BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 109
Senator Calderon
As Amended April 13, 2009
Hearing Date: April 21, 2009
Civil Code
BCP:jd
SUBJECT
Auctioneers: Real Estate
DESCRIPTION
Existing law regulates the activities of auctioneers and auction
companies, but exempts sales of real estate from those
provisions. This bill would remove that exemption with respect
to certain sales of real property, thereby bringing specified
real property auctions within those restrictions, and require
the posting or distribution of all fees that will be levied as a
condition of bidding.
This bill would additionally require every auction company and
auctioneer, with respect to auctions of real property, to:
if one or more properties will be auctioned with reserve, post
or distribute a clear explanation of the terms "auctioned with
reserve," "sale subject to seller confirmation, approval, or
acceptance," and the procedures and timelines to be used in
connection with sales subject to those requirements; and
after an auction sale of real property, return of all deposits
and fees collected if the offer is rejected, or the seller
fails to respond, as specified.
(This analysis reflects author's amendments to be offered in
Committee.)
BACKGROUND
In California, the nonjudicial foreclosure process begins with
the filing of a Notice of Default and concludes with a trustee's
sale where the property is sold to the highest bidder. If
(more)
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there are no bids over and above the opening bid, the property
reverts back to the lender or servicer who placed that opening
bid (thus, becoming a bank owned property). Those lenders are
then left with an abundance of properties that may then be sold
or auctioned off at a later date. Although trustee's sales are
governed by provisions in the Civil Code regarding non-judicial
foreclosures, the subsequent (potentially large) auctions of
bank-owned homes are unregulated due to an exemption under the
auction and auctioneer's law.
Regarding the number of homes that may be placed at auction in
the near future, the San Francisco Chronicle's April 8, 2009
article, Banks aren't reselling many foreclosed homes, reported:
Lenders nationwide are sitting on hundreds of thousands of
foreclosed homes that they have not resold or listed for
sale, according to numerous data sources. And foreclosures,
which banks unload at fire-sale prices, are a major factor
driving home values down.
"We believe there are in the neighborhood of 600,000
properties nationwide that banks have repossessed but not
put on the market," said Rick Sharga, vice president of
RealtyTrac, which compiles nationwide statistics on
foreclosures. "California probably represents 80,000 of
those homes. It could be disastrous if the banks suddenly
flooded the market with those distressed properties. You'd
have further depreciation and carnage."
In response to the present lack of regulation over the large
auctions of bank-owned properties, this bill would: (1) include
specified auctions of real estate within the auction law; (2)
revise the restrictions imposed by that law; and (3) require
that the audience receive a clear explanation of certain terms.
This bill was approved by the Senate Committee on Business,
Professions, and Economic Development on April 13, 2009, and
referred to this committee for review of the provisions.
CHANGES TO EXISTING LAW
Existing law requires every auctioneer and auction company to
maintain a $20,000 surety bond, as specified, and to file a copy
of the bond with the Secretary of State. The bond must be in
favor of, and payable to, the people of the State of California
and shall be for the benefit of any person or persons damaged by
any fraud, dishonesty, misstatement, misrepresentation, deceit,
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unlawful acts of omissions, or failure to provide the services
of the auctioneer or auction company in performance of the
auction by the auctioneer or auction company or its agents,
representatives, or employees while acting within the scope of
their employment. Existing law permits a deposit to be made in
lieu of a bond, as specified. (Civ. Code Sec. 1812.600(a).)
Existing law provides that if an auctioneer or auction company
fails to perform any of the duties imposed under Title 2.96
(Auctioneer and Auction Companies), any person may maintain an
action for enforcement of those duties or to recover a civil
penalty in the amount of $1,000, or both, for enforcement and
recovery, and allows a prevailing plaintiff to recover
reasonable attorney's fees and costs. (Civ. Code Sec.
1812.600(l),(m).)
Existing law requires every auction company and auctioneer to,
among other things: disclose their name, telephone number, and
bond number in all advertising; post a specified sign at the
main entrance to each auction; post or distribute the terms,
conditions, restrictions, and procedures whereby goods will be
sold at the auction; disclose the existence and amount of any
liens or encumbrances; and return the blank check or deposit of
each buyer who purchased no goods at the sale. Existing law
imposes specified fines for violation of the above provisions.
(Civ. Code Sec. 1812.607.)
Existing law exempts the following from the definition of
auction: (a) wholesale motor vehicle auction; and (2) a sale of
real estate or a sale of real estate with personal property or
fixtures or both in a unified sale in accordance with Section
9604 of the Commercial Code. (Civ. Code Sec. 1812.601(b).)
This bill would, by revising that exemption, apply the above
auction requirements to sales of real property that are not
pursuant to a nonjudicial foreclosure or unified sale, as
specified. Accordingly, sales pursuant to nonjudicial
foreclosure (trustee sales) would continue to be governed by
Civil Code provisions on nonjudicial foreclosure.
This bill would additionally revise the above requirements on
auction companies and auctioneers by:
requiring the posting or distribution of terms and conditions
to include a description of all fees, both refundable and
nonrefundable, that will be levied as a condition of bidding;
require announcement of any changes to fees prior to the
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beginning of the auction sale;
requiring, for auctions of real property, the posting or
distribution of a clear explanation of the terms "auctioned
with reserve" and "sale subject to seller confirmation,
approval, or acceptance," and the procedures and timelines to
be used in connection with sales subject to those
requirements; and
requiring, after an auction sale of real property sold subject
to seller confirmation, approval, or acceptance, within two
working days after the high bidder's offer is made and the
seller fails to respond to the offer, return all deposits and
fees collected from the bidder in connection with the auction.
COMMENT
1. Stated need for the bill
According to the author:
California does have a law intended to establish rules for
auctioneers who auction other types of property, but sales
of real estate are explicitly exempted from existing law
requirements. As a result, there are no laws that protect
consumers who bid at these auctions. Frustrated bidders
have reported "winning" the auction on a property, only to
be informed after the auction that their bid did not meet
the bank's reserve, and that, for that reason, they may not
purchase the property for the amount of their winning bid.
Other bidders have reported having trouble obtaining refunds
of refundable deposits they placed with auction companies,
even after complying with the companies' rules for claiming
these refunds.
2. Application to auctions of real estate
Considering the significant number of properties in default or
foreclosure, and the deterioration of housing values throughout
California, many properties are likely to revert back to the
lender as a result of the lack of bidders at a trustee's sale
(the last step in the foreclosure process). While trustees'
sales are governed by provisions in the Civil Code, the
subsequent auction of bank-owned properties are unregulated.
This bill seeks to address the issue of the lack of regulation
over those real property auctions that have become a popular
method of disposing of those foreclosed homes.
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Specifically, this bill would remove the provision exempting
sales of real properties (aside from those pursuant to
nonjudicial foreclosure or unified sales) from the Civil Code
sections restricting the practices of auctioneers and auction
companies. As a result, those who auction off these foreclosed
properties will now have to comply with existing surety bond,
notification, and other requirements imposed upon auctioneers
and auction companies. Those requirements include posting or
distributing the terms, conditions, restrictions, and procedures
whereby goods will be sold at auction, and require the
announcement of any changes to those terms, conditions, and
procedures prior to the beginning of the auction sale. To
provide greater disclosure to potential bidders, this bill
would, among other things, add a description of all fees, both
refundable and nonrefundable, that will be levied as a condition
of bidding, to those posting, distribution, and announcement
requirements.
It should be noted that those individuals and companies will
also be liable for existing penalties under the auction law
(infractions for violation of specific requirements), and that
any person may bring a civil action to enforce their duties
under the auction law. That private right of action includes
reasonable attorney's fees and costs for the prevailing
plaintiff. Furthermore, the surety bond requirement provides
some security that injured consumers will be able to recover
some amount for their injuries as a result of misconduct in a
real estate auction.
3. Additional provisions with respect to auctions of real
property
In addition to applying the existing requirements to specified
auctions of real property, SB 109 would add two new requirements
that apply only to those auctions.
First, this bill would require (for auctions of one or more
properties with reserve), the posting or distribution of a clear
explanation of the terms "auctioned with reserve" and "sale
subject to seller confirmation, approval, or acceptance," and
the procedures and timelines to be used in connection with sales
subject to those requirements. (For reference, reserve commonly
refers to the unpublished minimum price that a seller is willing
to sell an item for.) That requirement is intended to ensure
that borrowers do understand those terms, and the procedures and
timelines that will be used in connection with sales that are
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subject to seller approval. As noted above, the author reports
that "[f]rustrated bidders have reported 'winning' the auction
on a property, only to be informed after the auction that their
bid did not meet the bank's reserve, and that, for that reason,
they may not purchase the property for the amount of their
winning bid."
Second, after an auction sale of real property sold subject to
seller confirmation, approval, or acceptance, this bill would
require the return of all deposits and fees collected from the
bidder in connection with the auction within either two working
days after the high bidder's offer is rejected, or 15 working
days after the high bidder's offer is made and the seller fails
to respond to the offer. Although statutes ordinarily refer to
either business or calendar days, the reference to "working"
days in this bill is consistent with other references within the
auction law to working days.
4. Author's amendments to be offered in Committee
The following author's amendment were suggested by the Senate
Committee on Business, Professions, and Economic Development but
are to be taken in this Committee due to procedural timing
requirements.
a) On page 6, line 35 after "confirmation," insert:
approval, or acceptance,
b) On page 6, line 35 after "two" insert:
working
Support : None Known
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : None Known
Prior Legislation : None Known
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Prior Vote :
Senate Business, Professions, and Economic Development
Committee (Ayes 7, Noes 2)
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