BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 926|
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THIRD READING
Bill No: SB 926
Author: Perata (D), et al
Amended: 1/18/08
Vote: 27 - Urgency
SENATE JUDICIARY COMMITTEE : 3-2, 1/15/08
AYES: Corbett, Kuehl, Steinberg
NOES: Harman, Ackerman
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 7-3, 1/16/08
AYES: Machado, Correa, Florez, Lowenthal, Romero, Scott,
Wiggins
NOES: Runner, Cox, Margett
NO VOTE RECORDED: Hollingsworth
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Mortgage foreclosure relief
SOURCE : Author
DIGEST : This bill enacts a comprehensive package of
foreclosure reforms designed to prevent unnecessary
residential foreclosures from further worsening the state
and local economy and housing markets. Specifically, this
bill requires a notice to be sent to borrowers prior to any
projected change in mortgage payment, requires lenders to
contact borrowers to arrange an in-person meeting, and to
provide a list of HUD certified counselors to borrowers
before filing a Notice of Default on a residential property
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in default.
This bill further requires tenants to receive notice at the
time a Notice of Default is filed on their rental property,
and requires that tenants receive 60 days notice prior to
eviction due to foreclosure.
Finally, this bill provides that failure by a legal owner
to maintain a vacant foreclosed property, as defined, is a
nuisance subjecting the violator to civil fines and
penalties of up to $1,000 per day.
ANALYSIS : Existing federal law, the National Bank Act
and the Home Owners' Loan Act and their implementing rules
and regulations regulate the lending activities of
nationally-chartered banks and thrifts, but generally allow
states to regulate the collection of debts through the
foreclosure process.
Existing state law authorizes the Department of Financial
Institutions (DFI) to regulate state-licensed banks,
state-licensed credit unions, state-licensed trust
companies, state-licensed industrial loan companies,
state-licensed offices of foreign banks, issuers of
travelers checks and payment instruments (money orders),
and money transmitters.
Existing state law regulates the non-judicial foreclosure
of properties pursuant to the power of sale contained
within a mortgage contract. To commence the process,
existing state law requires the trustee, mortgagee, or
beneficiary to record a Notice of Default and allow three
months to lapse before setting a date for sale of the
property.
This bill requires a mortgagee, trustee, servicer, or
beneficiary, prior to filing a Notice of Default, to
conduct an in-person meeting with the borrower to assess
their financial situation, provide the borrower with a list
of HUD-certified counselors in their area, and explore
options for the borrower to avoid foreclosure.
This bill specifies that any in-person meeting may instead,
at the option of the borrower, occur telephonically. The
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bill provides that a mortgagee's, trustee's, servicer's, or
beneficiary's loss mitigation personnel may participate by
telephone at any in-person meeting required by the
provisions of this bill.
The bill also sets forth procedures by which the borrower
will be contacted prior to those in-person meetings,
defined as "due diligence" on the part of the mortgagee,
trustee, servicer, or beneficiary, which requires and
includes preliminary contact by electronic mail, first
class mail, telephone, and certified mail, as specified.
This bill requires the mortgagee, trustee, servicer, or
beneficiary to offer, where feasible, restructuring or
other options consistent with their authority to mitigate
losses. For properties in which a Notice of Default has
been filed prior to the enactment of the bill, the above
requirements must be complied with prior to noticing the
sale of property. For Notices of Default filed after
enactment, this bill requires a 30-day delay after the
in-person meeting before filing a Notice of Default, as
specified.
This bill requires the entity, at the time of filing a
Notice of Default, to also mail a notice addressed to
"resident" that prominently states: "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 organization to discuss any rights you may
have."
This bill requires, upon filing a Notice of Default, a
declaration that the party met with the borrower, or tried
with due diligence to contact the borrower for an in-person
meeting, and the terms of the existing loan and the offered
restructuring options. Willful misstatement of a material
fact would subject the person to a civil penalty of up to
$10,000, enforceable by various public prosecutors.
This bill requires communications and negotiations to occur
in the language in which the loan was originally
negotiated, unless the party did not originally negotiate
the loan and does not know the negotiation language, in
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which case a notice stating that the home may be subject to
foreclosure must be sent in English, Spanish, Chinese,
Tagalog, Vietnamese, or Korean (English plus the five
languages described in Civil Code Section 1632).
This bill requires notice to be mailed to borrowers at 120,
90, and 45 days prior to any projected change in the
residential mortgage payment amount. That notice will
include (1) the current interest rate, (2) projected
interest rate, (3) estimated payment and its difference
from the current payment, and (4) the state date of the
projected payment. This bill requires the plain language
notice to be sent by first class mail, no higher than a
sixth grade reading level, and be provided in the language
in which the mortgage was negotiated, if known, or English
and the five Section 1632 languages.
Existing law permits a party to a residential rental
agreement to terminate a periodic tenancy by giving a
30-day 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. Existing law provides
that tenants or subtenants in possession of a rental
housing unit that has been sold due to foreclosure shall be
given written notice to quit at least as long as the term
of the lease, not to exceed 30 days.
This bill provides that tenants of rental housing units
sold due to foreclosure shall receive a 60-day notice to
quit before the tenant may be removed from the property.
Existing law provides that anything that is injurious to
health, indecent or offensive to the senses, obstructs the
free use of property, or unlawfully obstructs free passage
is a nuisance.
This bill provides that failure to maintain a foreclosed
property shall constitute a nuisance and that violators
shall be subject to civil fines and penalties of up to
$1,000 per day. "Failure to maintain" includes failure to
adequately care for the property, including, but not
limited to, permitting excessive foliage growth that
diminishes the value of surrounding properties, allowing
trespassers, and permitting growth of mosquito larva in
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standing water.
This bill provides that these fines and penalties shall be
directed to local nuisance abatement provisions, and that
nothing shall prompt local ordinances containing greater
standards or protections.
This bill finds and declares that California is facing an
unprecedented threat to its state and local economies due
to high foreclosure rates adversely affecting property
values, and an estimated loss of $111 million in tax
revenues due to foreclosures and their spillover effects.
This bill further finds and declares the ability for
servicers and lenders to modify loans in the best interest
of investors, as specified.
This bill additionally finds and declares that it is
essential to the economic health of California to
ameliorate the deleterious effects on the state and local
economies and housing market by modifying the foreclosure
process to require contact between lenders and borrowers,
and that act is necessary to avoid unnecessary foreclosures
to stabilize the economy and housing market.
The provisions of this bill sunset on January 1, 2013.
Provides that the bill is not intended to offset any local
just-cause eviction ordinance
This bill contains a severability clause.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 1/22/08)
AARP
AnewAmerica Community Corporation
ByDesign Financial Solutions
Cabrillo Economic Development Corporation
California Coalition for Rural Housing
California Labor Federation, AFL-CIO
California Reinvestment Coalition
California State Association of Counties
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Center for California Homeowner Association Law
Center for Responsible Lending
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
Consumers Union
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
Fair Housing Napa Valley
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 California LULAC Housing Commission
Mission Community Financial Assistance
National Creditors Connection
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
Western Center on Law and Poverty
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California Association of Community Organizations for
Reform Now
OPPOSITION : (Verified 1/22/08)
Apartment Association, California Southern Cities
Apartment Association of Orange County
United Trustees Association
California Association of Realtors
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
United Trustees Association
ARGUMENTS IN 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 foreclosures
are in California. He stated that foreclosures are not
only devastating for the families who are forced from their
home, 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, in support, notes:
"The bill takes several important steps to reduce the
number of foreclosures sales by requiring enhances notice
to borrowers - in English or other languages, as
appropriate - and requiring lenders to hold face-to-face
meetings with borrowers to provide restructuring options
and taking steps to ensure that foreclosed properties do
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not contribute to neighborhood blight."
ARGUMENTS IN OPPOSITION : Numerous trade associations
raise various concerns about the bill's workability. The
associations assert that advance notice of an increased
payment will cause confusion due to inability to calculate
the exact increase. The bill itself does not require an
exact calculation and, from a public policy standpoint, it
is preferable to provide advance warning than have an
increase payment take borrowers by surprise.
The associations and the California Association of Realtors
also raise concerns about the in-person meeting in cases
where the borrower is unavailable, or the foreclosing
entity is out of state. Under the bill, however, as long
as due diligence is used to contact the borrower, the
entity may file a Notice of Default and foreclose on the
property. Considering that the Notice of Default is filed
in California, it does not appear excessive to require an
in-person meeting in the same state.
Other concerns of the trade associations include that
providing notice of the Notice of Default violates the Fair
Debt Collection Practices Act, and that the nuisance
provision is unclear.
RJG:cm 1/23/08 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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