BILL ANALYSIS
SB 306
Page 1
Date of Hearing: June 30, 2009
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 306 (Calderon) - As Amended: June 22, 2009
PROPOSED CONSENT
SENATE VOTE : 37-0
SUBJECT : Real Property Transactions: SB 1137 "CLEAN UP"
KEY ISSUes :
1)Should provisions relating to "pay off demand statements"
-provideD to escrow agents so that escrow funds may be
disbursed - be changed to create a version to cover the
increasing number of "short sales" in the real estate market?
2)Should existing law be clarified to specify that escrow
fidelity coverage does not apply to deposits from exchange
facilitators, since such deposits, as personal property, are
subject to other required coverage?
3)Should certain provisions of last year's SB 1137, relating to
foreclosures, be amended to address certain ambiguities
relating to timing requirements for filing a notice of default
and the publishing and recording of a notice of sale in a
foreclosure?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This non-controversial bill makes several relatively minor
changes relating to the escrow agents' role in real estate
exchanges and makes "clean up" changes to last year's SB 1137,
relating to foreclosures. Specifically, this bill does three
things: (1) It creates a so-called "short pay demand statement"
to facilitate the disbursement of escrow funds under specified
circumstances; (2) It clarifies that fidelity coverage required
of licensed escrow agents does not extend to deposits made by an
"exchange facilitator," since this is personal property with
separate coverage; (3) Finally, it makes a number of "clean up"
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changes to last year's SB 1137 relating to the timing
requirements for filing, publishing, and recording certain
foreclosure-related notices. This measure is co-sponsored by
the California Escrow Association and the United Trustees
Association. There is no registered opposition to this bill,
which received unanimous support on the Senate floor and in
Senate policy committees.
SUMMARY : Creates a "short pay demand statement," as defined;
clarifies the scope of coverage provided the Escrow Agents
Fidelity Corporation; and makes technical and clarifying
amendments to last year's SB 1137 relating to foreclosures.
Specifically, this bill :
1)Defines a "short-pay agreement" as a written agreement in
which a mortgagee or beneficiary of a deed of trust agrees to
release its lien on property in return for payment of an
amount less than the secured obligation. Requires a
beneficiary, or his or her authorized agent, where a short-pay
agreement has been made, to prepare and deliver a "short pay
demand statement" - which permits an escrow agent to release
escrow funds - to the party requesting it within 21 days of
receipt of the short-pay request.
2)Specifies that the fidelity coverage that state-licensed
escrow agents are required to obtain is only required for
transactions involving real property escrows and exchanges,
excluding money or property held or deposited with a person
acting as an "exchange facilitator," as defined pursuant to
existing law.
3)Clarifies that a mortgagee, trustee, beneficiary, or
authorized agent may not file a notice of default until 30
days after the initial contact is made with the borrower in
person or by telephone in order to assess the borrower's
financial situation and explore options for the borrower to
avoid foreclosure.
4)Provides that, until January 1, 2013, certain provisions
relating to the filing of a notice of default apply only to
mortgages and deeds, recorded between January 1, 2003, and
December 31, 2007, secured by owner-occupied residential
property containing no more than four dwelling units.
5)Extends the time during which the notice of sale must be
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recorded from 14 to 20 days prior to the date of the sale.
EXISTING LAW :
1)Prohibits a mortgagee, trustee, beneficiary, or authorized
agent from filing a notice of default until 30 days after
contacting a borrower in person or by telephone in order to
assess the borrower's financial situation and explore options
for the borrower to avoid foreclosure. Requires the
mortgagee, beneficiary, or authorized agent to advise the
borrower of his or her right to request a subsequent meeting,
as specified, and provide the borrower with contact
information for a housing counseling agency certified by the
U.S. Department of Housing and Urban Development. Specifies
that these provisions only apply to owner-occupied residential
property. (Civil Code Section 2923.5.)
2)Requires a trustee or authorized agent, upon posting a notice
of sale, to post and mail a specified notice addressed to
residents of the property subject to foreclosure, whether
owners or tenants, upon posting a notice of sale. Specifies
that the notice apprise a tenant of his or her right to a
60-day eviction notice from any new property owner. Requires
that a notice of sale be recorded in the appropriate county at
least 14 days prior to the date of the sale. (Civil Code
Section 2924.8)
3)Requires a mortgagee or beneficiary of a deed of trust, within
21 days of the receipt of a written demand by a mortgagor or
trustor, to prepare and deliver to the mortgagor or trustor a
beneficiary statement or pay-off demand statement. Requires
the written statement to 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.
(Civil Code Section 2943.)
4)Requires any licensed escrow agent operating in the state and
engaging in real property transactions to obtain fidelity
coverage from the Escrow Agents Fidelity Corporation.
(Financial Code Section 17312.)
COMMENTS : According to the author, this "omnibus bill" provides
a number of technical and clarifying amendments relating to real
estate exchanges, including clarification of the foreclosure
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notice provisions in last year's SB 1137 and amendments to some
of the finer points of "payoff demand statements" that provide
for the disbursement of escrow funds.
Changes to SB 1137 : Enacted as an emergency measure at the end
of the last session, SB 1137 (Chapter 69, Stats of 2008) was
intended to reduce foreclosures of owner-occupied dwellings,
provide better and more effective notice to borrowers in danger
of foreclosure, and protect tenants who were displaced by
foreclosure. However, according to the author and co-sponsors,
some of the provisions of SB 1137 were ambiguous, especially in
regards to the timing requirements for various notice
provisions. This bill seeks to clarify the following issues:
SB 1137 provided that a notice of default could not be filed
until 30 days after the borrower was contacted by the
mortgagee, in person or by telephone, in order to assess the
borrower's financial situation and explore options for
avoiding foreclosure. The purpose of the 30-day period was to
permit the borrower time to weigh options or contact a
HUD-certified mortgage counselor. This bill seeks to clarify
that the 30-day clock begins running at the "initial" contact
with the borrower, so that each subsequent contact is not
presumed to start the clock anew.
SB 1137's notice of default requirements were expressly
targeted toward "owner-occupied residences." This bill
specifies that those requirements only apply to owner-occupied
residences with "four or more dwelling units." These
provisions would apply to an owner-occupied single-family
residence or where the owner resided in one of the units of a
duplex, triplex, or four-unit structure, but it would not
apply to a large apartment building even if the owner lived in
one of the units. This change is consistent with the intent
of SB 1137, the protections in which were expressly concerned
with loans for owner-occupied residences, but not for
commercial loans that would apply to larger apartment
complexes.
SB 1137 required that a notice of sale be posted and mailed to
residents (whether owners or tenants) of the property subject
to foreclosure and that notice of sale be recorded at least 14
days prior to the date of the sale. This bill extends the
time during which notice of sale must be recorded from 14 to
20 days. According to the author, "potential bidders at
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foreclosure sales have indicated that the 14-day requirement
for recording notices often does not provide county recorders
with enough time to index the information, so that it can be
available prior to the trustee's sale. Extending the time to
the same 20-day requirement which applies to publishing the
notices makes it more likely that the notices will be properly
indexed prior to sales, thereby encouraging bidding at
foreclosure sales."
Changes Affecting Escrow Agents and Real Property Exchanges : In
addition to the "clean up" to SB 1137, this bill also makes
changes affecting escrow agents and the disbursement of escrow
funds. Specifically, the bill makes the following changes for
the following reasons:
Under existing law, escrow agents disburse escrow funds in
accordance with escrow instructions. In particular, escrow
agents rely on lenders to provide a so-called "payoff demand
statement" to the escrow agent so that funds can be released
and title conveyed in a prescribed manner. This bill defines
and creates a new "short pay demand statement" to address
"short pay agreements," or "short sales," where the
beneficiary agrees to release a lien on property for an amount
less than the secured amount.
Under existing law escrow agents are required to obtain
fidelity coverage from the Escrow Agent's Fidelity Corporation
(EAFC), a non-profit organization that indemnifies agents.
This bill would clarify that this coverage does not extend to
funds held by a person acting as an "exchange facilitator," as
provided in Section 51003 (a) (3) of the Financial Code.
According to the author, the funds deposited by an exchange
facilitator (usually in cases of a delayed exchange) are
considered "personal property," and existing law already
requires the escrow agent to obtain separate coverage, in the
form of a bond, to protect these funds.
ARGUMENTS IN SUPPORT : The United Trustees Association (UTE), a
co-sponsor of the bill, supports those changes relating to SB
1137. According to UTE, "SB 1137 instituted a requirement that
lenders and services make diligent attempts to contact
borrowers, at least 30 days before recording notices of default
to commence foreclosure. Despite everyone's best attempt to
craft the bill exactly right, a number of ambiguities were
created, including how to handle cases of multiple borrowers,
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what to do about pending bankruptcies, the effect of the bill on
multi-family residential properties, and others. The intent of
SB 306 is to clarify these ambiguities to avoid unnecessary
confusion and potential litigation."
The Escrow Agents' Fidelity Corporation (EAFC), the other
co-sponsor, primarily supports the changes related to escrow
agents. According to EAFC, its purpose, as a statutorily
created non-profit agency, is "to protect escrow deposits in
pending real estate transactions. Personal property escrows
require a separate bond purchased by the escrow company.
Ambiguity exists in current law, however, where the statute says
that EAFC coverage extends to "exchanges." We believe that the
reference to exchanges is meant to cover "concurrent" exchanges
of real estate, not delayed exchanges under the Internal Revenue
Code. Persons handling these exchanges are separately regulated
under SB 1007 passed last year. SB 306 is intended to resolve
this ambiguity."
REGISTERED SUPPORT / OPPOSITION :
Support
Escrow Agents Fidelity Corporation (co-sponsor)
United Trustees Association (co-sponsor)
Opposition
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334