BILL ANALYSIS SENATE COMMITTEE ON BANKING, FINANCE, AND INSURANCE Senator Michael J. Machado, Chair SB 1137 (Perata) Hearing Date: April 2, 2008 As Proposed to Be Amended (see attached mockup) Fiscal: No 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 (NOD) or 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 NOD and allow three months to lapse before setting a date for sale of the property (Civil Code Section 2924); 2. Further provides that the mortgagee, trustee or other person authorized to make 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 rental housing unit which has been sold due to foreclosure SB 1137 (Perata), Page 2 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). SB 1137 (Perata), Page 3 This bill 1. Would make findings and declarations about the nature of the mortgage crisis in California and the importance of enacting an urgency statute to address the threats to the state economy and local economies that current mortgage market troubles are creating; 2. Would provide that a mortgagee, trustee, beneficiary, or authorized agent may not file a NOD until 30 days after contact is made with a borrower, as described below, or 30 days after satisfying due diligence requirements relating to contact, as described below. a. Would require a mortgagee, trustee, beneficiary, or authorized agent to contact a borrower in person or by telephone to assess the borrower's financial situation and explore options for the borrower to avoid foreclosure. During the initial contact, the mortgagee, trustee, beneficiary, or authorized agent must advise the borrower that he or she has the right to request a subsequent meeting and that, if the meeting is requested, the mortgagee, trustee, beneficiary, or authorized agent must schedule the meeting within 14 days; b. Would provide that the assessment of the borrower's financial situation and discussion of options may occur at the first contact, or at the subsequent meeting scheduled for that purpose, but that in either case, the borrower must be provided a toll-free number for HUD-certified housing counseling agencies; c. Would allow any meeting to occur telephonically; 3. Would provide that, as part of the NOD, a mortgagee, trustee, beneficiary, or authorized agent must include a declaration that it has contacted the borrower, tried with due diligence to contact the borrower, or that the borrower has surrendered the property to the mortgagee, trustee, beneficiary, or authorized agent; 4. Would provide that if a mortgagee, trustee, beneficiary, or authorized agent already filed the NOD prior to enactment of this bill, and did not subsequently file a notice of rescission, the mortgagee, trustee, beneficiary, or authorized agent must include a declaration, as part of the SB 1137 (Perata), Page 4 notice of sale, stating either of the following: a. The borrower was contacted to assess his or her financial situation and to explore options for the borrower to avoid foreclosure; b. No contact occurred, in which case the mortgagee, trustee, beneficiary, or authorized agent must list the efforts made, if any, to attempt the contact; 5. Would authorize a mortgagee's, trustee's, beneficiary's, or authorized agent's loss mitigation personnel to participate by telephone during any contact required by the bill, and would authorize borrowers to designate a HUD-certified housing counseling agency, attorney, or other advisor to act on their (the borrower's) behalf in conversations with the mortgagee, trustee, beneficiary, or authorized agent. Any contact made by a HUD-certified housing counseling agency, attorney, or other advisor on a borrower's behalf satisfies the requirement for a mortgagee, trustee, beneficiary, or authorized agent to contact a borrower prior to filing an NOD. Any loan modification or workout plan offered at the meeting by the mortgagee, trustee, beneficiary, or authorized agent is subject to approval by the borrower; 6. Provides that a mortgagee, trustee, beneficiary, or authorized agent that has not contacted a borrower, as required by the bill, may file an NOD if failure to contact the borrower occurred despite the due diligence of the mortgagee, trustee, beneficiary, or authorized agent, and defines due diligence as all of the following: a. A mortgagee, trustee, beneficiary, or authorized agent must first attempt to contact a borrower by sending a first-class letter that includes the toll-free number for HUD-certified housing counseling agencies; b. After the letter has been sent, the mortgagee, trustee, beneficiary, or authorized agent must attempt to contact the borrower by telephone, at the primary telephone number on file, at least three times, at different hours and on different days. The mortgagee, trustee, beneficiary, or authorized agent may use an automated system to dial borrowers, as long as a customer who answers the call is connected to a live representative of the mortgagee, trustee, beneficiary, or SB 1137 (Perata), Page 5 authorized agent; c. The "three-call" requirement described immediately above does not apply if the mortgagee, trustee, beneficiary, or authorized agent attempts to contact the borrower and learns that the borrower's telephone number has been disconnected; d. If the borrower does not respond to the mortgagee, trustee, beneficiary, or authorized agent within two weeks after the telephone call requirements have been satisfied, the mortgagee, trustee, beneficiary, or authorized agent is required to send a certified letter to the borrower, return receipt requested; e. The mortgagee, trustee, beneficiary, or authorized agent must provide a way in which borrowers can contact it in a timely manner, including a toll-free number that provides access to a live representative during business hours; f. If a mortgagee, trustee, beneficiary, or authorized agent has an Internet Web site, it must post a prominent link on its homepage to the following information: i. 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; ii. A list of financial documents borrowers should collect and be prepared to present to the mortgagee, trustee, beneficiary, or authorized agent when discussing options for avoiding foreclosure; iii. A toll-free number for borrowers who wish to discuss options for avoiding foreclosure with their mortgagee, trustee, beneficiary, or authorized agent; iv. A toll-free number for HUD-certified housing counseling agencies; 7. Provides that the provisions, described above, requiring certain acts to be performed prior to filing an NOD or a SB 1137 (Perata), Page 6 notice of sale, do not apply if any of the following are true: a. A borrower has surrendered the property, as evidenced by either a letter confirming the surrender or by delivery of the keys to the property; b. The borrower has contracted with an organization, person, or entity whose primary business is advising people on how to extend the foreclosure process and avoid their contractual obligations to the mortgagee, trustee, beneficiary, or authorized agent; c. The borrower filed for bankruptcy, and the bankruptcy proceeding is active; 8. Would apply the provisions described in Numbers 2 through 7 above only to loans that are secured by residential real property, are for owner-occupied residences, and were made between January 1, 2003 and December 31, 2007; 9. Would codify a legislative finding that any duty servicers may have to maximize the 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 interest of all parties if it agrees to or implements a loan modification or workout plan, as specified; 10. Would codify the intent of the Legislature that the mortgagee, trustee, 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; 11. Would require the following, effective 60 days after enactment of the bill, with respect to loans secured by residential real property, when the billing address for the mortgage note is different than the property address: a. A mortgagee, trustee, beneficiary, or authorized agent must mail an envelope addressed to "resident" of the property, upon posting a notice of sale for the property (the word "resident" would appear in English); b. Inside the envelope, the following notice must be SB 1137 (Perata), Page 7 included, in English, Spanish, Korean, Tagalog, Chinese, and Vietnamese: "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 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"; 12. Would require a legal owner to maintain vacant, residential real property purchased by that owner at a foreclosure sale or acquired by that owner through foreclosure under a mortgage or deed of trust. a. Would provide that a governmental entity may impose civil fines and penalties of up to $1,000 per day per violation on such a legal owner for failure to maintain the property; b. Would require any governmental entity that chooses to impose fines and penalties pursuant to the bill to give notice of the claimed violation, including a description of the conditions giving rise to the claim of violation, give the legal owner an opportunity to remedy the violation at least 14 days prior to imposing fines and penalties, and allow the legal owner an opportunity to contest any fines and penalties imposed; c. Would provide that "failure to maintain," for purposes of this section, includes failure to adequately care for 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 larva from growing in standing water; d. Would require fines and penalties collected pursuant to this provision to be directed to local nuisance abatement programs and clarify that this provision does not pre-empt any local ordinance; SB 1137 (Perata), Page 8 13. 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 60 days' written notice to leave the property before that tenant may be removed from the property, but would provide that this provision does not apply if any party to the mortgage note remains in the property as a tenant, subtenant, or occupant; 14. Would provide that nothing in the bill is intended to affect any local just-cause eviction ordinance, and that the bill does not, and shall not be construed, to affect the authority of a public entity to regulate or monitor the basis for eviction; 15. Would provide that its provisions are severable and that they sunset on January 1, 2013. SB 1137 (Perata), Page 9 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 many others. During February 2008, the most recent month for which foreclosure data are available, RealtyTrac reported that California, Nevada, and Florida continued to document the highest foreclosure rates in the country. California's foreclosure rate was second highest in the nation, with one in every 242 households receiving a foreclosure filing during the month. Foreclosure filings were reported on a total of 53,629 California properties in February, a 131 percent increase from February 2007. California and Florida metropolitan areas accounted for nine of the top ten metropolitan foreclosure rates in February. Stockton, California had the second highest foreclosure rate in the country (one out of every 87 households). Other California metropolitan areas in the top ten were Modesto (#3), Merced (#4), Riverside-San Bernardino (#5), Bakersfield (#7), Vallejo-Fairfield (#8), and Sacramento (#9). 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, California and Florida, together, accounted for 30% of the foreclosure starts in the country during the fourth quarter of 2007. These two states accounted for 39% of all prime adjustable rate mortgages (ARMs) outstanding, but 47% of prime ARM foreclosure starts. They accounted for 29% of subprime ARMs outstanding, but SB 1137 (Perata), Page 10 36% of subprime ARM foreclosure starts. In California, the rate of foreclosure starts more than doubled between the fourth quarter of 2006 and the fourth quarter of 2007. In the third quarter of 2007, national delinquency rates were at their highest levels in 21 years, while 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. Fourth quarter 2007 delinquency rates, rates of foreclosure starts, and the percentage of loans in the process of foreclosure were higher than they were in the third quarter of 2007. Doug Duncan, chief economist for MBA, has said that MBA does not expect foreclosures to reach a peak until late 2008. 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, and as noted above, defaults and foreclosures continue to rise. 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 they will have on California homeowners, California's local economies, and the state economy. 3. Outstanding Issues In the months since this Committee heard SB 926 (Perata), a similar bill which passed this SB 1137 (Perata), Page 11 Committee in January 2008, the author has tried to negotiate a workable compromise with several of the industry groups that had been opposed to SB 926. As noted below in the opposition section, many of these groups remain opposed to the version of the bill before the Committee. However, the number of outstanding issues has been narrowed significantly. This section describes six of the remaining outstanding issues. While not an all-inclusive list of every outstanding issue remaining on the bill, the list below does include the most significant issues separating those who support the bill from those who are opposed. a. Scope of the bill: Some have suggested that the bill be limited to subprime and nontraditional loans, as those loans were defined in SB 385 (Machado), Chapter 301, Statutes of 2007, and in the federal guidance documents that formed the basis for SB 385. The author has not accepted an amendment limiting the bill to subprime and nontraditional loans, but has offered an amendment to limit the provision of the bill requiring lender/borrower contact to loans entered into after January 1, 2003. Those who would like the scope of the bill limited to subprime and nontraditional loans believe it will focus lenders' and servicers' efforts where they are most needed. Others believe that if the intent of SB 1137 is to facilitate communication between troubled borrowers and those who hold their mortgages, there is no valid reason for limiting the bill to subprime and nontraditional loans. Borrowers with prime and/or traditional loans may find themselves unable to afford their mortgages. If SB 1137 is limited to subprime and nontraditional loans, those with subprime or nontraditional loans could receive preferential treatment, relative to those who obtained prime or traditional loan products. b. Findings and declarations section: One of the findings remains problematic to those who remain in opposition. The problematic language reads as follows, and describes loan modifications authorized under pooling and servicing agreements: "That modification is in the best interest of investors when the borrower's ability and willingness to pay under the modified terms continues to produce revenue for SB 1137 (Perata), Page 12 the investor, whereas a default on the loan and foreclosure of the property causing significant financial loss to the investor is likely to occur without a restructuring or other modification of the loan." Those opposed would like the language deleted. Proponents believe that the language provides important background supporting the intent of the bill. c. Terms under which the provisions that require certain acts to be performed prior to filing an NOD or a notice of sale do not apply: The bill currently states that mortgagees, trustees, beneficiaries, and authorized agents do not need to contact borrowers or try with due diligence to do so in certain instances, such as those in which a borrower has surrendered the property, contracted with a company such as youwalkaway.com to surrender their property, or is in active bankruptcy. However, opponents would also like relief from the requirement to contact or attempt to contact a borrower, when the borrower was previously given a loan modification or other form of loan forbearance, and has subsequently fallen behind on that forbearance plan or modification. d. Operative date of the provisions requiring certain acts to be performed prior to filing an NOD or notice of sale: Proponents prefer a delay of 30 days after enactment of the bill. Opponents prefer a longer delay. e. Manner in which the tenant notice will be posted publicly on the property that is the subject of a notice of sale: Opponents and proponents agree that the bill will require a notice in English, Spanish, Chinese, Korean, Vietnamese, and Tagalog to be posted outside every property on which a notice of sale has been filed, and that the notice will read as described above in Number 11b. The issue still to be resolved is exactly where on the outside of the property the notice will be posted and what steps, if any, will be required of mortgagees, trustees, beneficiaries, and authorized agents to ensure that the tenant notice is not taken down after it is posted. f. Definition of "failure to maintain" and length SB 1137 (Perata), Page 13 of time that property owners have to remedy a violation prior to being subject to fines for failure to maintain a property: Furthermore, as written, the bill gives owners up to 14 days in which to remedy conditions giving rise to a claim of violation. The opponents would like more time. As written, the bill could result in a property owner being fined for failure to maintain the interior of a property. Opponents would like to clarify that point, to avoid being liable for interior violations that do not pose a risk to health or safety. 4. 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. 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 1137 as an important part of the effort to stem the tide of foreclosures and ameliorate the effects of the current crisis on homeowners, tenants, neighborhoods, communities, and the California economy as a whole. 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 the requirement in the bill that lenders schedule a meeting to work with borrowers in default, prior to filing an NOD, and the provisions that would provide additional notice and time to tenants of properties facing foreclosure. The organization is disappointed, however, that the bill lacks a provision, previously in SB 926, which would have required the meeting between lenders and borrowers to be conducted in the language in which the loan was originally SB 1137 (Perata), Page 14 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 meeting with borrowers before foreclosing on the loan and taking away their home. Consumers Union (CU) supports SB 1137, and believes that by creating sensible stop-gap protections for borrowers before they lose their homes, SB 1137 will help preserve homeownership by preventing unnecessary home foreclosures from occurring. SB 1137 encourages early contact and communication between borrowers and lenders to protect against unnecessary mortgage loan foreclosures. CU supports the provision of the bill that requires a lender or servicing agent to contact a borrower and conduct a meeting to discuss loss mitigation options. However, like CRL, CU believes it is important to require that the notice and meeting be provided in the language in which the loan was negotiated. CU also supports the provision of the bill that prohibits a lender or servicing agent from filing an NOD until 30 days after the meeting, or if no meeting has occurred, 30 days after using due diligence to try to arrange the meeting. To maximize the benefit of the lender/homeowner meeting, it is essential that homeowners not only have the benefit of a meeting to discuss their options, but that they also be given sufficient time in which to exercise their options. By requiring that all residents of a property be notified when a property is threatened with foreclosure, owners and tenants alike will be on notice that their occupancy may be in peril. Tenants have increasingly become the silent victims in the foreclosure crisis, often kept in the dark by their landlords about the foreclosure status impacting their tenancy. Finally, CU notes that SB 1137 will help protect neighboring properties around foreclosed-upon properties, by requiring the foreclosing entity to maintain the property to prevent nuisance and blight, and by making owners of these properties liable for fines if they fail to do so. This is an important requirement, both because it helps protect community integrity and supports existing homeownership, and because it helps guard against potential public safety concerns such as squatting and abandoned properties becoming SB 1137 (Perata), Page 15 havens for illegal activities. California ACORN writes in qualified support of SB 1137, a bill which will provide much needed protection for hundreds of thousands of families all over California in danger of losing their homes. ACORN supports the provision of the bill that requires a meeting between a lender and a borrower. It believes that this provision may help may families keep their homes. ACORN also commends the addition of a provision allowing a borrower to be represented by a HUD-certified counselor during the meeting. However, ACORN is very concerned about the removal of a provision that previously required the meeting between lenders and borrowers to be in the language spoken at the time the loan was originated. Like the other organizations above, ACORN also supports the tenancy provisions and nuisance provisions of the bill. In its letter, ACORN urges the addition of several amendments, many of which have been taken by the author. The three amendments requested by ACORN that have not yet been taken include the following: 1) Codify legislative intent that mortgagees, trustees, beneficiaries, or authorized agents exercise reasonable efforts to contact loan investors, if applicable, to secure authority to mitigate losses by offering loan modifications and other alternatives to foreclosure; 2) Clarify that the definition of "failure to maintain" includes the failure to provide gas, electricity, and other services reasonably necessary for tenants living in foreclosed homes to enjoy habitable premises, and 3) Reinstate the provision designed to ensure that the language of the borrower/lender meeting be one that the borrower understands. The California Reinvestment Coalition (CRC), together with fifty four other organizations, also writes in qualified support of SB 1137. CRC recently surveyed 38 of the 80 HUD-certified mortgage counseling agencies in California. According to the survey, most counselors do not find lenders responsive, nor receptive to modifying loans for long-term affordability. Servicers are offering short-term modifications that only postpone borrowers' day of reckoning. Foreclosures are a very common outcome; beneficial loan modifications are not happening. Despite lenders' assertions about reaching out to borrowers before they face problems from rising interest rates and increasing SB 1137 (Perata), Page 16 monthly payments, most counseling agencies do not see this happening. Most counselors express frustration over their interactions with servicers on borrowers' behalf. Given the findings of its survey, CRC is disappointed that SB 1137 no longer contains SB 926's requirements of an in-person meeting between borrower and servicer, conducted in the same language in which the loan was negotiated. Telephonic meetings will necessarily be less effective than in-person meetings, and meetings conducted in a language not understood by the borrower will of course be meaningless. CRC hopes that these provisions will be restored to SB 1137, and that the bill will not be further weakened. At the same time, CRC and the other groups signing on to CRC's letter believe that the current bill's provisions will help thousands of borrowers in California retain their homes, protect tenants, preserve neighborhood property values, and protect communities from blight. CRC is asking the author to take the same amendments requested by ACORN. 5. Opposition The United Trustees Association (UTA) is opposed to the bill unless it is amended. UTA is concerned about the scope of the bill and would like to see it reduced to subprime and nontraditional loans, as those terms were defined in SB 385. UTA also notes that there are numerous drafting issues it continues to discuss with the author's staff, in hopes of arriving at an acceptable product. The California Bankers Association, California Association of Industrial Banks, California Association of Realtors, California Chamber of Commerce, California Financial Services Association, California Land Title Association, California Mortgage Bankers Association, and Securities Industry and Financial Markets Association (the industry coalition) oppose SB 1137. While the industry coalition appreciates amendments that differentiate and improve SB 1137, relative to SB 926, SB 1137 still contains several provisions that create substantial compliance challenges and that lead to significant new legal exposure for lenders as they work with borrowers to prevent unnecessary foreclosures. For example, the industry coalition believes that the scope of the bill is too broad. The section of the bill that requires borrowers to contact or attempt to contact a borrower to arrange a meeting applies to all loans secured SB 1137 (Perata), Page 17 by residential real property, including multi-family loans, equity loans, and others. It is not limited to borrowers who were particularly affected by the types of subprime loans identified by proponents as problematic. Furthermore, the layering of due diligence requirements creates a host of opportunities for a borrower to challenge the filing of an NOD, thereby delaying or creating uncertainty within the foreclosure process. The provision of the bill provision that allows entities to assess fines and penalties is unclear about whether the 14-day period commences once the legal owner receives notice, or when the government entity mails the notice. The industry coalition also asks: If the legal owner is unable to completely repair the property to the government entity's standard, would the entire period of penalties apply, or would there be a lesser penalty assessed that reflects the efforts made by the legal owner? What entities are covered under the term "governmental entity"? The industry coalition notes that extensive local ordinances already exist relating to property maintenance. SB 1137 fails to limit or preempt local standards, creating significant compliance challenges resulting from non-uniform standards. Mortgagees, trustees, and beneficiaries are already motivated to maintain the property, because their interest is in selling the property as soon as possible. Once a loan goes into default, the lender is typically the one party with an economic interest in maintaining the property. Finally, the industry coalition takes issue with the provision of the bill that gives a tenant or subtenant of a rental housing unit that has been sold due to foreclosure 60 days' written notice before the tenant or subtenant may be removed from the property. This provision will delay the ability to resell and frustrate the ability of an owner to repair the property. Further, tenants have no incentive to maintain the property during this time. The California Credit Union League (CCUL) is opposed to the bill for many of the reasons cited above by the industry coalition, and asserts that credit unions played virtually no role in subprime lending. Among CCUL's concerns: Innocent errors in documenting the several steps of due diligence could lead to the voiding of an NOD or substantial litigation costs. Furthermore, while CCUL appreciates the provision of the bill that gives owners of foreclosed SB 1137 (Perata), Page 18 properties up to 14 days in which to remedy a claim of public nuisance, the provision presents substantial difficulties. If a lender obtains the property through foreclosure, and the borrower has damaged or neglected the property, a lender would have just two weeks to evaluate the property's condition and remedy the situation or face stiff financial penalties. SB 1137 would make a lender responsible for a borrower's negligence or, worse yet, for purposeful damage made to the property by a borrower prior to surrender. The Apartment Association, California Southern Cities (Apartment Association) is opposed to specific provisions of the bill affecting landlords and tenants. The two sections to which the Apartment Association is opposed are Section 4 (which requires lenders to send a notice to the "resident" of a property that had entered the foreclosure process about their rights and options) and Section 6 (which requires a 60-day notice to terminate a tenancy following foreclosure). The Apartment Association notes that almost every rental will remain a rental, regardless of ownership, and believes that the bill will encourage tenants to stop paying rent. Tenants should be encouraged to pay rent and comply with contractual provisions. The Apartment Association also believes that the 60-day notice period is not necessary for multi-family rentals. 6. Prior Legislation a. SB 926 (Perata), 2007-08 Legislative Session: Substantially similar to SB 1137. Failed passage on the Senate Floor. POSITIONS Support AARP Affordable Housing Services Asset Policy Initiative of California ByDesign Financial Solutions California ACORN California Alliance for Retired Americans California Capital Financial Development Corp California Coalition for Rural Housing SB 1137 (Perata), Page 19 California Community Economic Development Association California LULAC Housing Commission California Reinvestment Coalition California Resources and Training Center for California Homeowner Association Law Center for Human Rights, Law, and Advocacy Center for Responsible Lending CHARO Civic Center Barrio Housing Corporation Community Housing and Credit Counseling Center Community Legal Services in East Palo Alto Consortium for Elder Abuse Prevention Consumer Action Consumer Federation of California Consumers Union East LA Community Corporation East Oakland CDC Fair Housing Council of Orange County Fair Housing Council of the San Fernando Valley Fair Housing of Marin H.O.U.S.E. (Home Ownership Utilizing Supportive Education) Housing and Economic Rights Advocates Housing Rights Center Human Rights/Fair Housing Commission of Sacramento Jefferson Economic Development Institute Just Cause Oakland Mission Economic Development Agency League of California Cities Love, Inc. Low Income Investment Fund Mission Community Financial Assistance National Council of La Raza Nehemiah Community Reinvestment Fund Non Profit Housing of Northern California Northbay Family Homes Orange County Community Housing Corporation Pacific Asian Consortium in Employment Public Interest Law Firm of the Law Foundation of Silicon Valley Project Sentinel Renaissance Entrepreneurship Center Rural Community Assistance Corporation SF EARN Sacramento Mutual Housing Association Self-Help Enterprises Sierra Planning and Housing Alliance, Inc. Suburban Alternatives Land Trust SB 1137 (Perata), Page 20 The Watsonville Law Center Unity Council Urban Strategies Council Western Center on Law and Poverty Lisa A. Baker, Executive Director, Yolo County Housing Authority Joanne Baker, Certified Counselor, NID Housing Counseling Agency Oppose United Trustees Association (oppose unless amended) Apartment Association, California Southern Cities California Association of Industrial Banks California Association of Realtors California Bankers Association California Chamber of Commerce California Credit Union League California Financial Services Association California Land Title Association California Mortgage Bankers Association Securities Industry and Financial Markets Association Consultant: Eileen Newhall (916) 651-4102