BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 2273 (Wieckowski)
As Amended May 14, 2012
Hearing Date: June 26, 2012
Fiscal: No
Urgency: No
BCP:rm
SUBJECT
Common Interest Developments: Required Documents
DESCRIPTION
Under existing law, a homeowner's association that manages a
common interest development may file a request for a copy of any
trustee's deed upon sale of the property. That information must
be mailed within 15 days following the date the trustee's deed
is recorded. This bill would, instead, require that information
to be mailed within 15 days following the date of the trustee's
sale.
This bill would, with respect to property located in a common
interest development, require the foreclosure sale to be
recorded within 30 days after the date of sale, as specified.
BACKGROUND
California, as well as the nation, is facing an unprecedented
threat to the economy and housing market due to increasing
numbers of foreclosures caused by mortgage payment defaults.
When a foreclosure occurs in a common interest development
(CID), and a struggling homeowner stops paying their association
dues, the association must continue to function despite that
loss of funds. If that property is sold in a foreclosure sale,
it is in the best interest of the association to begin
collecting dues from the new owner of that home as soon as
possible.
Under the Davis-Stirling Common Interest Development Act, CIDs
are to be managed by a homeowners association that is authorized
(more)
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to levy regular and special assessments to cover operating
expenses and to fulfill their obligations to members of the
association. After sale or transfer of ownership, the
subsequent owner is responsible for paying assessments from the
time they become the legal owner of the property.
In order to assist associations in collecting assessments from
subsequent purchasers of foreclosed properties, SB 1511
(Ducheny, Chapter 527, Statutes of 2008) allowed an association
to request that the person authorized to record the notice of
default (usually a trustee) mail the association a copy of any
trustee's deed within 15 business days following the date the
deed is recorded. (The deed both informs the association that
the property was sold, and includes information about the new
owner of the property so that the association may begin
collection of dues.) This bill would, instead, require that
information to be mailed within 15 business days following the
date of the trustee's sale. This bill would further require the
transfer of a property in a common interest development after a
foreclosure sale to be recorded within 30 days after the date of
sale.
CHANGES TO EXISTING LAW
1. Existing law , the Davis-Stirling Common Interest
Development Act, defines and regulates common interest
developments (CIDs), including the ability of the association
to levy regular and special assessments sufficient to perform
its obligations. (Civ. Code Sec. 1350 et seq.)
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 law
requires the trustee, mortgagee, or beneficiary to record a
Notice of Default and requires three months to lapse before
setting a date for sale of the property. (Civ. Code Secs.
2924, 2924f.) Existing law allows a person to record a
request to be notified upon the filing of a notice of default
or notice of sale and requires the trustee to mail notice to
those persons. (Civ. Code Secs. 2924b(a), 2924b(b)(1).)
Existing law permits an association to record a request that
the mortgagee, trustee, or other person authorized to record a
notice of default mail the association a copy of the trustee's
deed upon sale of a separate interest within the association
at foreclosure. The request must include a legal description
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or the assessor's parcel number of the separate interests, the
name and address of the association, and a statement that it
is a homeowners' association. (Civ. Code Sec. 2924b(f).)
Existing law requires the above request to be recorded before
the filing of a notice of default, and requires the mortgagee,
trustee, or other authorized person to mail the requested
information to the association within 15 business days
following the date the trustee's deed is recorded. (Civ. Code
Sec. 2924b(f).)
This bill would, instead, require the mortgagee, trustee, or
other authorized person to mail the requested information to
the association within 15 business days following the
trustee's sale.
2. Existing law provides that every grant of an estate in real
property is conclusive against the grantor, also against
everyone subsequently claiming under him, except a purchaser
or incumbrancer who in good faith and for a valuable
consideration acquires a title or lien by an instrument that
is first duly recorded. (Civ. Code Sec. 1107.)
This bill would provide that, notwithstanding any other law,
the transfer, following the sale of property in a common
interest development executed under the power of sale
contained in any deed of trust or mortgage, shall be recorded
within 30 days after the date of sale in the office of the
county recorder where the property or a portion of the
property is located.
This bill would state that failure to comply with the above
recording requirement shall not affect the validity of a sale
in favor of a bona fide purchaser.
COMMENT
1. Stated need for the bill
According to the author:
AB 2273 seeks to streamline the existing process for the
mortgagee or trustee to provide this information in a timely
manner to the HOA�(homeowner's association)], a process
which was established with the participation of HOAs, banks,
and other stakeholders through discussions over SB 1511
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(Ducheny) of 2008. Since SB 1511 became law, HOAs have
reported continued difficulties in obtaining the information
they need to invoice the new owner its fair share of
assessments, and this proposed amendment is intended to
address the negative impact to HOAs that reportedly arises
from excessive delays in recording the deed.
AB 2273 addresses the above problem by making the
purchaser/new owner of property in a common interest
subdivision responsible for informing the homeowners
association of its interest, so that the party responsible
for property maintenance may be found and assessed. This
amendment will place a minimal burden on the new
owner/purchaser, while providing a significant benefit to
the association and its other members by ensuring timely
collection of association dues from the proper owner of the
property. In an effort to encourage foreclosing lenders to
record a deed of trust after foreclosure, AB 2273 requires
the trustee to record the deed within 30 days of the sale in
the county in which the foreclosed property is located.
2. Problems related to delays in filing the trustee's deed
SB 1511 (Ducheny, Chapter 527, Statutes of2008) permitted a
homeowner's association to request that the person authorized to
record a notice of default mail to the association the trustee's
deed upon sale in foreclosure. That bill required that person
to mail the trustee deed to the association within 15 business
days following the date of trustee's deed is recorded. Upon
receipt of the deed, the association can then begin collecting
assessments from the subsequent owner based upon the contact
information contained within that document.
In response to concerns about excessive delays in the recording
of the trustee's deed, this bill would, instead require the deed
to be mailed to the association within 15 business days
following the date of the sale. By requiring the deed to be
mailed within 15 days of the sale, as opposed to the recording
of the trustee's deed, this bill seeks to ensure that the
association is informed of the change in owner even if there is
a delay in recording the deed. The author further notes:
All too often, in the current market, a beneficiary under a
deed of trust will acquire title to a separate interest
through foreclosure, or under a "Deed in Lieu" and will
provide no notice to an Association, whose interest is of
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record, that the beneficiary has acquired title. Following
foreclosure then, the acquiring beneficiary may fail to take
action with regard to maintenance of the property or to the
obligations due under the Association's CC&Rs �(covenants,
conditions, and restrictions)]. However, because the
Association is left unaware of any change in title, it is
deprived of its right to seek any redress with the owner of
record, and the other members of the Association are left to
pay the price for the neglectful owner whether it be loss of
assessments, or depreciation of neighboring property.
Accordingly, this bill seeks to ensure that associations have
accurate information about the current owner of a foreclosed
property to ensure that the association can hold the appropriate
individual (or entity) responsible for his or her obligations
with respect to the property. From a policy standpoint, it
appears appropriate to ensure than an association is notified
upon the sale of a property within a common interest development
(CID); failure to notify the association may create a situation
where the prior owner is billed for assessments that should
technically be paid by the current owner of the property.
3. Requiring recording of the trustee's deed with 30 days of
the sale
Recording statutes play an important role in resolving conflicts
as to who may own a piece of property. California, a
"race-notice" jurisdiction, requires conveyances of real
property to be recorded in order to be valid against other
purchasers of the same property from the owner, provided certain
conditions are met. A subsequent purchaser of the same property
for value "wins" if they had no knowledge of the prior transfer,
and they record before the prior purchaser. As a result of that
principle, prospective purchasers must search to see if there
are any adverse records that may create a cloud on title, and,
upon purchase, must record as soon as possible to preserve clear
title. (Essentially, a cloud on title is a property interest
that prevents a party from receiving a clear title to the
property.) As a result of California being a race-notice
jurisdiction, existing law generally does not require transfers
of property to be recorded within a specific timeframe,
although, persons purchasing properties have a strong incentive
to record the transfer so as to "prevail" against any subsequent
purchaser.
In order to further address issues related to foreclosing
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lenders failing to record the trustee's deed in a timely manner,
this bill would require the transfer of a property in a CID to
be recorded within 30 days after the date of sale. That
provision would only apply to sales that were the result of the
lender exercising the "power of sale" in a deed of trust or
mortgage (in other words, foreclosed homes). Failure to comply
with that section would not affect the validity of a sale in
favor of a bona fide purchaser. In support of the need to
require recording of the transfer, the Community Associations
Institute (CAI), co-sponsor, asserts:
Intentionally or otherwise, some lenders that have been
foreclosing on homes in homeowners associations (HOAs) do
not record the sale for months, if not years, for purposes
best known to them. When the sale of a property is not
recorded homeowners associations have no current record of
whom to invoice for maintenance assessments (dues).
CAI further asserts that, as a result of the failure to record
the transfer, assessments are not paid, maintenance is
"crippled," remaining homeowners are forced to pay higher
assessments, neighborhoods turn into blight, and county
assessors cannot bill for property tax. CAI also notes that
their survey of HOAs found:
49 percent of all HOA sales were foreclosures and short
sales.
75 percent of the time a lender will not foreclose when
an owner vacates.
73 percent of foreclosure sales are not recorded for at
least 60 days.
23 percent of foreclosure sales are not recorded for at
least 180 days.
76 percent of the time current assessments are not paid
until 60 days after foreclosure.
28 percent of the time current assessments are not paid
until 120 days after foreclosure.
14 percent of the time current assessments are not paid
until 180 days after foreclosure.
79 percent of the time lenders fail to pay any portion
of past due assessments.
Although, from a policy standpoint, financial institutions that
receive title to foreclosed homes after the trustee's sale
should not be able to avoid payment of assessments (and other
charges) after becoming the owner of the property, requiring
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recordation of the transfer is arguably inconsistent with
California's status as a race-notice jurisdiction. Despite that
inconsistency, requiring recording of the transfer in this
circumstance would appear to help address a serious problem
facing HOAs and the countless individuals who do live in CIDs.
The author further asserts: "Under the common law scheme of
property, ownership must be open and notorious. That is to say,
that the owner must hold himself out to the public as owner of
the property in order for our recording system to work and be
effective." The California Building Industry Association, in
support, further asserts that the recording "is consistent with
California's public policy of openness and fair dealings. The
burden of recording is relatively small in comparison to the
burden consequently imposed upon remaining owners in the
association."
The United Trustee's Association, in an oppose unless amended
position, contends:
Our objection is to the requirement contained in proposed
new Civil Code Section 2941.1 to record trustee's deeds
within 30 days after the foreclosure sale. While this
standard may not be overly burdensome in the usual
circumstances, there will be cases outside of the control of
the trustee where the deed is not recorded within the
required timeframe.
Two examples are these: the trustee's deed is mailed to the
county recorder for recordation, where because of workload
or inadvertence the deed sits at the recorder's office
unrecorded. Through no fault of the trustee, the 30-day
standard is violated, and obviously once the 30-day period
has elapsed, compliance is impossible. A second example
relates to threatened litigation after the foreclosure sale.
Sometimes unsuccessful bidders at the sale raise procedural
objections and threaten to sue. The trustee may delay
recording the trustee's deed to determine if the matter can
be resolved.
Additionally, the bill fails to clarify the question of
title to the property if the 30-day timeframe is missed.
Litigation may be required to determine the validity of the
underlying foreclosure sale. Language to clarify this issue
should be included within AB 2273.
Staff notes that the bill's language arguably leaves open the
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question about whether an inadvertent failure to record the
transfer may affect the validity of a transfer of the property
to the foreclosing financial institution after the foreclosure
sale. As the validity of that transfer is essential to ensure
that the financial institution is fully obligated to both pay
assessments and maintain the property, the following author's
amendment would clarify that failure to comply shall also not
affect the validity of a trustee's sale.
Amendment:
On page 7, line 39 before sale, insert: trustee's sale or
Support : California Association of Realtors; California
Building Industry Association (CBIA); Community of Shadowridge
Owners' Association; Congress of California Seniors; Executive
Council of Homeowners; Garden Isle Homeowner's Association;
Golden Rain Foundation; Southwest California Legislative
Council; Sun City Palm Desert; Sun City Roseville Association;
numerous individuals
Opposition : United Trustee's Association
HISTORY
Source : Community Associations Institute; Conference of
California Bar Associations
Related Pending Legislation : None Known
Prior Legislation : SB 1511 (Ducheny, Chapter 527, Statutes of
2008) See Background.
Prior Vote :
Assembly Housing & Community Development Committee (Ayes 7, Noes
0)
Assembly Judiciary Committee (Ayes 8, Noes 1)
Assembly Floor (Ayes 50, Noes 24)
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