BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 483
Senator Corbett
As Amended April 2, 2009
Hearing Date: May 12, 2009
Civil Code
BCP:jd
SUBJECT
Mortgages: Foreclosure
DESCRIPTION
Existing law imposes specified contact requirements before the
filing of a Notice of Default (the first step in the nonjudicial
foreclosure process). Those contact requirements do not apply
in specified circumstances, including when the borrower has
filed for bankruptcy and the proceedings have not been
finalized.
This bill would clarify that bankruptcy exception by instead
stating that the requirements do not apply if a case has been
filed by the borrower under Chapter 7, 11,
12, or 13 of Title 11 of the United States Code, and the
bankruptcy court has not entered an order closing or dismissing
the bankruptcy case or granting relief from a stay of
foreclosure.
BACKGROUND
Foreclosures in California are generally non-judicial, meaning
that they are accomplished without court involvement. The first
step in the foreclosure process is the filing of a Notice of
Default, which generally occurs after three or more months of
delinquency. The foreclosing entity must then wait at least
three months before noticing the sale of the property. In an
effort to help those for whom foreclosure may be avoided, the
Legislature passed, and the Governor signed, SB 1137 (Perata,
Corbett, Machado, Chapter 69, Statutes of 2008).
(more)
SB 483 (Corbett)
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That urgency bill sought to increase protections for both
borrowers and tenants in the foreclosure process by requiring,
among other things, contact prior to the filing of a Notice of
Default. Those requirements do not apply under certain
circumstances, including when the borrower has filed for
bankruptcy, and the proceedings have not yet been finalized.
In response to concerns about ambiguities in the bankruptcy
exception language, this bill would clarify that the exemption
applies when a bankruptcy case has been filed and the court has
not entered an order closing or dismissing the case or granting
relief from a stay of foreclosure.
CHANGES TO EXISTING LAW
Existing law 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
Notice of Default and allow three months to lapse before setting
a date for sale of the property. (Civ. Code Secs. 2924, 2924f.)
Existing law 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 contact
the borrower, or the borrower has surrendered the property, as
specified. (Civ. Code Sec. 2923.5 (a), (b).)
Existing law 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. (Civ. Code Sec. 2923.5 (h).)
This bill would clarify that the above bankruptcy exception
applies where a case has been filed by the borrower under
Chapter 7, 11, 12, or 13 of Title 11 of the United States Code,
and the bankruptcy court has not entered an order closing or
dismissing the bankruptcy case or granting relief from a stay of
foreclosure.
COMMENT
1. Stated need for the bill
SB 483 (Corbett)
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The author states that this bill seeks to address concerns about
ambiguities in the bankruptcy exception language in SB 1137.
The proposed language is identical to language contained in SBx2
7 (Corbett, Chapter 4, Statues of 2009) that exempted properties
from the provisions of that bill if a borrower was in
bankruptcy. (SBx2 7 added an additional 90 days to the
foreclosure process unless the servicer of the borrower's loan
has a comprehensive loan modification program.)
2. Ambiguity in existing law
Under existing law, lenders and servicers must contact borrowers
prior to commencing the nonjudicial foreclosure process. Those
contact requirements do not apply in certain circumstances,
including where a borrower has filed for bankruptcy, and the
proceedings have not yet been finalized.
Concerns have arisen that the term "finalized" in the above
bankruptcy exception is ambiguous. In response, this bill seeks
to clarify that language by instead stating that the exemption
applies where a case has been filed by the borrower under
Chapter 7, 11, 12, or 13 of Title 11 of the United States Code,
and the bankruptcy court has not entered an order closing or
dismissing the bankruptcy case or granting relief from a stay of
foreclosure.
That proposed clarifying language, identical language used to
exempt borrowers in bankruptcy from the provisions of SBx2 7
(Corbett), would provide clear direction for when the exemption
does, and does not, apply. Specifically, the two proposed
endpoints for the exemption (either an order closing or
dismissing the case or the grant of relief from a stay of
foreclosure) represent the potential outcomes of the bankruptcy
case, and address the issue of a bankruptcy judge lifting the
automatic stay of foreclosure that is issued upon the filing of
a bankruptcy case. Staff notes that the proposed clarification
would provide clarity for all parties (lenders, trustees, and
borrowers) as to when the provisions of SB 1137 do, and do not,
apply.
Support : None Known
Opposition : None Known
HISTORY
SB 483 (Corbett)
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Source : Author
Related Pending Legislation : SB 306 (Calderon), would enact
three separate provisions relating to real property transactions
as follows: (1) technical and clarifying changes to SB 1137; (2)
establish a minimum time period in which a payoff demand
statement must be valid and create a short-pay demand agreement;
and (3) clarify the coverage of the Escrow Agents' Fidelity
Corporation.
Prior Legislation : SB 1137 (Perata, Corbett, Machado, Chapter
69, Statutes of 2008), enacted changes to the procedures that
must be followed before the holder of a mortgage may issue a
notice of default or notice of trustee sale, requires the holder
of a mortgage to mail a specified notice to the tenant(s) of a
property on which foreclosure proceedings have begun, and
imposes penalties on property owners who fail to adequately
maintain foreclosed properties, as specified.
SBX2 7 (Corbett, Chapter 4, Statutes of 2009), provided that a
servicer of residential mortgage loans may not proceed with
foreclosure proceedings for 90 days under specified conditions,
unless the servicer has a comprehensive loan modification
program.
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