BILL ANALYSIS �
AB 2039
Page 1
ASSEMBLY THIRD READING
AB 2039 (Muratsuchi)
As Amended April 21, 2014
Majority vote
JUDICIARY 9-0
-----------------------------------------------------------------
|Ayes:|Wieckowski, Wagner, | | |
| |Alejo, Chau, Dickinson, | | |
| |Garcia, Maienschein, | | |
| |Muratsuchi, Stone | | |
|-----+--------------------------+-----+--------------------------|
| | | | |
-----------------------------------------------------------------
SUMMARY : Regulates certain contracts regarding auction sales of
real property. Specifically, this bill provides that neither a
lender nor an auction company retained by a lender to control
aspects of a transaction of real property subject to this part,
including validating the sales price, may require the homeowner
or listing agent to defend or indemnify the lender or auction
company from any liability alleged to result from the actions of
the lender or auction company as a condition of receiving the
lender's approval of the transaction. Any clause, provision,
covenant or agreement purporting to impose an obligation to
defend or indemnify an auction company or lender in violation of
this subdivision is against public policy, void, and
unenforceable.
FISCAL EFFECT : None
COMMENTS : The author explains the reason for the bill as
follows:
This bill would change existing law to address a new
phenomenon where listing agents of short sales are
being required to accept liability over transactions
in which they have no control. Under current law, the
lender retains complete control over the contract,
which can have a provision which requires the selling
agent to accept liability for auction company mistakes
and for any damages arising out of any action taken by
the auction company. These provisions only exclude
cases of gross negligence, willful misconduct, bad
AB 2039
Page 2
faith, an unlawful act or fraud. In other words, the
auction company is held harmless for mistakes it makes
in the regular course of business. This policy may
lead to future lawsuits. This bill ? places the
responsibility for liability with the party whose
actions caused the liability.
According to the sponsor, California Association of Realtors:
Understandably, lenders want to make sure the price
they are being offered in a short sale transaction
reflects the best price they are likely to get for the
home. The lender is contemplating accepting less than
is owed on the mortgage and wants to minimize their
loss. To that end, lenders are sometimes requiring
that short sale homes be put out to bid using an
auction company retained for that purpose. If the
bids come in under the original offer, the original
offer is accepted; if not, the new high bidder becomes
the purchaser of the home. The lender completely
controls the contract under which the seller agrees to
have his or her home put out to bid (if the seller
disagrees with any aspect of the contract, the lender
will simply reject the short sale offer). These
contracts can have a provision that requires the
seller to accept liability for auction company
mistakes for any damages arising out of any action
taken by the auction company. These provisions only
exclude cases of gross negligence, willful misconduct,
bad faith, an unlawful act or fraud. In other words,
the auction company is held harmless for mistakes it
makes in the regular course of business. AB 2039
places the responsibility for liability for damages
with the party whose actions are the cause of the
liability.
Information provided to the Assembly Judiciary Committee
includes a contract for short sale auction market validation,
drafted by an auction company, requiring the seller to indemnify
the auction company against any and all liability arising in
connection with any claim for negligence in the conduct of the
transaction. The realtors argue that the effect of agreements
such as this may be to transfer all liability to the listing
agent, since the seller is likely to bring claims against his or
AB 2039
Page 3
her agent if the seller is required to indemnify the auction
company.
Under the bill, neither a lender nor an auction company retained
by a lender to control aspects of a transaction of real property
subject to this part, including validating the sales price, may
require the homeowner or listing agent to defend or indemnify
the lender or auction company from any liability alleged to
result from the actions of the lender or auction company as a
condition of receiving the lender's approval of the transaction.
Any clause, provision, covenant or agreement purporting to
impose an obligation to defend or indemnify an auction company
in violation of this subdivision is against public policy, void,
and unenforceable.
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334
FN: 0003149