BILL ANALYSIS �
AB 1745
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ASSEMBLY THIRD READING
AB 1745 (Torres)
As Amended May 3, 2012
Majority vote
BANKING & FINANCE 11-0 JUDICIARY 10-0
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|Ayes:|Eng, Achadjian, Charles |Ayes:|Feuer, Wagner, Atkins, |
| |Calderon, Fuentes, Gatto, | |Dickinson, Gorell, Huber, |
| |Harkey, | |Jones, Monning, |
| |Roger Hern�ndez, Lara, | |Wieckowski, Bonnie |
| |Morrell, Perea, Torres | |Lowenthal |
| | | | |
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SUMMARY : Prohibits the filing of a notice of sale (NOS) if a
mortgagee, trustee, beneficiary of authorized agent has provided
a written approval of a short sale. Specifically, this bill :
1)Defines "short sale" as a transfer in which the trustor or
mortgagor sells a property for a price less than the remaining
amount of the indebtedness secured by the property at the time
of sale.
2)Allows approval of a short sale to be withdrawn by the
mortgagee, trustee, beneficiary, or authorized agent at any
time if the terms of the short sale agreement have changed.
3)Provides that, not less than three days prior to the
withdrawal of approval, written notice shall be provided to
the short sale seller and shall include an explanation of the
change of condition that caused the withdrawal.
EXISTING LAW generally regulates mortgages and deeds of trust,
including, among other things, recording mortgages and deeds of
trust, disclosures in connection with mortgages and deeds of
trust, and foreclosure procedures for mortgages and deeds of
trust. (Civil Code Section 2920 et seq.)
FISCAL EFFECT : None
COMMENTS : This bill seeks to remedy a problem related to short
sale agreements in which a bank withdraws from a short sale
agreement and continues the foreclosure process without
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informing the borrower.
A short sale is simply a situation where a borrower negotiates
to sell their property to a subsequent buyer for less than the
outstanding balance remaining on the loan. In order for a short
sale to work, the holder of the indebtedness must agree to
accept less than the remaining loan balance from a second buyer.
The advantage for the bank is that a short sale prevents a home
from going into the foreclosure and potentially being left
vacant for an extended period. Additionally, usually the short
sale price for a home exceeds what that same property would get
in a foreclosure sale. For the borrower, a short sale allows
them to extricate themselves from a home without facing the
destructive consequences, both socially and financially, that
come from a foreclosure.
While a bank may agree initially to a short sale, many factors
can lead to a collapse of the short sale agreement. Many buyers
walk away from the deal due to long delays from banks as initial
offer acceptance may not always be immediately forthcoming, and
subsequent negotiations take weeks and sometimes months.
Another factor that complicates short sales is the existence of
a second mortgage holder. A large proportion of mortgages
originated over the last decade include a second mortgage. In
the event of foreclosure the second lien holder is more than
likely to face a complete loss of their interest in the property
as the value of the property is no longer equal to the total
loan outstanding. In the priority of liens, the first lien
holder, the primary mortgage holder, gets first take on any
proceeds from the foreclosure sale. Due to low property values,
a short sale is also likely to eliminate any value for the
second lien holder. This creates an additional obstacle as
second lien holders can refuse a short sale, and prevent the
entire transaction. Some of these refusals on the part of
second lien holders have occurred even when the second lien
holder is offered some compensation. According to a California
Association of Realtors member survey, 60% of short sale offers
failed to result in a closed sale in 2011.
The Making Home Affordable (MHA) program, the centerpiece of the
federal government's foreclosure response (announced in March of
2009), includes guidelines for eligible mortgages concerning the
use of short sales as a loan modification alternative when a
borrower does not qualify for a modification. This part of the
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MHA program is included under the Home Affordable Foreclosure
Alternatives (HAFA) program. HAFA attempts to streamline the
short sale process for loans serviced on behalf of Fannie Mae
and Freddie Mac (Government Sponsored Entities) and in cases
when the borrower has already been considered for a loan
modification. In spite of efforts to standardize and streamline
short sales under the HAFA program, it too has suffered from the
same problems plaguing the larger short sale market. In
response, the Federal Housing Finance Agency (FHFA), the acting
conservator and oversight agency for the Government Sponsored
Enterprises (GSEs), recently announced new rules regarding short
sales for GSE serviced loans. These new rules, going into
effect June 1, 2012, require lenders to respond to short sale
requests within 30 days and make final a decision within 60
days.
On April 6th, a federal judge signed-off on the $25 billion
foreclosure settlement, first announced in February of 2012,
between banks (Citi, Wells Fargo, Bank of America, Chase and
Ally), federal agencies, and the state attorneys general from 49
states and the District of Columbia. The investigation began in
October of 2010 as media stories highlighted widespread
allegations regarding the use of "robo-signed" documents used in
foreclosure proceedings around the country. The attorneys
general formed working groups to investigate the widespread
allegations, however, further investigation led to a larger
discussion with the five largest mortgage loan servicers
regarding various facets of the foreclosure and loan
modification process. While conducting their investigation the
attorneys general identified deceptive practices regarding loan
modifications, foreclosures occurring due to the servicer's
failure to properly process paperwork, and the use of incomplete
paperwork to process foreclosures in both judicial and
non-judicial foreclosure cases.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081
FN: 0003525
AB 1745
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