BILL ANALYSIS
SB 306
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Date of Hearing: June 29, 2009
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Pedro Nava, Chair
SB 306 (Calderon) - As Amended: June 22, 2009
SENATE VOTE : 37-0
SUBJECT : Real Property Transactions.
SUMMARY : Enacts four separate provisions relating to real
property transactions. Specifically, this bill :
1)Enacts technical and clarifying changes to SB 1137 (Perata,
Corbett, Machado, Chapter 69, Statutes of 2008), which
required, among other things, that a lender or servicer
contact a borrower at least 30 days prior to filing a Notice
of Default (NOD) (the first step in the non-judicial
foreclosure process), and that tenants receive notice that
their rental property is in foreclosure.
2)Establishes a minimum time-period in which a payoff demand
statement must be valid and creates a short-pay demand
agreement.
3)Clarifies the coverage of the Escrow Agents' Fidelity
Corporation (EAFC).
4)Requires that the notice of sale of real property must be
posted 20 days prior to the date of the sale.
EXISTING LAW
1)Regulates the non-judicial foreclosure of properties pursuant
to the power of sale contained within a mortgage contract. To
commence the process, existing state law requires the trustee,
mortgagee, or beneficiary to record a NOD and allow three
months to lapse before setting a date for sale of the
property. [Civ. Code Secs. 2924, 2924f.]
2)Prohibits a mortgagee, trustee, or authorized agent from
filing a notice of default until 30 days after contact is
made, as specified. That notice of default must include a
declaration that the mortgagee, beneficiary, or authorized
agent has contacted the borrower, tried with due diligence to
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contact the borrower, or the borrower has surrendered the
property, as specified. [Civ. Code Sec. 2923.5 (a), (b).]
3)Allows a borrower to designate a United States Housing and
Urban Development-certified housing counseling agency,
attorney, or other advisor to discuss with the mortgagee,
beneficiary, or authorized agent, on the borrower's behalf,
options to avoid foreclosure. [Civ. Code Sec. 2923.5 (f).]
4)Provides that the above requirements relating to contact do
not apply in various circumstances, including where the
borrower has filed for bankruptcy and the proceedings have not
been finalized. Existing law further limits the contact
requirements to loans made between January 1, 2003 and
December 31, 2007 that are secured by residential real
property and are for owner-occupied residences, as defined.
[Civ. Code Sec. 2923.5 (h), (i).]
States that the Legislature finds and declares that any duty
servicers may have to maximize net present value under their
pooling and servicing agreements is owed to all parties in a
loan pool, not to any particular parties, and that a servicer
acts in the best interests of all parties if it agrees to or
implements a loan modification or workout if:
a) The loan is in default or default is reasonably
foreseeable; and (2) anticipated recovery under the loan
modification or workout plan exceeds anticipated recovery
through foreclosure on a net present value basis. [Civ.
Code Sec. 2923.6.]
5)Requires a trustee or authorized agent, upon posting a notice
of sale, to also post, and mail, a statutory notice informing
tenants that they are the resident of a property subject to a
foreclosure sale. [Civ. Code Sec. 2924.8.]
6)Provides rules by which an entitled person, as defined, may
request a payoff demand statement in connection with a
mortgage or deed of trust, and defines a payoff demand
statement as a written demand made by an entitled person or
authorized agent, setting forth the amounts required as of the
date of preparation by the beneficiary (generally, the
lender), to fully satisfy all obligations secured by the loan
that is the subject of the payoff demand statement. [Civ.
Code Sec. 2943.]
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7)Requires the following in connection with a payoff demand
statement:
a) The statement must include information reasonably
necessary to calculate the payoff amount on a per diem
basis for the period of time, not to exceed 30 days, during
which the per diem amount is not changed by the terms of
the note;
b) The beneficiary or his or her authorized agent must
prepare and deliver the payoff demand statement to the
entitled person within 21 days of receiving the demand for
it.
c) If the loan is subject to a recorded NOD or a filed
complaint commencing a judicial foreclosure, the
beneficiary is under no obligation to prepare and deliver a
payoff demand statement, unless the written demand for the
statement is received prior to the first publication of a
notice of sale, or the notice of the first date of sale
established by a court. [Civ. Code Sec. 2943.]
8)Defines an exchange facilitator (EF), and requires EFs doing
business in California to meet specified financial criteria
and comply with specified requirements related to their
custodianship of money and property involved in Section 1031
real property exchanges; and establishes specified
prohibitions which apply to EFs doing business in California.
[Fin. Code Sec. 51000 et seq.]
9)Establishes the EAFC to provide fidelity coverage to escrow
agents, as specified, and requires each person licensed under
the Escrow Law, who is engaged in the business of receiving
specified types of escrows within California, to participate
as a member in EAFC. [Fin. Code Secs. 17312, 17314.]
FISCAL EFFECT : None
COMMENTS :
This bill makes several technical and clarifying changes to
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current law in regard to real property transactions. These
changes are discussed below.
Technical and clarifying changes to SB 1137 (Perata, Corbett,
Machado, Chapter 69, Statutes of 2008.
SB 1137 was an urgency measure that passed out of the
Legislature last year and was signed by the governor. SB 1137
did the following:
1)Provided that a mortgage, trustee, beneficiary, or authorized
agent (entities) may not file a NOD until 30 days after
contact has been made with the borrower who is in default.
2)Required entities to contact a borrower in default in person
or by telephone and inform them of their right to a
subsequent meeting, and telephone number of the HUD to find a
HUD certified housing counselor.
3)Allowed a borrower to assign a HUD-certified counselor,
attorney or other advisor to discuss with the entities options
for the borrower to avoid foreclosure.
4)Required that upon posting of a notice of sale, an entity
shall mail to the borrower a notice in English and Spanish,
Chinese, Tagalog, Vietnamese, or Korean that states:
"Foreclosure process has begun on this property, which may
affect your right to continue to live in this property. Twenty
days or more after the date of this notice, this property may
be sold at foreclosure. If you are renting this property, the
new property owner may either give you a new lease or rental
agreement or provide you with a 60-day eviction notice.
However, other laws may prohibit an eviction in this
circumstance or provide you with a longer notice before
eviction. You may wish to contact a lawyer or your local legal
aid or housing counseling agency to discuss any rights you may
have."
5)Provided that the legal owner of vacant property shall
maintain the property in accordance with current law and a
failure to do so may result in a $1,000 per day fine.
6)Required a governmental entity that imposes a fine must give
notice of the violation and provide 30 days for the owner to
remedy the violation prior to imposing the fine.
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7)Required that a tenant or sub-tenant of a rental unit shall be
provided 60 days notice after a property is sold into
foreclosure before the tenant or sub-tenant may be removed
from the property.
Subsequent to its in enactment it became apparent that several
technical clean-ups and fixes would be necessary. This bill,
enacts those changes. The technical clarifications include:
1)Clarification regarding the requirements for borrower contact
and the manner in which a borrower may request HUD counseling.
2)Provides specificity on existing references to bankruptcy.
3)Clarifies references to residential real property to specify
that the provisions of SB 1137 apply to "owner-occupied," as
indicated on loan documents.
4)Makes changes to existing intent language regarding mortgage
loan securitizations and duties under pooling and servicing
agreements.
5)Specifies that the foreclosure sale notice must be sent via
first class mail.
The other major part of this bill relates to short-payoff demand
statements relating to short sales of residential real property.
The section that addresses this issue does the following:
1)Would establish a minimum period of time that a payoff demand
statement must be valid, as the lesser of: (1) ten days from
the date of preparation by the beneficiary; or (2) the number
of days from the date of preparation by the beneficiary until
the terms of the note result in a change in the per diem
amount.
2)Define a "short-pay agreement" as an agreement, in writing, in
which the beneficiary agrees to release its lien on a property
in return for payment of any amount less than the secured
obligation.
3)Define a "short-pay demand statement" as a written agreement,
conditioned on the existence of a short-pay agreement, that is
prepared in response to a written demand made by an entitled
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person or an authorized agent, setting forth an amount less
than the outstanding debt, together with any terms and
conditions, under which the beneficiary will execute and
deliver a reconveyance of the deed of trust securing the note
that is the subject of the short-pay demand statement. This
bill would provide that a short-pay demand statement shall be
valid for the same length of time as the payoff demand
statement described above.
4)This bill would require a beneficiary, or his or her
authorized agent to provide a short-pay demand statement to an
entitled person or his or her authorized agent within 21 days
of receiving a demand for the statement from the entitled
person or his or her agent, but would provide that if a
beneficiary or his or her authorized agent elects not to
proceed with the short-sale transaction, he or she is not
required to provide a short-pay demand statement, within 21
days of receiving the demand for the short-pay demand
statement. This bill would further provide that if the terms
and conditions of the short-pay agreement require approval by
the beneficiary of a closing statement or similar document
prepared by the escrow holder, approval or disapproval must be
provided no more than four days after the beneficiary receives
the closing statement, except as specified.
The final two parts of this bill make technical changes
regarding the following two issues:
1)Clarifies that EAFC coverage does not extend to deposits from
exchange facilitators, because these deposits constitute
personal property, not real property;
2)Conforms the timing requirements for publishing and recording
notices of sale in foreclosures, so that both functions must
be performed 20 days prior to trustee's sales.
REGISTERED SUPPORT / OPPOSITION :
Support
United Trustees Association (Co-Sponsor)
Opposition
None on file.
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Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081