BILL ANALYSIS �
SB 4
Page 1
Date of Hearing: June 27, 2011
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
SB 4 (Calderon & Vargas) - As Amended: June 21, 2011
SENATE VOTE : 40-0
SUBJECT : Mortgages.
SUMMARY : Provides additional information to property owners
and bidders regarding residential foreclosure auction sales.
Specifically, this bill :
1)Requires a notice of sale on real property containing one to
four single family residences to contain language informing
potential bidders on the nature of the process, potential
risks, and resources to assist them.
2)Requires the notice of sale to provide information to the
property owner whose property is subject to auction regarding
the auction sale date and postponements that may occur.
3)Requires a mortgagee, beneficiary, trustee or authorized agent
to make a good faith effort in providing up-to-date
information regarding sale dates and postponements.
4)Limits the rights and remedies for failure to comply with
these provisions.
EXISTING LAW
1)Regulates the non-judicial foreclosure process pursuant to the
power of sale contained within a mortgage contract, and
provides that in order to commence the process, a trustee,
mortgagee, or beneficiary must record a notice of default
(NOD) and allow three months to lapse before setting a notice
of sale for the property. (Civil Code, Section 2924)
2)Provides that the mortgagee, trustee or other person
authorized to make the sale must give notice of sale, and
requires notice of the sale to be made, as specified, at least
20 days prior to the date of sale. (Civil Code, Section 2924f)
3)Provides that a mortgage, trustee, beneficiary, or authorized
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agent (entities) may not file a NOD until 30 days after
contact has been made with the borrower who is in default.
(Civil Code, Section 2923.5a)
4)Requires an entity to maintain a toll-free number for
borrowers that will provide access to a live representative
during business hours and requires the entity to maintain a
link on the main page of its Internet Web site containing the
following information:
a) Options that may be available to borrowers who are
unable to afford their mortgage payments and who wish to
avoid foreclose, and instructions to borrowers advising
them on steps to take to explore these options; and,
b) A list of documents borrowers should collect and be
prepared to submit when discussing options to avoid
foreclosure. (Civil Code, Section 2923g (5))
5)Provides that a notice of sale postponement may occur at any
time prior to the completion of a sale for any period of time
not to exceed a total of 365 days from the date set in the
notice of sale. (Civil Code, Section 2924g)
6)Specifies that if sale proceedings are postponed for a period
totaling more than 365 days, the scheduling of any further
proceedings shall be preceded by giving a new notice of sale.
(Civil Code, Section 2924g)
FISCAL EFFECT : None.
COMMENTS :
The foreclosure crisis raised a number of issues related to the
loan modification and foreclosure process. This bill attempts
to clarify two issues. First, beginning on or after April 1,
2012, applying to all deeds of trust or mortgage containing a
power of sale secured by real property containing one to four
single family residences, the notice of sale shall include
language that notifies potential bidders of the risks associated
with bidding on foreclosed homes. Second, beginning on or after
April 1, 2012, applying to all deeds of trust or mortgages
containing a power of sale secured by real property containing
one to four single family residences, the notice of sale shall
also include information informing the property owner of the
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sale date and ways to get information regarding a postponement.
This measure also requires mortgagee, beneficiaries, trustees or
authorized agents to make a good faith effort in providing up to
day information regarding sale dates and postponements. It is
a lot noted in SB 4 that failing to comply with any portions of
this measure would not invalidate any sale that would otherwise
be valid under Civil Code, Section 2924f.
Notice to Property Owner : Often a notice of sale is postponed
for various reasons. Under existing law, a homeowner must be
notified 20 days before the notice of sale is set, but the law
is unclear on whether this 20 day requirement applies if a
notice of sale is postponed. While homeowners receive the
initial notification of the notice of sale, it seems many do not
receive another notification of the new notice of sale date and
instead find out after the fact that their home has been
auctioned off.
Under existing law, there may be a postponement or postponements
of the sale proceedings, including a postponement upon
instruction by the beneficiary to the trustee that the sale
proceedings be postponed, at any time prior to the completion of
the sale for any period of time not to exceed a total of 365
days from the date set forth in the notice of sale. The trustee
can postpone the sale for any of the following reasons: upon the
order of any court of competent jurisdiction; if stayed by
operation of law; by mutual agreement, whether oral or in
writing, of any trustor and any beneficiary or any mortgagor and
any mortgagee; at the discretion of the trustee.
According to the author, most homeowners who receive notices of
sale in the mail are unaware of the postponement rules. If a
few days pass, following the sale date and time listed in their
notice of sale, and there is no knock on the door from someone
with an official-looking piece of paper, ordering them to leave
their home, most homeowners breathe a sigh of relief, and
believe that they have avoided the loss of their home. They are
often unaware that the date and time of their foreclosure sale
was merely postponed and equally unaware how they might learn
when that new sale date and time have been scheduled.
This measure does not require an additional notice if the
foreclosure sale is postponed but requires on the initial notice
of sale additional information that should help property owners
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find the necessary information regarding a postponement. While
this measure does initially put the burden on the mortgagee,
trustee, beneficiary or authorized agent to put the notice in
the notice of sale, the measure then puts the responsibility
onto the property owner to look on a website or make a phone
call to determine if the sale has been postponed and to what
date is has been postponed to.
Notice to Potential Bidders : According to the author, when a
trustee sale auction is held, the sale is made to the party that
offers the highest bid, subject to the rules set forth in
California statute. Generally speaking, these rules require any
third party bidder (i.e., any bidder other than the foreclosing
beneficiary) to supply the amount of his or her winning bid in
cash or via cashier's check. Most individuals understand that
they must come to an auction, prepared to pay cash or bring
cashier's checks in the full amount they bid. However,
unsophisticated bidders incorrectly believe that their "winning"
bid entitles them to free and clear ownership of the property
that is the subject of the sale; these bidders are often unaware
that, under the law, their "winning" bid entitles them only to
whatever interest in the property was held by the foreclosing
beneficiary.
In a few recent instances, a lender foreclosed on a junior lien,
and an unwitting bidder purchased that junior lien at the
foreclosure sale, only to learn that they were now responsible
for satisfying the outstanding, senior lien(s) on the property,
before they could take clear title. In both known instances,
neither "winning" bidder was able to afford to pay off the
outstanding senior lien(s) against the property, and both ended
up losing all of the money - several hundred thousand dollars -
that they had bid at the foreclosure sale. The situations in
which these unknowing bidders lost money are perfectly legal.
SB 4 attempts to notify bidders of the potential consequences
when placing a bid at a foreclosure sale.
PREVIOUS LEGISLATION
AB 2678 (Fuentes, 2010 Legislative Session) would have
prohibited a mortgagee, trustee, beneficiary, or authorized
agent from giving notice of sale if the mortgagee, trustee,
beneficiary, or authorized agent is currently in negotiations to
modify the existing loan and would have provided that if the
sale proceedings have been postponed, the borrower shall receive
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a new notification of the notice of sale before the date of the
actual sale. Failed Passage in the Assembly Banking and Finance
Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
California Bankers Association (CBA)
United Trustees Association (UTA)
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081