BILL ANALYSIS                                                                                                                                                                                                    






                        SENATE COMMITTEE ON BANKING, FINANCE,
                                    AND INSURANCE
                          Senator Michael J. Machado, Chair


          SB 926 (Perata)                         Hearing Date:  January  
          16, 2008  

          As Amended  January 7, 2008
          Fiscal:             Yes
          Urgency:       Yes
          

           SUMMARY    Would enact several changes to the procedures that  
          must be followed before the holder of a mortgage may issue a  
          notice of default or a notice of trustee sale, require the  
          holder of a mortgage to mail a specified notice to the tenant(s)  
          of a property on which foreclosure proceedings have begun, and  
          impose penalties on property owners who fail to adequately  
          maintain foreclosed properties, as specified.  
          
           
          DIGEST
            
          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 date  
              for sale of the property (Civil Code Sections 2924);

            2.  Further provides that the mortgagee, trustee or other  
              person authorized to take 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.  Permits a party to a residential rental agreement to  
              terminate a periodic tenancy by giving 30-days written  
              notice, unless the tenant has resided in the dwelling for  
              one year or more, in which case a 60-day notice is required,  
              as specified (Civil Code Sections 1946 and 1946.1);

            4.  Provides that tenants or subtenants in possession of a  




                                                SB 926 (Perata), Page 2




              rental housing unit that has been sold due to foreclosure  
              shall be given written notice to vacate the property; notice  
              must be provided at least as far in advance as the term of  
              the lease, not to exceed 30 days (e.g., if the lease is  
              weekly, notice must be given one week before the person must  
              vacate; if the lease is monthly or longer, notice must be  
              given 30 days prior; Code of Civil Procedure Section 1161a);

            5.  Provides that anything which is injurious to health,  
              indecent, or offensive to the senses, obstructs the free use  
              of property, or unlawfully obstructs free passage is a  
              nuisance (Civil Code Section 3479).  

           

          This bill

            1.  Would provide that notwithstanding any other provision of  
              law, an entity (unspecified in the bill but presumably the  
              mortgagee, trustee, servicer, or beneficiary) must mail a  
              notice of projected change in mortgage payment amount to the  
              borrower, as follows:

               a.     Would require separate notices to be mailed 120  
                 days, 90 days, and 45 days prior to any projected change  
                 in mortgage payment amount;

               b.     Would require each notice to include the current  
                 mortgage interest rate; projected interest rate after the  
                 change, if any, in the interest rate; an estimate of the  
                 payment after the projected change in payment amount; the  
                 difference between the current payment due and the  
                 estimated payment due after the change; and the start  
                 date of the projected change in monthly payment;

               c.     Would require each notice to be provided by  
                 first-class mail, in plain language, at a reading level  
                 no higher than grade 6;

               d.     Would require each notice to be provided in the  
                 language in which the mortgage was negotiated.  If the  
                 entity required to mail the notice does not know the  
                 language in which the mortgage was negotiated, the notice  
                 must be provided in English and the five languages  
                 specified in Civil Code Section 1632 (Spanish, Chinese,  
                 Tagalog, Vietnamese, and Korean);




                                                SB 926 (Perata), Page 3





           2.  Would provide that before a mortgagee, trustee, servicer,  
              or beneficiary may file an  NOD, that entity must conduct an  
              in-person meeting with the borrower, as follows:

               a.     Would specify that, during the meeting, the  
                 mortgagee, trustee, servicer, or beneficiary must assess  
                 the borrower's financial situation, provide the borrower  
                 with a list of U.S. Department of Housing and Urban  
                 Development (HUD)-certified credit counselors in the  
                 borrower's geographic region, and explore options for the  
                 borrower to avoid foreclosure;

               b.     Would further require the mortgagee, trustee,  
                 servicer, or beneficiary to offer, during the meeting,  
                 and where feasible, restructuring or other options,  
                 including forbearance of loan modification, consistent  
                 with the mortgagee's, trustee's, servicer's or  
                 beneficiary's authority to mitigate losses.  The  
                 modification shall only be offered if it would serve the  
                 best interest of the investors, based upon a finding that  
                 the borrower is able and willing to pay under the  
                 modified terms, and that significant financial loss to  
                 investors is likely to occur without a restructuring or  
                 modification;

               c.     Would provide that the mortgagee, trustee, servicer,  
                 or beneficiary may not file an NOD until 30 days after  
                 that in-person meeting;

               d.     Would provide that upon filing an NOD, a mortgagee,  
                 trustee, servicer, or beneficiary shall include a  
                 declaration, which must state that the mortgagee,  
                 trustee, servicer, or beneficiary has met with the  
                 borrower or has tried with due diligence to contact the  
                 borrower for an in-person meeting, and which must include  
                 the terms of the existing loan and the restructuring  
                 options that were offered to the borrower;

               e.     Would provide specified civil penalties, and would  
                 grant authority to specified parties to bring a civil  
                 action against, a mortgagee, trustee, servicer, or  
                 beneficiary for making a statement on the declaration  
                 that entity knows to be false;

               f.     Would provide that if a mortgagee, trustee,  




                                                SB 926 (Perata), Page 4




                 servicer, or beneficiary had already filed an NOD prior  
                 to enactment of the bill, the requirements to hold an  
                 in-person meeting and offer restructuring or other  
                 options during that meeting must be met before the  
                 mortgagee, trustee, servicer, or beneficiary may issue a  
                 notice of sale on the property;

               g.     Would require all communications and negotiations  
                 related to the in-person meeting and provision of  
                 restructuring options to be conducted in the language in  
                 which the loan was originally negotiated.  If the  
                 mortgagee, trustee, servicer, or beneficiary is not the  
                 entity that originally negotiated the loan and does not  
                 know the language used to negotiate the loan, the  
                 mortgagee, trustee, servicer, or beneficiary must send a  
                 notice to the borrower in English, Spanish, Chinese,  
                 Tagalog, Vietnamese, and Korean;

               h.     Would require the notice sent to the borrower,  
                 informing him of the meeting, to read as follows:  "Your  
                 home may be subject to foreclosure, which could result in  
                 you losing your home.  Please contact us at (insert  
                 telephone number) to discuss possible options to avoid  
                 the foreclosure."

           3.  Would require any mortgagee, trustee, servicer or  
              beneficiary who files an NOD to additionally mail, at the  
              same time, a notice addressed to the "resident" of the  
              property, and would require the outside of the envelope  
              containing that notice to prominently state the following in  
              English, Spanish, Chinese, Tagalog, Vietnamese, and Korean:   
              "IMPORTANT:  Foreclosure process has begun on this property,  
              which may affect your ability to continue to live in this  
              property.  You may wish to contact a lawyer or your local  
              legal aid or credit counseling organizations to discuss any  
              rights you may have."

           4.  Would provide that failure to maintain a foreclosed  
              property shall constitute a nuisance and shall subject the  
              violator to civil fines and penalties of up to $1,000 each  
              day, which shall be directed to local nuisance abatement  
              programs.

               a.     For purposes of this provision,  "failure to  
                 maintain" includes failure to adequately care for the  
                 property, including, but not limited to, permitting  




                                                SB 926 (Perata), Page 5




                 excessive foliage growth that diminishes the value of  
                 surrounding properties, allowing incursions by  
                 trespassers, or permitting mosquito larva to grow in  
                 standing water;

               b.     Would state that this provision shall not preempt  
                 any local ordinance that contains any greater standards  
                 or protections;

           5.  Would provide that notwithstanding existing law, a tenant  
              or subtenant in possession of a rental housing unit that has  
              been sold due to foreclosure shall be given 90 days' written  
              notice to leave the property before that tenant may be  
              removed from the property;

           6.  Would make findings and declarations about the nature of  
              the mortgage crisis in California and of the importance of  
              enacting an urgency statute to address the threats to the  
              state economy and local economies that the current mortgage  
              market troubles are creating;

           7.  Would provide that its provisions are severable and that  
              they sunset on January 1, 2013.

           COMMENTS

           1.  Purpose of the bill   To reduce the number of foreclosures  
              in California, ensure that foreclosed properties do not  
              become a source of blight to the communities in which they  
              are located, and provide increased protections to  
              individuals who rent properties that ultimately go into  
              foreclosure.

            2.  Background    California is currently suffering the effects  
              of a severe housing crisis, which has not only negatively  
              affected borrowers who have lost their homes to foreclosure,  
              but has also had significant negative ripple effects on  
              housing values, local economies, and the state economy.   
              Although many other states across the United States have  
              been affected by what has colloquially become known as "the  
              subprime mortgage crisis," California is suffering more than  
              most others.  

           During the third quarter of 2007, according to RealtyTrac, one  
              quarter of the nation's foreclosure filings - nearly 150,000  
              homes - were in California.  Seven of the top sixteen  




                                                SB 926 (Perata), Page 6




              metropolitan areas with the highest rates of foreclosure  
              nationwide are in California, in the Stockton, Riverside/San  
              Bernardino, Sacramento, Bakersfield, Oakland, Fresno, and  
              San Diego metropolitan areas.  The Mortgage Bankers  
              Association (MBA) has also reported that California is among  
              only four states nationwide (the others being Nevada,  
              Florida, and Arizona) that are driving historically high  
              nationwide rates of default and foreclosure.  According to  
              MBA, third quarter 2007 national delinquency rates were at  
              their highest levels in 21 years; the rate of foreclosure  
              starts and the percentage of loans in the process of  
              foreclosure were at their highest levels ever during that  
              same quarter.  While delinquencies are occurring at  
              higher-than-normal levels on all types of loans, the loans  
              on which the greatest percentage of problems are subprime  
              adjustable rate mortgages (ARMs).

           To date, efforts to help mitigate the subprime housing crisis  
              have focused on the importance of responsiveness and  
              flexibility by the financial institutions that hold and  
              service mortgages toward their borrowers.  Many of the  
              nation's financial institutions have publicly stated that  
              they view foreclosure only as a last resort, but these same  
              institutions have also run into significant challenges in  
              their efforts to review the loans in their portfolios for  
              possible modification or refinance.  

           In November 2007, Governor Schwarzenegger reached an agreement  
              with several state-regulated financial institutions to  
              engage in streamlined modifications of certain types of  
              subprime ARMs.  In December 2007, President Bush and U.S.  
              Secretary of the Treasury Henry Paulson announced the HOPE  
              NOW Alliance plan, an industry-led plan intended to  
              facilitate streamlined modifications of selected subprime  
              ARMs.  The American Securitization Forum has also published  
              guidance documents intended to facilitate loan modifications  
              by servicers, pursuant to the contractual terms specified in  
              pooling and servicing agreements.  Despite the existence of  
              these voluntary initiatives, many anticipate that upcoming  
              interest rate resets, combined with depressed housing  
              prices, will cause defaults and foreclosures to increase in  
              2008 relative to their already high 2007 levels.  

           This bill is a response to the expectation that defaults and  
              foreclosures will continue to grow in number in California  
              through 2008, and out of concern over the negative impact  




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              they will have on California homeowners, California's local  
              economies, and the state economy.  

            3.  Support  .  Senator Perata introduced this bill to help  
              people affected by the subprime mortgage crisis stay in  
              their homes and prevent neighborhoods afflicted with  
              foreclosures from becoming areas of blight.  According to  
              Senator Perata, "The mortgage crisis is taking a terrible  
              toll on Oakland and the rest of California.  It is crucial  
              that we give homeowners the tools they need to avoid  
              foreclosure when possible because that's the best outcome  
              for everybody."  

           When he introduced the bill, Senator Perata noted that seven of  
              the nation's 16 metropolitan areas with the highest rates of  
              foreclosure are in California.  He stated that foreclosures  
              are not only devastating for the families who are forced  
              from their homes, but for the neighborhoods and communities  
              surrounding them that can see vacancies increase, properties  
              fall into disrepair, and housing values decline.

           The Center for Responsible Lending (CRL) supports SB 926 and  
              believes the bill takes several important steps to reduce  
              the number of foreclosure sales.  It accomplishes this goal  
              by requiring enhanced notice to borrowers, in English and  
              other languages, as appropriate; requiring lenders to hold  
              face-to-face meetings with borrowers to provide  
              restructuring options; and taking steps to ensure that  
              foreclosed properties do not contribute to neighborhood  
              blight.

           Last December, CRL estimated that nearly 500,000 borrowers in  
              California would lose their homes to foreclosure, due to  
              reckless lending practices in the subprime market.   
              Foreclosures are already at extremely high levels, and CRL  
              expects the worst is still to come.  Based on the timing of  
              rate resets for subprime adjustable rate mortgages, CRL  
              expects the highest volume of resets to occur in the Spring  
              and in October of 2008.  CRL supports SB 926 as an important  
              part of the effort to stem the tide of foreclosures and to  
              ameliorate the effects of the current crisis on households,  
              communities, and the California economy as a whole.  

           CRL specifically commends the in-person meeting provision of  
              the bill and the requirements that the notice of rate reset  
              and any NOD be provided in the language in which the  




                                                SB 926 (Perata), Page 8




              mortgage was negotiated.  CRL notes that lenders or  
              affiliated brokers typically met face-to-face with borrowers  
              to place them into the problem loans; it is reasonable,  
              then, to require a face-to-face meeting with borrowers  
              before foreclosing on the loan and taking away their home.

           Consumers Union (CU) supports SB 926, and believes that by  
              creating sensible stop-gap protections for borrowers before  
              they lose their homes, SB 926 will help preserve  
              homeownership by preventing unnecessary home foreclosures  
              from occurring.  SB 926 encourages early contact and  
              communication between borrowers and lenders to protect  
              against unnecessary mortgage loan foreclosures.  It does so  
              at multiple stages of the lending process, by requiring  
              notification of rate resets at 120, 90, and 45 days before  
              they occur.  In some cases, based on borrower stories CU has  
              heard, the early notification that is required by this bill  
              might serve as the first indication to many borrowers that  
              they hold an adjustable rate loan, rather than a fixed rate  
              loan.  The early and repeated notifications required by the  
              bill will serve to alert borrowers to act to avert a  
              foreclosure.  

           CU also supports the provisions that require notices to be  
              provided in plain language at a reading level no higher than  
              grade 6 and in multiple languages.  CU believes that these  
              provisions will increase the likelihood that borrowers will  
              act promptly and appropriately to protect themselves from a  
              loan default.  

           CU believes that borrowers will benefit greatly from the bill's  
              requirement of an in-person meeting.  By requiring that  
              borrowers be offered counseling resource information and  
              loan workout options prior to the issuance of an NOD, early  
              intervention can lead to a more favorable outcome for all  
              involved.

           CU believes that SB 926 will help protect neighboring  
              properties around foreclosed-upon properties.  The  
              imposition of fines and penalties on those who allow a  
              foreclosed property to become a nuisance will help protect  
              community integrity and support existing homeownership.  The  
              anti-nuisance provisions will also help guard against  
              potential public safety concerns, such as squatting and  
              abandoned properties becoming havens for illegal activities.  
               




                                                SB 926 (Perata), Page 9





           Finally, CU believes that SB 926 will help protect innocent  
              tenants who are in danger of losing their homes as a result  
              of a landlord's failure to pay the mortgage on the property.  
               In many cases, tenants are not aware that the property they  
              occupy is threatened with foreclosure.  This bill will help  
              ensure that all of those concerned, including innocent  
              tenants, receive adequate notice.  It will also ensure that  
              tenants of rental housing that has been sold due to  
              foreclosure be given 90 days written notice before they may  
              be removed from the property.  CU supports this provision to  
              the extent that it provides greater protection than local  
              rental ordinances that may apply in a particular locale.

           The Western Center on Law and Poverty (WCLP) supports SB 926,  
              which it believes will enact immediate, vital changes to  
              address some elements of the state's foreclosure process.   
              WCLP's arguments in support of the in-person meeting is  
              virtually identical to the comments noted above.  WCLP's  
              support letter notes that creative financing precipitated  
              this crisis; it is only fair that note-holders offer  
              creative re-financing.  WCLP's arguments in support of the  
              bill's other provisions also echo the arguments cited above.  
               However, WCLP offers several technical amendments to  
              further the purposes of the bill, as follows:  First, it  
              suggests that the language required to be printed on the  
              outside of the envelope to the resident of a property be  
              shortened.  WCLP also believes that the bill needs to  
              specify exactly what information should be shared with the  
              resident inside the notice.  Third, WCLP requests an  
              amendment clarifying that the bill does not affect any local  
              just cause eviction ordinances.  Finally, WCLP notes that it  
              supports the section of the bill imposing penalties for  
              failure to maintain a foreclosed property, but has technical  
              concerns that the section should include more specificity,  
              particularly as to the length of time that the provisions  
              apply after foreclosure.  

           The California Reinvestment Coalition (CRC) and 49 other  
              organizations listed on CRC's letter (and listed below under  
              "support") wrote to express their qualified support for SB  
              926, which they believe would implement important  
              foreclosure process reforms to protect the hundreds of  
              thousands of Californians in danger of losing their homes  
              due to the mortgage crisis.  CRC and the other signatories  
              support all of the provisions of the bill and urge the  




                                                SB 926 (Perata), Page 10




              inclusion of additional items they believe would further the  
              goals of the bill.

           CRC cites the CRL numbers cited above, regarding the number of  
              Californians at risk of losing their homes to foreclosure  
              and the expectation that things will worsen before they  
              improve.   CRC also notes that it recently surveyed 33 of  
              California's 80 HUD-certified housing counselors.  Among the  
              key survey findings:  lenders are not being responsive to  
              borrowers; borrowers are receiving short-term modifications  
              that only delay the problem for a year, instead of  
              sustainable, long-term modifications; lenders are not  
              reaching out to borrowers early enough; counselors do not  
              perceive that lenders' actions are matching the lenders'  
              assertions that they wish to avoid foreclosure; and  
              counselors are much more likely to see borrowers in  
              foreclosure or short-sale situations than they are to see  
              borrowers who receive beneficial loan modifications or  
              refinancings.

           CRC and the other groups signing onto its letter believe that  
              SB 926 can change the dynamic being encountered by housing  
                                                          counselors by requiring a meeting to discuss loss mitigation  
              options before an NOD is filed, requiring those  
              communications to be in the language of the negotiation, and  
              requiring that the servicer attest to which restructuring  
              options were offered to the borrower.  Additional provisions  
              relating to ensuring that foreclosed properties do not  
              contribute to neighborhood blight and providing additional  
              protections to tenants living in investor-owned properties  
              will go a long way towards mitigating the broad impact of  
              foreclosures on communities.

           CRC and the others request that the bill be amended as follows:

                  a.        Delete the language that restricts loss  
                    mitigation to those scenarios which "serve the best  
                    interests of the investors."  CRC believes that this  
                    provision will only provide a justification for de  
                    facto noncompliance.  It may also be that all of the  
                    investors do not have the same interests.   
                    Furthermore, servicing companies have routinely  
                    reported to the press, regulators, and community  
                    groups that avoiding foreclosure through loss  
                    mitigation for which a borrower qualifies is in the  
                    best interest of investors.




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                  b.        Clarify what due diligence is required by a  
                    servicer to secure a meeting with a borrower.  At a  
                    minimum repeated mailings, phone calls, and visits to  
                    the home should be required.  It should be permissible  
                    and desirable for nonprofit counseling agencies to be  
                    engaged by servicers to make these contacts, if  
                    mutually agreeable.

                  c.        Clarify that the declaration required to be  
                    filed upon NOD include any and all reasons why  
                    restructuring options were not offered, if they were  
                    not.

                  d.        Clarify and/or extend the notice provisions to  
                    tenants to include all NODs that may be issued, as  
                    well as any notices of trustee sale and any other  
                    formal notices submitted to the owner of the property.

                  e.        Expand the definition of "failure to maintain"  
                    a foreclosed property to include the failure to  
                    provide utilities that are reasonably necessary for  
                    tenants to enjoy quiet enjoyment of habitable  
                    premises.  

            4.  Opposition    The United Trustees Association (UTA) is  
              concerned with several of the bill's provisions, but focused  
              on the in-person meeting in its letter of opposition.   
              According to UTA, this provision presents a host of  
              operational problems.  First, it applies to all real  
              estate-secured loans, including commercial loans,  
              multi-family loans, construction loans, and equity loans.   
              It is therefore not limited to borrowers who were  
              particularly affected by the recent subprime lending crisis.  
               Second, the provision makes no allowance for situations in  
              which the borrower is out of state or out of the country.   
              It is unclear who is responsible for attempting to bring the  
              borrower back to California for the meeting.  It is also  
              unclear what happens if the borrower, who is already behind  
              on his or her loan payments, indicates he or she is unable  
              to shoulder the travel costs to return to California for the  
              meeting.  The bill is also unclear on what happens on loans  
              with multiple borrowers.  Must they all attend the in person  
              meeting?  What if some can attend and others cannot?  Third,  
              no provision is made for situations in which the borrower  
              cannot be located or simply delays or refuses to attend the  




                                                SB 926 (Perata), Page 12




              in-person meeting.  UTA notes that borrowers facing  
              foreclosure are often in denial about their financial  
              condition, and do not answer their phones or open their  
              mail.  This bill could encourage them to avoid the in-person  
              meeting, to ensure that the lender or servicer is unable to  
              initiate foreclosure proceedings.  Fourth, UTA believes that  
              the requirement to offer feasible restructuring options is  
              vague and will give borrowers an automatic defense to  
              foreclosure.  They will seek a court stay of the foreclosure  
              proceedings, arguing that there were no feasible options  
              offered to them.   Fifth, UTA notes that the provision of  
              the bill which requires lenders to include in their  
              declarations the list of restructuring options they offered  
              a borrower is extremely dangerous, because it will indicate  
              to prospective equity purchasers what terms the lender might  
              be willing to accept.  Armed with this information,  
              prospective equity purchasers may be able to prey off of  
              borrowers in distress.  UTA concludes by noting that, while  
              well-intentioned, SB 926 introduces such massive uncertainty  
              into the process that non-judicial foreclosure would cease  
              to be a practical option for lenders.  This, in turn, would  
              amount to a major disincentive to real estate lending in  
              California, exacerbating the current real estate and lending  
              crisis.

           A coalition comprised of nine members of the financial services  
              industry signed on to a joint opposition letter that raises  
              concerns about multiple provisions of the bill.  Signatories  
              to "the industry coalition letter" include the California  
              Bankers Association, California Chamber of Commerce,  
              California Financial Services Association, California  
              Independent Bankers, California Land Title Association,  
              California Mortgage Association, California Mortgage Bankers  
              Association, Securities Industry and Financial Markets  
              Association, and UTA.  First, the industry coalition notes  
              that the provisions of the bill which require notice to be  
              provided to a borrower prior to a rate reset are unworkable  
              and likely to cause confusion for consumers rather than  
              provide the intended assistance.  It is impossible to  
              predict the interest rate four months ahead of an interest  
              rate change.  While it is possible to tell a borrower at a  
              specific point in time what interest rate adjustment would  
              occur based on the interest rate on that given day,  
              requiring lenders to predict future interest rates would  
              inevitably cause inaccuracies, at best causing confusion for  
              the borrower, and at worst unintentionally misleading the  




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              borrower as to what the actual changes will be four months  
              in the future.  The industry coalition also believes that  
              borrower confusion will be compounded by the requirement to  
              send three separate notices, one each at 180, 90, and 45  
              days prior to the payment change, because the contents of  
              these notices may be different, as interest rates and  
              payment amounts change.  

           The industry coalition also notes that in many cases,  
              particularly those in which the lender or servicer did not  
              originate the loan, it is impossible to determine the  
              language in which the loan was negotiated.  For that reason,  
              the provision bill of the bill which requires that the  
              notice be provided in the language in which the loan was  
              negotiated (or, if that language is not known, in English,  
              Spanish, Tagalog, Vietnamese, Chinese, and Korean) will  
              result in every notice having to be sent in all six  
              languages.  Furthermore, the industry coalition is unsure  
              how a lender would demonstrate that the notice was written  
              at a level not exceeding grade level six.  Uncertainty over  
              these points could open a lender or servicer up to  
              significant liability.  

           With respect to the in-person meeting requirement in the bill,  
              the industry coalition raises all of the same concerns  
              already raised by UTA, but raises two more.  First, the  
              coalition states that for national or out-of-state lenders  
              or servicers without a California presence, it will be  
              impractical to conduct in-person meetings in the state.  The  
              coalition also states that the in-person meetings  
              contemplated by the bill need to be conducted by a lender's  
              loss mitigation staff (i.e., by people trained to resolve  
              the many complicated issues that arise in any loan workout).  
               Loss mitigation staff often work from central locations and  
              are not typically dispersed throughout the state, thus  
              complicating the ability to travel throughout the state for  
              the meetings.

           The industry coalition believes that the section of the bill  
              which requires notice to be mailed to a property resident,  
              with a warning that the foreclosure process has begun on a  
              property, violates privacy laws in general, and specifically  
              the federal Fair Debt Collection Practices Act.  That  
              federal law prohibits a debt collector (such as a lender)  
              from using any language or symbol other than the debt  
              collector's business name and address on an envelope sent to  




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              a party by mail or telegram.  

           The provision of the bill that imposes monetary penalties for  
              failure to maintain a foreclosed property has several  
              problems.  First, the industry coalition notes that the bill  
              only subjects a mortgagee, trustee, servicer, or beneficiary  
              to the penalty, not a borrower.  Borrowers who have no  
              incentive to maintain the property may cause damage to or  
              fail to adequately maintain the property, resulting in a  
              nuisance that becomes the responsibility of the mortgagee,  
              trustee, servicer, or beneficiary.  In addition, as it  
              relates to violations associated with incursions by  
              trespass, the measure unfairly exposes a mortgagee, trustee,  
              servicer, or beneficiary to liability for the criminal  
              activities of another.  

           The measure is also unclear as to when fines begin, and what,  
              if any, notice would be required by the local government to  
              inform the mortgagee, trustee, servicer, or beneficiary that  
              fines were being assessed.  Industry is concerned that civil  
              penalties could accumulate without the mortgagee, trustee,  
              servicer, or beneficiary   ever being noticed about the  
              existence of a problem.  The industry coalition notes that  
              extensive local property management ordinances already  
              exist.  SB 926 fails to limit or preempt local standards,  
              thus creating a set of non-uniform standards, and  
              complicating compliance by industry.  Mortgagees, trustees,  
              servicers, or beneficiaries are already motivated to  
              maintain the property, since it is their interest to sell  
              the property as soon as possible.  Once a loan goes into  
              default, the lender is typically the only party with an  
              economic interest in maintaining the property.

           Finally, the industry coalition is opposed to the provision of  
              the bill that gives a tenant or subtenant of a rental  
              housing unit that has been sold due to foreclosure  
              additional time in which to move out.  This provision will  
              delay a lender's ability to resell the property and  
              frustrate the lender's ability to repair the property.   
              Tenants would have no incentive to maintain the property  
              during that time, complicating matters further. 

           The California Association of Realtors (CAR) is opposed unless  
              the bill is amended to address CAR's concerns with two of  
              the bill's provisions - the in-person meeting requirement  
              and the additional time given a tenant or subtenant to move  




                                                SB 926 (Perata), Page 15




              out of a property after foreclosure.   With respect to the  
              in-person meeting, CAR echoes the concerns of others stated  
              earlier.  Specifically, it believes that the bill creates a  
              roadblock that may prevent legitimate foreclosures.  There  
              is no provision for a lender's compliance with the in-person  
              meeting requirement through a good faith effort to initiate  
              such a meeting, nor any provision for the bad faith  
              avoidance of a meeting by a borrower.

           CAR recommends an amendment to the provision of the bill that  
              requires a tenant or subtenant of a rental housing unit  
              subject to a foreclosure to receive 90 days notice before  
              being forced to move out.  Specifically, CAR suggests that  
              such a requirement more closely track the foreclosure  
              process, by requiring that the tenant or subtenant receive  
              the Notice of Sale at the same time it is delivered to the  
              mortgagee, and that the existing tenancy termination notice  
              requirements in Sections 1946 and 1946.1 of the Civil Code  
              be used.  This will provide the tenant with no less than 50,  
              and often in excess of 80 days of notice that the tenancy  
              might be terminated.  It will also facilitate early  
              knowledge on the part of the tenant that the landlord's  
              ownership of the rental property is in jeopardy and allow  
              the tenant to plan for alternate housing arrangements, as  
              well as ensure that on-going rent payments are made to the  
              appropriate person.

           Many of CAR's concerns are echoed by the Apartment Association,  
              California Southern Cities (Apartment Association).  The  
              Apartment Association believes that most residential rentals  
              will remain rentals, regardless of ownership.  It opposes  
              the provision of the bill that would require notice to be  
              mailed to a property resident, with a warning that the  
              foreclosure process has begun on a property.  It believes  
              that this provision will encourage tenants to stop paying  
              rent, because they will be led to believe that the current  
              owner will lose the property.  Failure of the tenant to pay  
              rent will, in turn, hamper landlords in their ability to  
              continue to maintain the property or enter into a workout  
              arrangement with a lender.  The Apartment Association  
              believes that this provision will promote economic and  
              financial havoc and will result in increases in unlawful  
              detainer actions.  

           The Apartment Association is also opposed to the provision of  
              the bill giving tenants and subtenants more time to move out  




                                                SB 926 (Perata), Page 16




              of a foreclosure property.  It believes that the only  
              situation in which this provision may be needed is on a  
              single-family rental unit, because the rest of the dwelling  
              units that are rented will remain rental units.  However, to  
              the degree that the bill focuses on single-family rental  
              property, the Apartment Association believes that this  
              provision will adversely affect the marketability,  
              desirability and price of the property.  This provision will  
              also encourage tenants to stop paying rent after they  
              receive their 90-day notice.  

            
          POSITIONS
          
          Support
           
          Center for Responsible Lending
          Consumers Union
          Western Center on Law & Poverty
          California Reinvestment Coalition
          AARP
          AnewAmerica Community Corporation
          ByDesign Financial Solutions
          Cabrillo Economic Development Corporation
          California Coalition for Rural Housing
          California Reinvestment Coalition
          Center for California Homeowner Association Law
          Chrysalis Consulting 
          Coalition for Quality Credit Counseling
          Community Action Agency of Butte County, Inc.
          Community Housing Council of Fresno
          Community Housing Development Corporation of North Richmond
          Community Legal Services in East Palo Alto
          Consumer Action
          Consumer Federation of California
          Council on Aging Silicon Valley
          EPACT Education Fund
          Fair Housing Council of San Diego
          Fair Housing Council of the San Fernando Valley
          Fair Housing of Marin
          HelpIsOnTheWay
          Home Ownership Using Supportive Education
          Housing Authority of the County of Monterey
          Inland Fair Housing and Mediation Board
          La Raza Centro Legal
          LULAC National Housing Commission, a subsidy of LULAC and the  




                                                SB 926 (Perata), Page 17




          California LULAC Housing Commission 
          Mission Community Financial Assistance
          National Fair Housing Alliance
          Nehemiah Community Reinvestment Fund, Inc.
          Neighborhood Housing Services of the Inland Empire, Inc.
          Neighborhood Housing Services Silicon Valley
          Neighborhood Partnership Housing Services, Inc.
          NeighborWorks Homeownership Center
          Pacific Asian Consortium in Employment
          PODER
          Project Sentinel
          Sacramento Human Rights/Fair Housing Commission
          Sacramento Mutual Housing Association
          San Diego City County Reinvestment Task Force
          SCANPH
          Self-Help Enterprises
          Sierra Planning and Housing Alliance, Inc.
          Tri-Valley Housing Opportunities Center
          Unity Council
          Visionary HomeBuilders
          Phil Ting, Assessor-Recorder, City & County of San Francisco
          Ed Donaldson, San Francisco Housing Development Corporation
          Aaron Myers, Attorney
          Fair Housing Napa Valley
          California Alliance for Retired Americans
          ACORN
           























                                                SB 926 (Perata), Page 18




          Oppose
               
          California Association of Realtors (oppose unless amended)
          Apartment Association, California Southern Cities
          United Trustees Association
          California Bankers Association
          California Chamber of Commerce
          California Financial Services Association
          California Independent Bankers
          California Land Title Association
          California Mortgage Association
          California Mortgage Bankers Association
          Securities Industry and Financial Markets Association

          Consultant:  Eileen Newhall  (916) 651-4102