BILL NUMBER: SB 1137 CHAPTERED
BILL TEXT
CHAPTER 69
FILED WITH SECRETARY OF STATE JULY 8, 2008
APPROVED BY GOVERNOR JULY 8, 2008
PASSED THE SENATE JULY 2, 2008
PASSED THE ASSEMBLY JUNE 30, 2008
AMENDED IN ASSEMBLY JUNE 30, 2008
AMENDED IN ASSEMBLY MAY 23, 2008
AMENDED IN ASSEMBLY MAY 6, 2008
AMENDED IN SENATE APRIL 16, 2008
AMENDED IN SENATE APRIL 9, 2008
AMENDED IN SENATE MARCH 27, 2008
AMENDED IN SENATE MARCH 13, 2008
INTRODUCED BY Senators Perata, Corbett, and Machado
(Principal coauthors: Assembly Members Bass and Lieu)
(Coauthors: Senators Calderon, Cedillo, Ducheny, Migden,
Ridley-Thomas, Romero, Scott, and Wiggins)
(Coauthors: Assembly Members Arambula, Berg, Brownley, Caballero,
Carter, Coto, DeSaulnier, Fuentes, Hancock, Hayashi, Hernandez,
Jones, Nava, Parra, Ruskin, Torrico, and Wolk)
JANUARY 31, 2008
An act to add and repeal Sections 2923.5, 2923.6, 2924.8, and
2929.3 of the Civil Code, and to add and repeal Section 1161b of the
Code of Civil Procedure, relating to mortgages, and declaring the
urgency thereof, to take effect immediately.
LEGISLATIVE COUNSEL'S DIGEST
SB 1137, Perata. Residential mortgage loans: foreclosure
procedures.
(1) Upon a breach of the obligation of a mortgage or transfer of
an interest in property, existing law requires the trustee,
mortgagee, or beneficiary to record in the office of the county
recorder wherein the mortgaged or trust property is situated, a
notice of default, and to mail the notice of default to the mortgagor
or trustor. Existing law requires the notice to contain specified
statements, including, but not limited to, those related to the
mortgagor's or trustor's legal rights, as specified. Existing law
also requires that the notice of sale in the case of default be
posted on the property, as specified.
Until January 1, 2013, and as applied to residential mortgage
loans made from January 1, 2003, to December 31, 2007, inclusive,
that are for owner-occupied residences, this bill would, among other
things, require a mortgagee, trustee, beneficiary, or authorized
agent to wait 30 days after contact is made with the borrower, or 30
days after satisfying due diligence requirements to contact the
borrower, as specified, before filing a notice of default. The bill
would require contact with the borrower, as defined, in order to
assess the borrower's financial situation and explore options for the
borrower to avoid foreclosure. The bill would require the mortgagee,
beneficiary, or authorized agent to advise the borrower that he or
she has the right to request a subsequent meeting within 14 days, and
to provide the borrower the toll-free telephone number made
available by the United States Department of Housing and Urban
Development (HUD) to find a HUD-certified housing counseling agency.
The bill would require the notice of default to include a specified
declaration from the mortgagee, beneficiary, or authorized agent
regarding its contact with the borrower or that the borrower has
surrendered the property. If a notice of default had already been
filed prior to the enactment of this act, the bill would instead
require the mortgagee, trustee, beneficiary, or authorized agent, as
part of the notice of sale, to include a specified declaration
regarding contact with the borrower. The bill would authorize a
borrower to designate a HUD-certified housing counseling agency,
attorney, or other advisor to discuss with the mortgagee,
beneficiary, or authorized agent, on the borrower's behalf, options
for the borrower to avoid foreclosure. The contact and meeting
requirements of these provisions would not apply if a borrower has
surrendered the property or the borrower has contracted with an
organization, as specified. The bill would also require specified
mailings to the resident of a property that is the subject of a
notice of sale, as specified. In addition, the bill would make it a
crime to tear down the notice of sale posted on a property within 72
hours of posting, thereby imposing a state-mandated local program.
Until January 1, 2013, this bill would require a legal owner to
maintain vacant residential property purchased at a foreclosure sale,
or acquired by that owner through foreclosure under a mortgage or
deed of trust. The bill would authorize a governmental entity to
impose civil fines and penalties for failure to maintain that
property of up to $1,000 per day for a violation. The bill would
require a governmental entity that seeks to impose those fines and
penalties to give notice of the claimed violation and an opportunity
to correct the violation at least 14 days prior to imposing the fines
and penalties, and to allow a hearing for contesting those fines and
penalties.
(2) Existing law governs the termination of tenancies and
generally requires 30 days' notice of the termination thereof, except
under specified circumstances. Existing law also establishes the
criteria for determining when a tenant is guilty of unlawful
detainer.
Until January 1, 2013, this bill would give a tenant or subtenant
in possession of a rental housing unit at the time the property is
sold in foreclosure, 60 days to remove himself or herself from the
property, as specified.
(3) This bill would set forth specified findings and declarations
and intent provisions with regard to the above, and would provide
that its provisions are severable.
(4) The California Constitution requires the state to reimburse
local agencies and school districts for certain costs mandated by the
state. Statutory provisions establish procedures for making that
reimbursement.
This bill would provide that no reimbursement is required by this
act for a specified reason.
(5) This bill would declare that it is to take effect immediately
as an urgency statute.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) California is facing an unprecedented threat to its state
economy and local economies because of skyrocketing residential
property foreclosure rates in California. Residential property
foreclosures increased sevenfold from 2006 to 2007. In 2007, more
than 84,375 properties were lost to foreclosure in California, and
254,824 loans went into default, the first step in the foreclosure
process.
(b) High foreclosure rates have adversely affected property values
in California, and will have even greater adverse consequences as
foreclosure rates continue to rise. According to statistics released
by the HOPE NOW Alliance, the number of completed California
foreclosure sales in 2007 increased almost threefold from 1,902 in
the first quarter to 5,574 in the fourth quarter of that year. Those
same statistics report that 10,556 foreclosure sales, almost double
the number for the prior quarter, were completed just in the month of
January 2008. More foreclosures means less money for schools, public
safety, and other key services.
(c) Under specified circumstances, mortgage lenders and servicers
are authorized under their pooling and servicing agreements to modify
mortgage loans when the modification is in the best interest of
investors. Generally, that modification may be deemed to be in the
best interest of investors when the net present value of the income
stream of the modified loan is greater than the amount that would be
recovered through the disposition of the real property security
through a foreclosure sale.
(d) It is essential to the economic health of California for the
state to ameliorate the deleterious effects on the state economy and
local economies and the California housing market that will result
from the continued foreclosures of residential properties in
unprecedented numbers by modifying the foreclosure process to require
mortgagees, beneficiaries, or authorized agents to contact borrowers
and explore options that could avoid foreclosure. These changes in
accessing the state's foreclosure process are essential to ensure
that the process does not exacerbate the current crisis by adding
more foreclosures to the glut of foreclosed properties already on the
market when a foreclosure could have been avoided. Those additional
foreclosures will further destabilize the housing market with
significant, corresponding deleterious effects on the local and state
economy.
(e) According to a survey released by the Federal Home Loan
Mortgage Corporation (Freddie Mac) on January 31, 2008, 57 percent of
the nation's late-paying borrowers do not know their lenders may
offer alternatives to help them avoid foreclosure.
(f) As reflected in recent government and industry-led efforts to
help troubled borrowers, the mortgage foreclosure crisis impacts
borrowers not only in nontraditional loans, but also many borrowers
in conventional loans.
(g) This act is necessary to avoid unnecessary foreclosures of
residential properties and thereby provide stability to California's
statewide and regional economies and housing market by requiring
early contact and communications between mortgagees, beneficiaries,
or authorized agents and specified borrowers to explore options that
could avoid foreclosure and by facilitating the modification or
restructuring of loans in appropriate circumstances.
SEC. 2. Section 2923.5 is added to the Civil Code, to read:
2923.5. (a) (1) A mortgagee, trustee, beneficiary, or authorized
agent may not file a notice of default pursuant to Section 2924 until
30 days after contact is made as required by paragraph (2) or 30
days after satisfying the due diligence requirements as described in
subdivision (g).
(2) A mortgagee, beneficiary, or authorized agent shall contact
the borrower in person or by telephone in order to assess the
borrower's financial situation and explore options for the borrower
to avoid foreclosure. During the initial contact, the mortgagee,
beneficiary, or authorized agent shall advise the borrower that he or
she has the right to request a subsequent meeting and, if requested,
the mortgagee, beneficiary, or authorized agent shall schedule the
meeting to occur within 14 days. The assessment of the borrower's
financial situation and discussion of options may occur during the
first contact, or at the subsequent meeting scheduled for that
purpose. In either case, the borrower shall be provided the toll-free
telephone number made available by the United States Department of
Housing and Urban Development (HUD) to find a HUD-certified housing
counseling agency. Any meeting may occur telephonically.
(b) A notice of default filed pursuant to Section 2924 shall
include a declaration from the mortgagee, beneficiary, or authorized
agent that it has contacted the borrower, tried with due diligence to
contact the borrower as required by this section, or the borrower
has surrendered the property to the mortgagee, trustee, beneficiary,
or authorized agent.
(c) If a mortgagee, trustee, beneficiary, or authorized agent had
already filed the notice of default prior to the enactment of this
section and did not subsequently file a notice of rescission, then
the mortgagee, trustee, beneficiary, or authorized agent shall, as
part of the notice of sale filed pursuant to Section 2924f, include a
declaration that either:
(1) States that the borrower was contacted to assess the borrower'
s financial situation and to explore options for the borrower to
avoid foreclosure.
(2) Lists the efforts made, if any, to contact the borrower in the
event no contact was made.
(d) A mortgagee's, beneficiary's, or authorized agent's loss
mitigation personnel may participate by telephone during any contact
required by this section.
(e) For purposes of this section, a "borrower" shall include a
mortgagor or trustor.
(f) A borrower may designate a HUD-certified housing counseling
agency, attorney, or other advisor to discuss with the mortgagee,
beneficiary, or authorized agent, on the borrower's behalf, options
for the borrower to avoid foreclosure. That contact made at the
direction of the borrower shall satisfy the contact requirements of
paragraph (2) of subdivision (a). Any loan modification or workout
plan offered at the meeting by the mortgagee, beneficiary, or
authorized agent is subject to approval by the borrower.
(g) A notice of default may be filed pursuant to Section 2924 when
a mortgagee, beneficiary, or authorized agent has not contacted a
borrower as required by paragraph (2) of subdivision (a) provided
that the failure to contact the borrower occurred despite the due
diligence of the mortgagee, beneficiary, or authorized agent. For
purposes of this section, "due diligence" shall require and mean all
of the following:
(1) A mortgagee, beneficiary, or authorized agent shall first
attempt to contact a borrower by sending a first-class letter that
includes the toll-free telephone number made available by HUD to find
a HUD-certified housing counseling agency.
(2) (A) After the letter has been sent, the mortgagee,
beneficiary, or authorized agent shall attempt to contact the
borrower by telephone at least three times at different hours and on
different days. Telephone calls shall be made to the primary
telephone number on file.
(B) A mortgagee, beneficiary, or authorized agent may attempt to
contact a borrower using an automated system to dial borrowers,
provided that, if the telephone call is answered, the call is
connected to a live representative of the mortgagee, beneficiary, or
authorized agent.
(C) A mortgagee, beneficiary, or authorized agent satisfies the
telephone contact requirements of this paragraph if it determines,
after attempting contact pursuant to this paragraph, that the
borrower's primary telephone number and secondary telephone number or
numbers on file, if any, have been disconnected.
(3) If the borrower does not respond within two weeks after the
telephone call requirements of paragraph (2) have been satisfied, the
mortgagee, beneficiary, or authorized agent shall then send a
certified letter, with return receipt requested.
(4) The mortgagee, beneficiary, or authorized agent shall provide
a means for the borrower to contact it in a timely manner, including
a toll-free telephone number that will provide access to a live
representative during business hours.
(5) The mortgagee, beneficiary, or authorized agent has posted a
prominent link on the homepage of its Internet Web site, if any, to
the following information:
(A) Options that may be available to borrowers who are unable to
afford their mortgage payments and who wish to avoid foreclosure, and
instructions to borrowers advising them on steps to take to explore
those options.
(B) A list of financial documents borrowers should collect and be
prepared to present to the mortgagee, beneficiary, or authorized
agent when discussing options for avoiding foreclosure.
(C) A toll-free telephone number for borrowers who wish to discuss
options for avoiding foreclosure with their mortgagee, beneficiary,
or authorized agent.
(D) The toll-free telephone number made available by HUD to find a
HUD-certified housing counseling agency.
(h) Subdivisions (a), (c), and (g) shall not apply if any of the
following occurs:
(1) The borrower has surrendered the property as evidenced by
either a letter confirming the surrender or delivery of the keys to
the property to the mortgagee, trustee, beneficiary, or authorized
agent.
(2) The borrower has contracted with an organization, person, or
entity whose primary business is advising people who have decided to
leave their homes on how to extend the foreclosure process and avoid
their contractual obligations to mortgagees or beneficiaries.
(3) The borrower has filed for bankruptcy, and the proceedings
have not been finalized.
(i) This section shall apply only to loans made from January 1,
2003, to December 31, 2007, inclusive, that are secured by
residential real property and are for owner-occupied residences. For
purposes of this subdivision, "owner-occupied" means that the
residence is the principal residence of the borrower.
(j) This section shall remain in effect only until January 1,
2013, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2013, deletes or extends
that date.
SEC. 3. Section 2923.6 is added to the Civil Code, to read:
2923.6. (a) The Legislature finds and declares that any duty
servicers may have to maximize net present value under their pooling
and servicing agreements is owed to all parties in a loan pool, not
to any particular parties, and that a servicer acts in the best
interests of all parties if it agrees to or implements a loan
modification or workout plan for which both of the following apply:
(1) The loan is in payment default, or payment default is
reasonably foreseeable.
(2) Anticipated recovery under the loan modification or workout
plan exceeds the anticipated recovery through foreclosure on a net
present value basis.
(b) It is the intent of the Legislature that the mortgagee,
beneficiary, or authorized agent offer the borrower a loan
modification or workout plan if such a modification or plan is
consistent with its contractual or other authority.
(c) This section shall remain in effect only until January 1,
2013, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2013, deletes or extends
that date.
SEC. 4. Section 2924.8 is added to the Civil Code, to read:
2924.8. (a) Upon posting a notice of sale pursuant to Section
2924f, a trustee or authorized agent shall also post the following
notice, in the manner required for posting the notice of sale on the
property to be sold, and a mortgagee, trustee, beneficiary, or
authorized agent shall mail, at the same time in an envelope
addressed to the "Resident of property subject to foreclosure sale"
the following notice in English and the languages described in
Section 1632: "Foreclosure process has begun on this property, which
may affect your right to continue to live in this property. Twenty
days or more after the date of this notice, this property may be sold
at foreclosure. If you are renting this property, the new property
owner may either give you a new lease or rental agreement or provide
you with a 60-day eviction notice. However, other laws may prohibit
an eviction in this circumstance or provide you with a longer notice
before eviction. You may wish to contact a lawyer or your local legal
aid or housing counseling agency to discuss any rights you may have."
(b) It shall be an infraction to tear down the notice described in
subdivision (a) within 72 hours of posting. Violators shall be
subject to a fine of one hundred dollars ($100).
(c) A state government entity shall make available translations of
the notice described in subdivision (a) which may be used by a
mortgagee, trustee, beneficiary, or authorized agent to satisfy the
requirements of this section.
(d) This section shall only apply to loans secured by residential
real property, and if the billing address for the mortgage note is
different than the property address.
(e) This section shall remain in effect only until January 1,
2013, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2013, deletes or extends
that date.
SEC. 5. Section 2929.3 is added to the Civil Code, to read:
2929.3. (a) (1) A legal owner shall maintain vacant residential
property purchased by that owner at a foreclosure sale, or acquired
by that owner through foreclosure under a mortgage or deed of trust.
A governmental entity may impose a civil fine of up to one thousand
dollars ($1,000) per day for a violation. If the governmental entity
chooses to impose a fine pursuant to this section, it shall give
notice of the alleged violation, including a description of the
conditions that gave rise to the allegation, and notice of the entity'
s intent to assess a civil fine if action to correct the violation is
not commenced within a period of not less than 14 days and completed
within a period of not less than 30 days. The notice shall be mailed
to the address provided in the deed or other instrument as specified
in subdivision (a) of Section 27321.5 of the Government Code, or, if
none, to the return address provided on the deed or other
instrument.
(2) The governmental entity shall provide a period of not less
than 30 days for the legal owner to remedy the violation prior to
imposing a civil fine and shall allow for a hearing and opportunity
to contest any fine imposed. In determining the amount of the fine,
the governmental entity shall take into consideration any timely and
good faith efforts by the legal owner to remedy the violation. The
maximum civil fine authorized by this section is one thousand dollars
($1,000) for each day that the owner fails to maintain the property,
commencing on the day following the expiration of the period to
remedy the violation established by the governmental entity.
(3) Subject to the provisions of this section, a governmental
entity may establish different compliance periods for different
conditions on the same property in the notice of alleged violation
mailed to the legal owner.
(b) For purposes of this section, "failure to maintain" means
failure to care for the exterior of the property, including, but not
limited to, permitting excessive foliage growth that diminishes the
value of surrounding properties, failing to take action to prevent
trespassers or squatters from remaining on the property, or failing
to take action to prevent mosquito larvae from growing in standing
water or other conditions that create a public nuisance.
(c) Notwithstanding subdivisions (a) and (b), a governmental
entity may provide less than 30 days' notice to remedy a condition
before imposing a civil fine if the entity determines that a specific
condition of the property threatens public health or safety and
provided that notice of that determination and time for compliance is
given.
(d) Fines and penalties collected pursuant to this section shall
be directed to local nuisance abatement programs.
(e) A governmental entity may not impose fines on a legal owner
under both this section and a local ordinance.
(f) These provisions shall not preempt any local ordinance.
(g) This section shall only apply to residential real property.
(h) The rights and remedies provided in this section are
cumulative and in addition to any other rights and remedies provided
by law.
(i) This section shall remain in effect only until January 1,
2013, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2013, deletes or extends
that date.
SEC. 6. Section 1161b is added to the Code of Civil Procedure, to
read:
1161b. (a) Notwithstanding Section 1161a, a tenant or subtenant
in possession of a rental housing unit at the time the property is
sold in foreclosure shall be given 60 days' written notice to quit
pursuant to Section 1162 before the tenant or subtenant may be
removed from the property as prescribed in this chapter.
(b) This section shall not apply if any party to the note remains
in the property as a tenant, subtenant, or occupant.
(c) This section shall remain in effect only until January 1,
2013, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2013, deletes or extends
that date.
SEC. 7. Nothing in this act is intended to affect any local
just-cause eviction ordinance. This act does not, and shall not be
construed to, affect the authority of a public entity that otherwise
exists to regulate or monitor the basis for eviction.
SEC. 8. The provisions of this act are severable. If any provision
of this act or its application is held invalid, that invalidity
shall not affect other provisions or applications that can be given
effect without the invalid provision or application.
SEC. 9. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.
SEC. 10. (a) This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:
In order to stabilize and protect the state and local economies
and housing market at the earliest possible time, it is necessary for
this act to take effect immediately.
(b) However, the provisions of Section 2 of this act, which adds
Section 2923.5 to the Civil Code, and Section 4 of this act, which
adds Section 2924.8 to the Civil Code, shall become operative 60 days
after the effective date of this act.