS
1. Purpose of the bill To help local entities protect their
investments in affordable rental housing that is threatened
by foreclosure, by giving these local entities up to 60
extra days in which to decide whether to protect their
property interests.
2. Background In some jurisdictions, public agencies
(typically city or county housing departments) provide
financial assistance in connection with multi-family
properties, to ensure that a portion of these properties is
set aside as rental housing for lower-income tenants.
Public agencies seldom hold the senior mortgage or deed of
trust; instead, they subordinate their property interests,
and hold junior liens.
When a multifamily property enters the foreclosure process
through recordation of a NOD, the courts typically appoint a
receiver to evaluate and report on the property's
operations, financial condition, and physical condition.
These reports usually take at least 60 days to prepare, and
are used by public entities that hold subordinated liens, to
help these entities fully evaluate the often complex
financial details of a housing development. With the
information in the receiver's report, the public entity can
weigh the costs and benefits of stepping in to preserve the
affordable housing units against the costs and benefits of
relinquishing its ownership interests following a
foreclosure sale.
When this bill was first introduced, much of the debate
surrounding the bill centered around these receivers'
reports, the amount of time they took to prepare, and the
amount of time that local governments needed to evaluate the
information they contained. Many understood the goal of the
bill as giving public entities enough time to receive and
AB 2347 (Feuer), Page 4
evaluate these reports, before a foreclosure sale could
occur.
However, as debate on this bill has evolved, it has become
apparent that the time involved in preparing and analyzing
these reports is only part of the reason local governments
are seeking to add an extra 60 days to the foreclosure
timeline. The other reason relates to these governments'
limited fiscal resources.
Most local governments lack sufficient staff to evaluate whether
to act, and how to act, on every delinquent property in
which they hold an ownership interest with a low-income
housing deed restriction. If a delinquent borrower is going
to be able to cure his or her default or work out a
forbearance arrangement or loan modification with the senior
lienholder, the local government can avoid expending staff
resources on evaluating what action(s) to take and
assembling the financial resources necessary to follow
through on its action plan. Because of these staff and
resource limitations, most local entities will only focus on
a property, if it appears very likely that the property will
be sold at a foreclosure sale.
The proponents of this bill view the recordation of a notice of
sale as the sign that a foreclosure sale will occur. For
that reason, they are proposing to authorize local entities
to postpone sales for up to 60 days, after a notice of sale
is recorded. These extra two months are intended to allow
the local governments time in which to evaluate what
action(s) to take and calculate how much they are willing to
spend, and to seek approval from their governing bodies to
implement their action plan.
The opponents of this measure are concerned about adding an
extra 60 days to a foreclosure timeline that has already
become extremely long. Although a foreclosure sale may
legally be conducted three months and 21 days after the
recordation of a NOD, the average length of time between NOD
and trustee sale has been hovering at about 230 days during
2010. The opponents are sympathetic to local governments'
desire for time to protect affordable housing, but would
like to see that time be folded into the existing, lengthy
foreclosure timeline, rather than added on top of it.
3. Support . The Office of Los Angeles Mayor Antonio
AB 2347 (Feuer), Page 5
Villaraigosa is sponsoring this bill, in response to its
experiences with multifamily housing delinquencies. During
the last three years, 22 separate loans for multifamily
developments in the City of Los Angeles' portfolio were
threatened with foreclosure. Those developments included
286 low-income housing units. According to the author's
office, local legislative bodies must meet, in order to
review and approve the plan of action recommended by their
housing agency. Because local housing agencies are
responsible for prudently managing limited public finances,
and are constrained by limited human resources, they
typically do not begin to act upon a receiver's report in
detail, or begin to seek council or board approval to
acquire a property, until a notice of sale is issued for a
property. Because a sale date can occur as early as 21 days
after a notice of sale is recorded, local agencies can
encounter trouble getting their plans of action approved by
their governing bodies before a foreclosure sale occurs.
The Western Center on Law and Poverty and California Rural Legal
Assistance Foundation explain that, when the holder of the
first lien forecloses, all subordinate interests are wiped
out. Thus, public dollars that were used for the public
purpose of providing affordable rental housing assistance
are lost, and the low-income tenants are displaced. In a
few situations, lenders that hold senior liens have been
willing to work with public agencies that hold subordinate
liens, to delay the foreclosure sale, while the public
agency determines the most prudent course of action (which,
in some cases, may be to pay off the senior lienholder and
acquire the property). However, in other cases, lenders
move rapidly to foreclose, and affordable rental housing is
lost. Both the Western Center on Law and Poverty and the
California Rural Legal Assistance Foundation believe that AB
2347 will create a simple, but important mechanism to
preserve public investments and affordable housing. With
the extra 60 days this bill would authorize, a public entity
will have the time to determine whether to step in and
preserve the affordable housing units. If the public entity
decides that it wishes to take action, the extra 60 days
will give that entity the time it needs to bring its
proposal to the local legislative body for approval.
The League of California Cities notes that cities face many
challenges in meeting affordable housing goals under the
Regional Housing Needs Assessment process, and that funding
AB 2347 (Feuer), Page 6
for affordable housing is limited. The League believes that
AB 2347 will serve as a tool to keep foreclosed housing
units affordable.
4. Opposition A coalition of financial institutions,
including the California Bankers Association, California
Financial Services Association, California Independent
Bankers, and California Mortgage Bankers Association, is
opposed to the bill, unless it is amended. The coalition
notes that it has opposed previous measures to extend the
statutory foreclosure timeline, but understands the
importance of preserving local funds used to finance
affordable housing units and the desire to ensure that those
units are not depleted, as the result of a foreclosure sale.
Industry's preferred amendments would give local governments the
ability to request an additional sixty days between the NOD
and the notice of sale, over and above the statutory minimum
of three months, but would not authorize a 60-day
postponement, if at least three months plus sixty days had
already passed, between the NOD and the notice of sale.
Industry's proposed amendments would also require local
governments to give the mortgagee, beneficiary, trustee, or
authorized agent notice about the possibility of a
postponement, within three months following the recordation
of a NOD. Finally, industry proposes a sunset date of
January 1, 2013, which aligns with the sunset dates included
in other enacted foreclosure-related legislation.
The California Land Title Association (CLTA) believes that the
60-day delay authorized by the bill will have a chilling
effect on the availability of multi-family housing in
California. Persons will be wary of investing in
multifamily housing, if such an investment has a higher risk
associated with it. An investor purchasing one of these
multi-family properties may suffer unintended monetary
losses, because they did not anticipate the additional
60-day delay. CLTA observes that, if receivers are slow to
produce their reports, then that process needs to be
improved at the local level or addressed through additional
obligations placed on receivers. "If the goal is to
increase available affordable housing of this kind, does it
make sense to increase the risk associated with such an
investment? Shouldn't the legislation target requiring
receivers to provide more timely notice to local agencies?"
AB 2347 (Feuer), Page 7
5. Questions
a. Will allowing local entities to add 60 days to
the foreclosure process, after a notice of sale is
recorded, have the unintended effect of encouraging
lenders to file notices of sale earlier than they
otherwise would have?
b. Should the Legislature set a precedent, by
allowing an entity other than the foreclosing
beneficiary, the trustee, or a court to postpone a
nonjudicial foreclosure sale?
c. Should a local entity that requests a
postponement pursuant to the authority provided by
this bill have to do anything, as a condition of
extending the foreclosure process by an extra 60 days?
Will requiring some sort of affirmative action by
local governments who request a postponement minimize
the possibility that local governments will
automatically request postponements, just because they
can?
6. Suggested Amendments
a. Bankruptcy filings are common among property
owners who are facing an imminent foreclosure sale.
This bill is silent on how its time periods interact
with a bankruptcy filing. Amendments are suggested to
clarify this interaction in a way that does not
further lengthen the nonjudicial foreclosure process;
b. Nearly all of the foreclosure-related bills
enacted by the Legislature since 2008 have contained
sunset dates, because they are temporary fixes, which
will no longer be needed once California's housing
market recovers. A sunset date of January 1, 2013 is
suggested for this measure, consistent with other
recently-enacted, foreclosure-related legislation;
c. As noted above, the primary outstanding
disagreement between the author/sponsor and the
opponents of this bill relates to when in the
foreclosure process a local entity may exercise its
postponement authority, and how long that postponement
AB 2347 (Feuer), Page 8
may push out a foreclosure.
The opposition has previously suggested the concept of a
150-day "wall." Under this concept, any delay in the
foreclosure process that occurs based on a public
entity's exercise of the authority granted by the bill
would expire once 150 days elapses from filing the
NOD. Local entities could use their authority to
postpone a foreclosure, but could not postpone the
filing of a notice of sale beyond 150 days from the
NOD. Although the specifics of this proposal were
rejected by the sponsor as providing them with too
little time in which to develop a plan of action, the
concept of a time-specific "wall" was not out-and-out
rejected.
This concept has an advantage over the post-notice of
sale postponement proposal currently contained in the
bill, because it does not incentivize beneficiaries to
accelerate the filing of a notice of sale. The
current wording of the bill does incentivize that
action.
In an effort to find a compromise that is acceptable to
all parties, staff suggests a 180-day wall, which
builds off the concept suggested by the opponents, but
gives local governments more time in which to develop
a plan of action, and does so without incentivizing
beneficiaries to file a notice of sale, as soon as
they are legally able to do so. If this compromise is
acceptable, staff further recommends that the language
on page 6, lines 27 through 35 be deleted, as it will
no longer be necessary. Page 6, line 19, should also
be amended to clarify that written notice to a trustee
must be made through certified or registered mail,
guaranteed or overnight delivery service, or personal
delivery.
POSITIONS
Support
Office of Mayor Antonio Villaraigosa (sponsor)
Western Center on Law and Poverty
California Rural Legal Assistance Foundation
League of California Cities
AB 2347 (Feuer), Page 9
Oppose
California Land Title Association
First American Corporation
California Bankers Association
California Financial Services Association
California Independent Bankers
California Mortgage Bankers Association
Consultant: Eileen Newhall (916) 651-4102