BILL ANALYSIS �
SB 827
Page 1
Date of Hearing: June 10, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
SB 827 (Liu) - As Amended: April 8, 2014
SENATE VOTE : 25-10
SUBJECT : LOCAL GOVERNMENT: LOS ANGELES COUNTY: NOTICE OF
RECORDATION
KEY ISSUE : IN ORDER TO CONTINUE PREVENTION OF FORECLOSURE AND
LOAN MODIFICATION SCAMS, SHOULD THE SUNSET DATE BE EXTENDED
ANOTHER FIVE YEARS FOR THE CURRENT PILOT PROGRAM THAT AUTHORIZES
THE LOS ANGELES COUNTY RECORDER TO NOTIFY OWNERS AND OCCUPANTS
OF PROPERTY BY MAIL WHEN A NOTICE OF DEFAULT OR NOTICE OF SALE
HAS BEEN RECORDED ON THE PROPERTY?
SYNOPSIS
Under SB 62 (Liu), Ch. 141, Stats. 2011, the Los Angeles County
Recorder is authorized to: (1) notify owners and occupants of a
property by mail when a notice of default or notice of sale has
been recorded on the property; and (2) collect a fee of up to
$7, as specified, in order to cover the costs of notifying the
parties, as well as providing information about housing
assistance and counseling to callers to a telephone hotline
publicized on the mailed notice. SB 62 expanded and enhanced
the Homeowner Notification Program that has been employed in Los
Angeles since the 1990's to combat foreclosure and loan
modification fraud, but the expanded SB 62 component is set to
expire on January 1, 2015.
This bill, sponsored by Los Angeles County, would simply
reauthorize, until January 1, 2020, the additional SB 62 owner
notification and the accompanying fee that covers the cost of
the program. In addition, this bill shortens by six days the
time that the Recorder must send the notification to affected
parties, and expands reporting requirements to facilitate more
comprehensive evaluation of the program by the Legislature in
2020. Supporters of the bill, including several consumer
advocate groups and the city and county attorneys representing
Los Angeles, contend that this bill will continue to enable
homeowners to act promptly to protect themselves from possible
fraud and property-related scams. This bill was approved by the
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Assembly Local Government Committee by a 7-1 vote and has no
registered opposition.
SUMMARY : Extends by five years the sunset date for a pilot
program in Los Angeles County that authorizes the County
Recorder, to notify occupants and other persons when a notice of
default or sale has been recorded on a property. Specifically,
this bill :
1)Extends, until January 1, 2020, the pilot authority of the Los
Angeles County Recorder (Recorder) to notify parties of the
recording of a notice of default or a notice of sale, and to
collect an additional fee from the party recording the notice.
2)Reduces, from 20 days to 14 days of recordation, the time by
which the Recorder is to notify the party or parties subject
to a notice of default or a notice of sale.
3)Requires the Los Angeles County Board of Supervisors to submit
a report on or before January 1, 2019 to the Senate Committee
on Judiciary and the Assembly Committee on Local Government
that includes, but is not limited to, a copy of the type of
notices mailed, the number of recorded notices of default and
sale for which a fee was collected, the amount of fees
collected, and the amount of fees spent to provide housing
information, counseling, and assistance.
4)Requires the above report to include the following additional
information:
a) Documented examples showing how the county's homeowner
notification program led to successful investigations of
real estate fraud activity, referrals to prosecuting
agencies, avoided foreclosures, or helped property owners
and residents avoid falling victim to real estate fraud.
b) An evaluation of whether the county's homeowner
notification program, in comparison to other available
policy tools in the County of Los Angeles, is a
cost-effective approach to combating real estate fraud and
reducing foreclosures.
c) An evaluation of whether L.A. County's homeowner
notification program is an effective way to inform tenants
of an impending foreclosure and to combat abusive
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post-foreclosure practices by property owners.
d) An assessment of how the county's homeowner notification
program compares to real estate fraud and foreclosure
prevention programs being implemented in at least three
other large, urban California counties.
5)Finds and declares that a special law is necessary and that a
general law cannot be made applicable within the meaning of
Section 16 of Article IV of the California Constitution
because the County of L.A. is experiencing a unique and
prolonged recovery from the financial and real estate fraud
crisis.
EXISTING LAW :
1)Authorizes the Los Angeles County Recorder, upon the adoption
of an authorizing resolution by the board of supervisors, to
mail a notice to the party or parties executing a deed,
quitclaim deed, or deed of trust, within 30 days of
recordation. (Government Code Section 27297.6(a)(1)(A). All
further references are to this code unless otherwise stated.)
2)Authorizes the Recorder, upon adoption of an authorizing
resolution by the Los Angeles County Board of Supervisors, to
mail a notice to the party or parties subject to a notice of
default or notice of sale, including the occupants of that
property, within five days, but in any event no more than 20
days, of the recording of those documents. (Section
27297.6(a)(1)(B).)
3)Permits the Recorder to collect an additional fee from the
party filing a deed, quitclaim deed, deed of trust, notice of
default, or notice of sale, for implementing the above
provisions, in an amount not to exceed the mailing cost of the
notice and the actual cost, if any, to provide information,
counseling, or assistance to a person who receives the notice,
but in no case more than $7. (Section 27387.1(a).)
4)Provides that the fee may include specified administrative
costs to carry out the notification program so long as they do
not exceed ten percent of the total fee collected. (Section
27387.1(b).)
5)Provides that the authority of the Recorder to provide such
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notification upon recordation, and to collect an additional
fee from the party recording the notice, shall remain in
effect only until January 1, 2015, and as of that date shall
be repealed, unless a later enacted statute, that is enacted
before January 1, 2015, deletes or extends that date.
(Section 27297.6(e) and Section 27387.1(c).)
6)Requires the trustee, or authorized agent, that represents the
foreclosing financial institution to post and mail a notice
informing the residents of a property about a pending
foreclosure sale. That notice informs residents that the
property may be sold at a foreclosure sale, the requirements
of an eviction notice, and that they may wish to contact a
lawyer or a local legal aid or housing counseling agency to
discuss any rights they may have. (Civil Code Section
2924.8.)
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
COMMENTS : This bill, sponsored by the Los Angeles County Board
of Supervisors, seeks to extend, until January 1, 2020,
authority for the Los Angeles County Recorder (Recorder) to
notify by mail any party subject to a notice of default or a
notice of sale, including the occupants of that property, and to
collect fees for this purpose from those recording such
documents. Current authority for this notification program,
pursuant to SB 62 (Liu), Ch. 141, Stats. 2011, expires on
January 1, 2015. According to the author:
The home foreclosure crisis has created opportunities for
more fraudulent transactions, as well as displacing renters
who had no idea that the home they occupy was in the
process of foreclosure. The County has established the
initial framework to implement the SB 62 notice program,
but the original bill expires on January 1, 2015. The
County needs more time to implement the SB 62 notice
program, given the size of Los Angeles County and the large
number of foreclosures. This bill will help prevent
property sale fraud and protect homeowners and renters in
Los Angeles County. When the County records a notice of
default or notice of sale for a home, the occupants will
receive a notice in the mail. Residents will know that a
home is being sold, foreclosed on, or is possibly involved
in a fraudulent transaction.
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Background on longstanding homeowner notification program in Los
Angeles. The non-judicial foreclosure process in California
begins with the filing of a notice of default, which usually
occurs after three or more months of delinquency. The
foreclosing entity must then generally wait at least three
months before noticing the sale of the property, which must be
posted, published, and filed with the county recorder. As a
result, the property owner, at minimum, should receive a mailed
copy of the notice of default and notice of sale, which
generally provide the owner with information about his or her
rights at that point in the foreclosure process. The tenant of
the property being foreclosed upon should also receive a mailed
copy of the notice of sale, and should see the same physically
posted on the property being sold.
The County of Los Angeles has, since 1992, operated a
county-specific "Homeowner Notification Program" that is
designed to help combat real estate fraud in Los Angeles County.
According to the author, the intent of the additional notice is
to warn homeowners about potentially fraudulent foreclosure
activity and to provide owners and occupants of distressed
properties with counseling services to avoid or mitigate the
effects of foreclosure. Under this program, the County Recorder
is authorized to collect a distinct fee from parties that record
certain documents evidencing the transfer of title, specifically
deeds, quitclaim deeds, and deeds of trust. That fee is used to
mail a notice of recordation to the party that purportedly
executed the document, and to fund a help line at the Los
Angeles County Department of Consumer Affairs (DCA) that
property owners who receive these notices can call to receive
information and assistance. This notification program, enacted
in 1992 and renewed in 1996, seeks to address problems related
to forged real estate documents by notifying property owners
that their real estate is subject to a recently filed document
that could affect their property interests. By informing
property owners about recently filed title transfer documents,
the notice allows these owners to contact law enforcement if
they suspect that the documents are fraudulent.
With SB 62 (Liu) becoming operative law in January 2012, the
homeowner notification program expanded to allow the County
Recorder to also notify owners of a property (and occupants of
the home) when a notice of default or notice of sale is recorded
against the property. Those documents signify either the
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beginning of the non-judicial foreclosure process (notice of
default), or the announcement of the sale date (notice of sale),
indicating that the home could be very close to being sold at
auction. Although existing law mandates mailing or posting
several other statutory notices to both property owners and
tenants impacted by a non-judicial foreclosure, this additional
notice allows Los Angeles County to send region-specific
information to help affected individuals both become aware of
available resources, and aware of potential scams that may
target owners of distressed properties. As with the recording
of deeds, quitclaim deeds, and deeds of trust, the expanded SB
62 notification program authorizes the Recorder to collect a
specified fee from parties that record notices of default and
notices of sale in order to fund the program. These fees are
used to cover the cost of mailing the notices as well as to
provide foreclosure avoidance assistance and housing counseling
via the DCA help line. Authorization for this expanded SB 62
component of the Homeowner Notification Program is set to expire
on January 1, 2015.
This bill would reauthorize the expanded component of the
Homeowner Notification Program for an additional five years.
The bill would also require the Los Angeles County Board of
Supervisors to submit a report to the Senate Committee on
Judiciary and the Assembly Committee on Local Government for the
purpose of assessing the performance of the expanded program one
year before its proposed termination date of January 1, 2020.
Analysis of fee provision under Proposition 26 . This bill would
authorize the county recorder to continue collecting fees from
parties filing notices of default and notices of sale, not to
exceed $7, to cover the cost of mailing the county-specific
homeowner notices and the actual cost, if any, to provide
information, counseling, or assistance to recipients of the
notices under the expanded Homeowner Notification Program. It
appears that the bill allows those fees to also fund counseling
and assistance programs, thereby providing financial assistance
to Los Angeles County housing assistance programs that are
losing funds due to budget constraints. Recipients of the
county-specific notices would likely be given the contact
information for those programs and would therefore benefit from
the collection of the fees to assist in their funding.
Proposition 26, passed by the voters in 2010, may complicate the
continued imposition of the fee by potentially requiring that
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the $7 fee be approved by a vote of the people. Proposition 26
amended the California Constitution to expand the scope of taxes
and tax increases that require approval by local voters.
Proposition 26 defined "tax" as "any levy, charge or exaction of
any kind imposed by a local government" except as specified.
(Cal. Const. art. XIII C, Sec. 1(e) [emphasis added].) Of the
seven specific exceptions to the definition of tax included in
Proposition 26, the first two would appear to be most relevant
to Los Angeles County's notice of default and notice of sale
recordation fee:
(1) A charge imposed for a specific benefit conferred or
privilege granted directly to the payor that is not
provided to those not charged, and which does not exceed
the reasonable costs to the local government of conferring
the benefit or granting the privilege.
(2) A charge imposed for a specific government service or
product provided directly to the payor that is not provided
to those not charged, and which does not exceed the
reasonable costs to the local government of providing the
service or product. (Cal. Const. art. XIII C, Secs.
1(e)(1) and (2).)
The County of Los Angeles asserts that placing the $7.00 fee on
the ballot is not required under Proposition 26 because the
foreclosure prevention programs financed by the fee confer a
direct benefit to the payor - typically a bank or trustee - that
is not provided to those not charged. They contend that the
notification program, to include the notice to homeowners in
default, benefits lenders as well because lenders lose on
average tens of thousands of dollars on each foreclosed home.
DCA notes that for a $7.00 fee, which includes the cost of
mailing a notification, it can work with the lender and the
homeowner to reach a resolution that avoids foreclosure such as
a loan modification, short sale, or cash-for-keys agreement.
According to recent assessments of the program, DCA estimates
that it can successfully help homeowners, and, by extension,
lenders, avoid foreclosure in approximately 25 percent of cases
where homeowners request assistance, potentially saving lenders
an estimated $30 million annually.
It should also be noted that the fee re-authorized by this bill
is reasonably limited to actual costs incurred by the county for
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mailing and providing services. Consistent with the existing SB
62 program, the re-authorized may not exceed the cost of mailing
the notice and the actual cost to provide information,
counseling, or assistance to recipients of the notice, and may
not in any case exceed $7. Under the program, the notification
letter must continue to be sent to the appropriate parties
whenever the fee is collected from the party filing the notice
of default or notice of sale, without exception. Furthermore,
the actual costs may include administrative costs incurred by
the County Recorder in performing its duties, but under this
bill these administrative costs may still not exceed 10 percent
of the total fee collected. Because the re-authorized program
would continue to limit the fee to no more than the actual
costs, including modest administrative costs of operating the
notification program, it appears that the fee re-authorized by
this bill meet the criteria under either exception (1) or (2)
that would exempt the fee from having to be placed on the ballot
for voter approval pursuant to Proposition 26.
This bill expands reporting requirements to facilitate better
evaluation of the program by the Legislature in 2020. In order
to give the Legislature an opportunity to review the expanded
Homeowner Notification program and evaluate the SB 62 program's
effectiveness, this bill expands existing reporting requirements
that Los Angeles County must meet on or before January 1, 2019,
to include the following additional information about the
county's homeowner notification program: (1) documented examples
showing how the program led to successful investigations of real
estate fraud activity, referrals to prosecuting agencies,
avoided foreclosures, or helped property owners and residents
avoid falling victim to real estate fraud; (2) an evaluation of
whether the program, in comparison to other available policy
tools in the County of Los Angeles, is a cost-effective approach
to combating real estate fraud and reducing foreclosures; (3) an
evaluation of whether the program is an effective way to inform
tenants of an impending foreclosure and to combat abusive
post-foreclosure practices by property owners; and (4) an
assessment of how the program compares to real estate fraud and
foreclosure prevention programs being implemented in at least
three other large, urban California counties. According to the
author, these additional qualitative assessments of the expanded
notification program's performance will better help the
Legislature determine whether the program is effective and
fulfilling its goals.
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Prior Legislation : SB 62 (Liu, Ch. 141, Stats. 2011) authorizes
the Los Angeles County Recorder to notify affected parties,
including occupants of the property, when a notice of default or
notice of sale has been recorded on a property. This bill
permits the Los Angeles County Recorder to collect a fee of up
to $7 in order to cover the costs of notifying the parties and
providing information about housing assistance and counseling.
SB 878 (Liu, 2010) would have authorized a notification program
identical to that in SB 62 (Liu, Ch. 141, Stats. 2011), but was
vetoed by then-Governor Schwarzenegger.
REGISTERED SUPPORT / OPPOSITION :
Support
Consumer Federation of America
Consumer Federation of California
Los Angeles County District Attorney's Office
Los Angeles County Sheriff's Department
SEIU
Western Center on Law and Poverty
Opposition
None on file
Analysis Prepared by : Anthony Lew / JUD. / (916) 319-2334