BILL ANALYSIS
SENATE JUDICIARY COMMITTEE
Senator Ellen M. Corbett, Chair
2009-2010 Regular Session
SB 1427 (Price)
As Amended April 19, 2010
Hearing Date: May 4, 2010
Fiscal: No
Urgency: No
BCP
SUBJECT
Foreclosures: Property Maintenance
DESCRIPTION
Existing law requires legal owners to maintain vacant
residential properties that were purchased at a foreclosure
sale, permits government entities to impose civil fines of up to
$1,000 per day per violation, and provides that the provision
does not preempt local ordinances. This bill would, instead,
state that existing law does preempt local ordinances.
This bill would additionally provide that:
Fines and penalties imposed for failure to maintain a property
in foreclosure, as specified, are the obligation of the owner
of record at the time of violation.
The costs of nuisance abatement measures taken by a
governmental entity with regard to property that is subject to
a notice of default shall be the obligation of the legal owner
of that property and treated as a tax lien.
The costs of nuisance abatement measures shall not exceed the
actual and reasonable costs of nuisance abatement, and state
that a governmental entity shall adopt a schedule of costs for
nuisance abatement measures prior to collection of those
costs.
BACKGROUND
There are many negative side effects that a foreclosure can have
upon a community, including the possibility that the property
will be damaged by the borrower who was unable to avoid
foreclosure, or that a vacant property will fall into disrepair,
(more)
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attract vandals, and pose a health and safety risk.
Deteriorating, blighted properties may also depress surrounding
property values.
In response to those concerns, SB 1137 (Perata, Corbett,
Machado, Chapter 69, Statutes
of 2008), required legal owners to maintain vacant residential
properties that were purchased at a foreclosure sale. To
enforce that maintenance requirement, government entities were
given the authority to impose a civil fine of up to $1,000 per
day per violation. Under the provisions of SB 1137, government
entities are required to provide notice of their intent to
impose a fine, if corrective action is not commenced within 14
days and completed within 30 days. Those anti-blight provisions
sought to encourage the repair of foreclosed homes, while
providing a penalty should residences not be repaired in the
time allowed. To ensure that local governments had the
authority to enact stronger, custom ordinances that responded to
unique issues within their community, SB 1137's blight provision
specifically did not preempt local ordinances.
Contrary to that provision of SB 1137, this bill would, instead,
provide that the above-described blight provision does preempt
local ordinances, thus wiping out an unknown number of local
ordinances. The bill would also enact several provisions
addressing liability for the cost of fines, penalties and
nuisance abatement, and ensure that the costs of nuisance
abatement not exceed actual and reasonable costs as well as
requiring a governmental entity to adopt a schedule of costs for
nuisance abatement measures.
CHANGES TO EXISTING LAW
Existing law provides that anything that is injurious to health,
indecent or offensive to the senses, obstructs the free use of
property, or unlawfully obstructs free passage is a nuisance.
(Civ. Code Sec. 3479.)
Existing law requires a legal owner to maintain vacant
residential property purchased by that owner at a foreclosure
sale, or acquired by that owner through foreclosure under a
mortgage or deed of trust. A governmental entity may impose a
civil fine of up to one thousand dollars ($1,000) per day for a
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violation. If a government entity chooses to impose a fine
pursuant to this section, it shall give notice of the alleged
violation, as specified, and notice of intent to assess a civil
fine if action to correct the violation is not commenced within
14 days and completed within 30 days. (Civ. Code Sec. 2929.3.)
Existing law requires the governmental entity to provide the
legal owner with not less than 30 days to remedy the violation
prior to imposing a civil fine and requires that the entity
provide a hearing and opportunity to contest any fine imposed.
The governmental entity may provide less than 30 days' notice to
remedy a condition before imposing a civil fine if the entity
determines that a specific condition of the property threatens
public health or safety, provided that notice of that
determination and time for compliance is given. (Civ. Code Sec.
2929.3 (a)(2), (c).)
Existing law states that the above provisions shall not preempt
any local ordinance, and prohibits a governmental entity from
imposing both the fines specified above and a local ordinance.
(Civ. Code Sec. 2929.3(e),(h).)
This bill would, instead, state that the above provisions do
preempt local ordinances.
This bill would additionally state that the fines and penalties
imposed for failure to maintain a property subject to a notice
of default, or a property that has not been purchased at a
foreclosure sale, or acquired through foreclosure under a
mortgage or deed of trust, are the obligation of the owner of
record at the time of violation, and permit a lien to attach to
the parcel upon recordation.
This bill would provide that the costs of nuisance abatement
measures taken by a governmental entity with regard to property
that is subject to a notice of default shall be the obligation
of the legal owner of that property and treated as a tax lien.
This bill would state that the costs of nuisance abatement
measures shall not exceed the actual and reasonable costs of
nuisance abatement, and that a governmental entity shall adopt a
schedule of costs for nuisance abatement measures prior to
collection of those costs.
COMMENT
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1. Stated need for the bill
According to the sponsor, the California Association of
Realtors:
SB 1427 will require cities to provide an REO owner with
notice of violation of an abandoned property maintenance
ordinance and as well as an opportunity to correct the
violation before fines can [be] assessed for failing to
maintain the post-foreclosure property. In addition, the
bill specifies that the costs of nuisance abatement measures
taken by cities must be actual and reasonable, and requires
cities to adopt a schedule of such costs.
These changes to existing law are needed to provide lenders
with clear notice of an abandoned property maintenance
ordinance violation, the opportunity to correct the
violation before fines can be assessed, and a clear
understanding of exactly how much each nuisance abatement
measure taken by the local city will cost should the lender
fail to correct the violation themselves.
Realtors are caught between local cities and lenders. With
a post-foreclosure property, the asset manager hired by the
lender is often a Realtor trying to preserve the property
and/or arrange a sale of the REO [Real Estate (lender)
Owned]. Due process and clarity in the assessment and
collection of nuisance abatement costs provides fairness to
everyone, including Realtors. Moreover, fairness in the
assessment and notice process increases the likelihood that
the property will be maintained. Selling the home to an
individual that will maintain the property is the best
solution to the blight problem which can devalue homes in a
neighborhood.
2. Local ordinances
In order to address the serious issue of blight in communities
plagued by foreclosure, SB 1137 permitted local governments to
assess fines and penalties against legal owners who fail to
maintain vacant foreclosed homes. That provision was included
in response to reports of abandoned foreclosed homes becoming
overgrown and diminishing the value of surrounding properties,
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public safety issues relating to trespassers and drug use, and
swimming pools filled with mosquitoes that may spread disease.
SB 1137 also required governmental entities to provide notice
and up to 30 days to cure the alleged violation. To allow local
governments to enact their own custom ordinances that are
tailored to their unique situations, SB 1137 provided that its
blight provision did not preempt local ordinances.
Contrary to the original intent of SB 1137, this bill would,
instead, provide that SB 1137's blight provision does preempt
local ordinances. That preemption could potentially wipe out
numerous local ordinances that are currently used by cities to
address foreclosure blight. The Center for Responsible Lending,
in opposition, asserts that local ordinances that address blight
should not be preempted, and that "[g]iven the extent of the
crisis and the accompanying blight in neighborhoods across the
State, combined with increased crime and reduced revenues for
localities to respond, these localities should be given the
right and power to confront these issues as they deem
appropriate." The Alliance of Californians for Community
Empowerment (ACCE), in opposition, expresses similar concerns
and asserts that preemption of local ordinances would put the
ability of cities and counties to create solutions to blight in
jeopardy.
In response to concerns regarding preemption, the sponsor states
that their intent was to ensure that those local ordinances do
include a provision that provides the property owner with notice
and an opportunity to address the problem. (CAR's letter in
support of the bill asserts that: "Cities will still be able to
have vacant property maintenance ordinances; however, the
ordinances will have to be consistent with state law with regard
to the notice and curing provisions.") To address the concerns
about preemption of entire local ordinances and effectuate the
sponsor's intent, the author offers the following amendments to,
instead, require government entities to provide a notice and
opportunity to correct the violation prior to assessing fines
and penalties. That approach is consistent with SB 1137's
requirement that local governments provide notice and an
opportunity to remedy prior to assessing fines and penalties.
From a public policy standpoint, that provision would encourage
owners of properties to correct maintenance issues in an
expedient manner so that they would not incur a fine or penalty
- in other words, the intent of the provision is to encourage
correction of blight, not to provide a revenue stream.
Committee staff notes that it would be in the discretion of the
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local government entity to determine how to provide the notice
and opportunity to cure.
Author's amendment:
Strike out Section 1, and insert:
Prior to imposing a fine or penalty for failure to maintain a
vacant foreclosed property that is subject to a notice of
default, or that has been purchased at a foreclosure sale or
acquired through foreclosure under a mortgage or deed of
trust, a governmental entity shall provide the owner of that
property with a notice of violation and an opportunity to
correct the violation.
Consistent with SB 1137's blight provision, the following
additional amendment is suggested to ensure that the provision
of notice and an opportunity to correct does not apply if a
condition of the property threatens public health or safety.
That amendment is essential to ensure that local governments
have the authority to take immediate action to protect the
surrounding community.
Suggested amendment:
Add the following language to the above amendment:
This section shall not apply if the entity determines that a
specific condition of the property threatens public health or
safety.
3. Fines, penalties, and nuisance abatement costs
This bill additionally seeks to codify that nuisance abatement
costs are the obligation of the legal owner and shall be treated
as a tax lien against the property in a foreclosure sale. The
sponsor asserts that the intent of that provision is to allow
those costs to survive foreclosure (essentially creating a
super-lien), and to hold the entity receiving the property after
the foreclosure sale liable for those costs under the theory
unjust enrichment. Despite those assertions, it should be noted
that this provision would essentially hold a third party liable
for the failure of the homeowner to take care of their property
- even after the foreclosure sale, that homeowner currently
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remains personally liable for costs incurred in nuisance
abatement. Committee staff also notes that the actions which
are taken to abate a nuisance are things such as removing
mosquitoes that pose a risk to surrounding properties and would
not include improvements, such as installing granite
countertops, that actually enhance the resale value of the
property. In response to concerns about the application of the
above provision and the creation of a super-lien with greater
priority than other creditors, the author offers the following
amendment to strike that provision as well as Section 2 of the
bill that relates to fines and penalties.
Author's amendment:
On page 8, strike out lines 24 through 36, inclusive.
4. Costs of nuisance abatement procedures, schedule of costs
The remaining provisions of the bill relate to nuisance
abatement costs for homes which are either in foreclosure, or
that have been purchased at a foreclosure sale. Under existing
law, cities and counties may establish a procedure for the
abatement of a nuisance. (Gov. Code Secs. 25845, 38771 et seq.)
If the owner fails to pay the costs of abatement, those costs
may be assessed against the parcel and a lien may be recorded.
Specifically, those two provisions would: (1) impose a
requirement that the cost of nuisance abatement measures
assessed to property owners not exceed the actual and reasonable
costs of abatement; and (2) require a governmental entity to
adopt a schedule of costs for nuisance abatement measures prior
to collection. The sponsor, CAR, asserts that both of those
provisions are intended to ensure that the costs which are
assessed to property owners are not excessive and reflect the
actual costs of abatement.
First, by codifying that the assessed cost of nuisance abatement
measures shall not exceed the actual and reasonable costs of
abatement, this bill would ensure the amount charged to
homeowners reflects the costs charged are those expended by the
government entity. It also encourages those entities to not
incur excessive (i.e. unreasonable) costs that are then the
burden of a homeowner in financial distress. Similarly,
requiring the governmental entity to adopt a schedule of costs
for nuisance abatement measures prior to collection would ensure
that a standard cost is set - those preset costs would ensure
fair, equal application of the nuisance abatement ordinance
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across all parties. Given that nuisance abatement measures may
take various forms depending on the property - mowing the lawn,
draining the pool, boarding up the home - the sponsor should
continue to work with Committee staff and representatives from
local governments to ensure that it is feasible to create a
schedule of costs for those activities.
Due to the author's amendment in Comment 3, the following
clarifying amendment is required to the language regarding the
costs of nuisance abatement, and the schedule of costs. That
amendment also clarifies that the provision refers to
assessments or liens for those costs of abatement.
Clarifying amendment :
On page 8, strike 37 through 49, inclusive, and on page 9,
strike out lines 1 through 2, inclusive, and insert:
(a) An assessment or lien to recover the costs of nuisance
abatement measures taken by a governmental entity with regard
to a property that is subject to a notice of default, or that
has been purchased at a foreclosure sale or acquired through
foreclosure under a mortgage or deed of trust, shall not
exceed the actual and reasonable costs of nuisance abatement.
(b) A governmental entity shall adopt a schedule of costs for
nuisance abatement measures described in subdivision (a) prior
to collection of those costs
5. Mockup of changes
For ease of the Committee, the following mockup is provided that
reflects the above author's amendments, suggested amendment, and
clarifying amendment:
Strike out contents of bill and insert:
SECTION 1. Section 2929.4 is added to the Civil Code, to
read:
2929.4. Prior to imposing a fine or penalty for failure to
maintain a vacant foreclosed property that is subject to a
notice of default, or that has been purchased at a foreclosure
sale or acquired through foreclosure under a mortgage or deed of
trust, a governmental entity shall provide the owner of that
property with a notice of violation and an opportunity to
correct the violation. This section shall not apply if the
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entity determines that a specific condition of the property
threatens public health or safety.
SEC. 2. Section 2929.45 is added to the Civil Code, to
read:
2929.45. (a) An assessment or lien to recover the costs of
nuisance abatement measures taken by a governmental entity with
regard to a property that is subject to a notice of default, or
that has been purchased at a foreclosure sale or acquired
through foreclosure under a mortgage or deed of trust, shall not
exceed the actual and reasonable costs of nuisance abatement.
(b) A governmental entity shall adopt a schedule of costs
for nuisance abatement measures described in subdivision (a)
prior to collection of those costs.
Support : None Known
Opposition : Alliance of Californians for Community Empowerment;
Center for Responsible Lending
HISTORY
Source : California Association of Realtors
Related Pending Legislation : None Known
Prior Legislation : SB 1137 (Perata, Corbett, Machado, Ch. 69,
Stats. 2008), required legal owners to maintain vacant
residential properties that were purchased at a foreclosure
sale.
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