BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 2347|
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THIRD READING
Bill No: AB 2347
Author: Feuer (D)
Amended: 8/2/10 in Senate
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 7-0, 6/16/10
AYES: Calderon, Florez, Kehoe, Liu, Lowenthal, Padilla,
Price
NO VOTE RECORDED: Cogdill, Correa, Cox, Runner
SENATE JUDICIARY COMMITTEE : 3-1, 6/29/10
AYES: Corbett, Hancock, Leno
NOES: Harman
NO VOTE RECORDED: Walters
ASSEMBLY FLOOR : 50-25, 6/1/10 - See last page for vote
SUBJECT : Mortgage defaults: secondary public financing
SOURCE : City of Los Angeles
DIGEST : This bill permits a public entity to postpone a
foreclosure by up to 60 days if the property at issue
contains five or more multifamily units and the public
entity is a party to a regulatory agreement or a recorded
deed restriction for the property, as specified.
ANALYSIS :
Existing law
CONTINUED
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1. Regulates the nonjudicial foreclosure of properties
pursuant to the power of sale contained within a
mortgage contract. To commence the process, existing
law requires the trustee, mortgagee, or beneficiary to
record an NOD and allow three months to lapse before
setting a date for sale of the property.
2. Requires a notice of nonjudicial foreclosure sale to be
officially noticed in a newspaper of general
circulation, posted on the property, and recorded at
least 20 days before the sale date.
This bill:
1. Provides that if a property contains five or more
multifamily units and a public entity is a party to a
regulatory agreement or a recorded deed restriction on
the property, a public entity may, by written notice to
the trustee, postpone the sale date by no more than 60
days.
2. States that such written notice must be provided to the
trustee at least 72 hours prior to the scheduled sale
date, through certified or registered mail, guaranteed
or overnight delivery service, or personal delivery.
That written notice shall contain a certification from
the public entity that it has the authority to postpone
the sale date pursuant to the above authority, and the
trustee may rely upon that representation.
3. Provides that if multiple public entities are parties to
a regulatory agreement or a recorded deed restriction on
a property, only one entity may postpone the sale, and
state that the power to postpone the sale may be
exercised only once.
4. Limits the above postponing of the sale date as follows:
A. A public entity may not exercise the above authority if
more than 180 days have elapsed since filing the notice
of default.
B. Any period of postponement, which occurs based on a
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public entity's exercise of their authority expires
after 180 days have elapsed since the filing of the
notice of default.
5. Clarifies that the above limitations shall not be deemed
to require a mortgagee, beneficiary, trustee, or
authorized agent to file a notice of sale, once more
than 180 days has elapsed since filing of the notice of
default, and, that the filing of a bankruptcy case shall
not act to toll the above 180 day limitation.
6. Define "public entity," "recorded deed restriction," and
"regulatory agreement."
7. Sunsets the above provisions on January 1, 2013.
Background
California is currently in the grip of a severe housing
downturn, which has been driven by historically high rates
of mortgage defaults and foreclosures. In the past three
years, over 1.2 million California homeowners have received
notices of default from their lenders. Over half a million
California homes have been foreclosed upon. Housing values
across the state have plummeted, and areas hardest hit by
foreclosure have become blighted with vacant, uncared for
homes.
Foreclosures in California are generally non-judicial,
meaning that they are accomplished without court
involvement. In order to initiate a nonjudicial
foreclosure, the foreclosing entity must first file a
Notice of Default (NOD). Although there is no requirement
regarding the timing of an NOD, most beneficiaries usually
wait at least three months following a borrower's
delinquency before moving forward to record an NOD. State
law requires the foreclosing entity to wait at least three
months after filing an NOD, before it may move forward with
a Notice of Sale. The law requires a notice of nonjudicial
foreclosure sale to be officially noticed in a newspaper of
general circulation, posted on the property, and recorded
at least 20 days before the date of sale.
While much of the attention has been on single-family homes
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that have been lost to foreclosure, multifamily properties
also may be at risk due to the economic downturn. When
those properties enter into the foreclosure process, the
courts typically appoint a receiver to evaluate and report
on various aspects of the property. Those reports
typically take at least 60 days to prepare. If a public
agency holds an interest in the property as a result of
providing prior financial assistance to ensure that a
portion of the property is set-aside as low income, that
agency may then evaluate that report to determine whether
or not to step in and preserve the affordable housing
units. Due to staff and resource limitations, those public
agencies may only focus on a property (and associated
report) after the Notice of Sale has been file as that
action demonstrates that the sale of the property may be
imminent and that efforts to avoid a foreclosure were
likely unsuccessful.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/2/10)
City of Los Angeles (source)
California Rural Legal Assistance Foundation
League of California Cities
Western Center on Law & Poverty
ARGUMENTS IN SUPPORT : According to the author's office,
Public agencies, typically city or county housing
departments, provide financial assistance to multifamily
properties. Deeds of trust and/or regulatory agreements
secure the loans and ensure that the properties remain
affordable to eligible families. The affordability
agreements are usually subordinated to private lenders. If
the owner defaults on the private loan and a foreclosure
ensures, the public agency's investment and affordability
conditions are wiped out.
In a multifamily foreclosure, a receiver is typically
appointed to evaluate and report on the property's
operations and financial condition. A public agency with
subordinated interest in the property uses the receiver's
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report to conduct an economic analysis. The analysis is
the basis for a locality's action plan for the property.
Typically the local legislative body must meet in order to
review and approve the plan of action. 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
the receiver's report in detail and, if warranted, begin to
seek legislative (council or board) approval for acquiring
the property until a Notice of Sale is issued for the
property.
The foreclosure process requires that a foreclosed
multi-family property be sold at a public auction.
Unfortunately, the amount of time between the Notice of
Sale being issued and the sale of the distressed property
(such a sale can happen as soon as 21 days after the Notice
of Sale) can make it very challenging for the agency to get
a plan of action approved by their governing body. The
bottom line is that this bill provides public entities a
necessary tool to preserve affordable housing units, while
protecting precious taxpayer dollars.
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Bass, Beall, Block, Blumenfield,
Bradford, Brownley, Buchanan, Caballero, Charles
Calderon, Carter, Chesbro, Coto, Davis, De La Torre, De
Leon, Eng, Evans, Feuer, Fong, Fuentes, Furutani,
Galgiani, Hall, Hayashi, Hernandez, Hill, Huber, Huffman,
Jones, Lieu, Bonnie Lowenthal, Ma, Mendoza, Monning,
Nava, V. Manuel Perez, Portantino, Ruskin, Salas,
Saldana, Skinner, Solorio, Swanson, Torlakson, Torres,
Torrico, Yamada, John A. Perez
NOES: Adams, Anderson, Bill Berryhill, Blakeslee, Conway,
Cook, DeVore, Emmerson, Fletcher, Fuller, Gaines,
Garrick, Gilmore, Hagman, Harkey, Jeffries, Logue,
Miller, Nestande, Niello, Nielsen, Norby, Silva, Smyth,
Villines
NO VOTE RECORDED: Tom Berryhill, Knight, Audra Strickland,
Tran, Vacancy
JJA:do 8/2/10 Senate Floor Analyses
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SUPPORT/OPPOSITION: SEE ABOVE
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