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