BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
AB 1745 (Torres) Hearing Date: June 20,
2012
As Amended: June 11, 2012
Fiscal: No
Urgency: No
SUMMARY Would prohibit the recordation of a notice of sale, if
there is a pending, approved short sale, and would provide rules
that can be used by a mortgagee, beneficiary, or authorized
agent (i.e., a lender) to withdraw approval of a written short
sale, thus allowing a foreclosure to move forward.
DESCRIPTION
1. Would prohibit a mortgagee, trustee, beneficiary, or
authorized agent (i.e., a lender) from recording a notice of
sale, after providing written approval of a short sale to a
mortgagor or trustor (i.e., a borrower).
2. Would authorize a mortgagee, beneficiary, or authorized
agent to withdraw approval for a short sale at any time
after the mortgagor or trustor fails to comply with a
condition of the written short sale agreement.
3. Would further require that withdrawal of short sale
approval to be made in writing to the mortgagor or trustor,
include an explanation of the reason or reasons for the
withdrawal, and state the date on which the withdrawal of
approval is effective, a date which must be at least three
days after the date on which the written withdrawal of
approval is provided to the mortgagor or trustor.
4. Would clarify that the prohibition against recording a
notice of sale described in Number 1 above will not apply,
after written withdrawal of approval for a short sale is
provided to the mortgagor or trustor using the procedures
summarized immediately above, unless the mortgagee,
beneficiary, or authorized agent subsequently approves a new
short sale in writing.
AB 1745 (Torres), Page 2
EXISTING LAW
1. Prescribes rules that govern the nonjudicial foreclosure
process in California (Civil Code Section 2924 et seq.). A
layman's description of the portions of the process that are
relevant to this bill follows immediately below.
a. The nonjudicial foreclosure process begins with the
recordation of a notice of default by a mortgagee, trustee,
beneficiary, or authorized agent. The notice of default must
be recorded in the county in which the property securing the
defaulted loan is located, and must be mailed to specified
persons with a financial interest in the property, including
the property owner. Existing law does not prescribe the
minimum amount of time that must pass between a delinquency
and the recordation of a notice of default, although notices
of default are commonly recorded only after a borrower is at
least 90 days delinquent on his or her mortgage loan.
A 2008 bill (SB 1137, Perata, Chapter 69, Statutes of 2008),
whose provisions are scheduled to sunset on January 1, 2013,
unless they are extended, modifies that process for loans
originated between January 1, 2003 and December 31, 2007,
which are secured by single-family, owner-occupied
residential real property. On loans covered by SB 1137,
mortgagees, beneficiaries, and authorized agents are required
to attempt to contact property owners to discuss options for
the owners to avoid foreclosure, before recording a notice of
default. Under SB 1137, a notice of default cannot be
recorded until at least 30 days after the mortgagee, trustee,
beneficiary, or authorized agent makes initial contact with a
borrower, or satisfies specified due diligence requirements
to make contact.
b. At least three months must pass after recordation of a
notice of default, before the mortgagee, trustee,
beneficiary, or authorized agent may record a notice of sale.
Notices of sale must be recorded in the county in which the
property securing the defaulted loan is located, mailed to
the property owner and other specified persons with a
financial interest in the property, published in a newspaper
of general circulation, and posted on the property that is
the subject of the sale.
c. At least 20 days must pass after recordation of a notice
AB 1745 (Torres), Page 3
of sale, before a property may be sold. However, sale dates
may be, and often are, postponed. Under existing law, a sale
date may be postponed for any of the following reasons: 1)
upon the order of any court of competent jurisdiction; 2) if
stayed by operation of law; 3) by mutual agreement, whether
oral or in writing, of any trustor and any beneficiary or any
mortgagor and any mortgagee (i.e., by mutual agreement
between a borrower and his or her lender); and/or 4) at the
discretion of the trustee. A new notice of sale must be
recorded, if a postponement or postponements delay the sale
for more than 365 days following the first scheduled sale
date.
COMMENTS
1. Purpose: This bill is intended to prevent borrowers whose
lenders have approved them for short sales from being
foreclosed upon by their lenders while their approved short
sales are pending.
2. Background and Discussion: In recent years, several bills
have been introduced, which have attempted to address dual
tracking issues (e.g., instances in which a borrower
believes him or herself to be working constructively with
his or her lender on an alternative to foreclosure, only to
be surprised by a notice of sale or a knock on the door,
informing them that their lender has foreclosed).
This bill tackles one small piece of the dual-track issue,
albeit an important piece. This bill sets up a simple
prohibition: "Do not record a notice of sale, while there
is a pending short sale that has been approved in writing by
the lender." Without a notice of sale, there can be no
legal foreclosure.
The bill also sets up a mechanism by which a lender may withdraw
its approval of a short sale ("send the borrower a document
informing them of the reason or reasons you are withdrawing
your approval, and tell them the date on which your approval
will be withdrawn. That date must be at least three days
after the date of the letter.") This minimum three-day
window is intended to allow a homeowner or his/her real
estate agent to attempt to rectify whatever problem caused
approval of the short sale to be withdrawn.
Finally, this bill clarifies that if a short sale is approved,
AB 1745 (Torres), Page 4
and approval is subsequently withdrawn, the lender may
proceed to record a notice of sale, unless the lender
provides the property owner with new, written short sale
approval.
3. Enforcement: This bill is silent on the actions a borrower
should take, if their lender violates the provisions of this
bill. Enforcement of dual-tracking prohibitions has been an
extremely controversial issue within the Legislature in the
past, and this bill's author and sponsor have chosen to
remain silent on the topic, in hopes of minimizing
controversy.
Staff observes, however, that this silence does not deprive
borrowers of an enforcement remedy. The existing remedy for
enforcing violations of Section 2924f involves a lawsuit by
the wronged party, seeking postponement of the sale to allow
for compliance by the party that committed the violation, or
seeking damages, as applicable. No amendments are necessary
to allow these exiting remedies to be utilized by borrowers
seeking to enforce the provisions of this bill.
4. Summary of Arguments in Support: This bill is sponsored by
the California Association of Realtors (CAR). In its letter
of support, CAR observes that the provisions of AB 1745 are
straightforward and fair. "If the bank has already approved
a short sale, it cannot pull the rug out from under the sale
while the escrow is waiting to close. Unfortunately, this
situation occasionally occurs and the 'left hand' of the
foreclosure department forecloses on a property that the
'right hand' of the short sale department has already
approved for a short sale. The bank always has the ultimate
decision on whether or not to approve a short sale
application. Even if the bank has already approved the
short sale, AB 1745 empowers the bank to withdraw that
approval. The bank only has to give the homeowner a reason
and three days' notice before restarting the foreclosure
sale."
5. Summary of Arguments in Opposition: None received.
6. Amendments:
a. Although no amendments are suggested at this time,
this bill is likely to require double-jointing amendments
to prevent chaptering out problems with AB 1599 (Feuer).
AB 1745 (Torres), Page 5
Amendments may also be necessary to eliminate conflicts
with the legislation that is reported out by the
foreclosure conference committee, which is currently
considering AB 278 and SB 900.
7. Prior and Related Legislation:
a. SB 1470 (Leno et al.) and AB 1602 (Eng and Feuer),
2011-12 Legislative Session: Would, among their many
provisions, prohibit a mortgagee, trustee, beneficiary,
or authorized agent from recording a notice of default
before evaluating a borrower who has submitted a loan
modification application for that loan modification, and
providing that borrower with a definitive response on
their eligibility for that modification, as specified.
Never taken up in the Senate Banking and Financial
Institutions Committee or the Assembly Banking and
Finance Committee. Instead, these bills formed the basis
for what is currently being considered by the foreclosure
conference committee on AB 278 and SB 900.
b. SB 729 (Leno and Steinberg), 2011-12 Legislative
Session and SB 1275 (Leno and Steinberg), 2009-10
Legislative Session: Both bills were extremely similar
in their approaches to the dual-track issue. Among their
many requirements, these bills would have prohibited a
mortgagee, trustee, beneficiary, or authorized agent from
recording a notice of default before evaluating a
borrower who had submitted a loan modification
application for that loan modification, and providing
that borrower with a definitive response on their
eligibility for that modification, as specified. SB 729
failed passage in the Senate Banking and Financial
Institutions Committee. SB 1275 passed the Senate and
failed passage on the Assembly Floor.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
California Association of Realtors (sponsor)
Opposition
None received
AB 1745 (Torres), Page 6
Consultant: Eileen Newhall (916) 651-4102