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LEGISLATION RAISES BASE FEE CAPS AND
CLEARS UP
7-DAY POSTPONEMENT RULE.
By: Phillip M.
Adleson, Esq. and
Geraldine M. Soderberg, Esq.
Adleson, Hess & Kelly, P.C.
577 Salmar Avenue, Second Floor
Campbell, California 95008
408-341-0234 (voice) 408-341-0250 (fax)
email:
padleson@ahk-law.com
Webpage:
www.ahk-law.com
Once again CTA’s input has resulted in modifications to
the California Civil Code that promise to benefit trustees, lenders and all
persons involved in the nonjudicial foreclosure process in California.
While SB
958 (Ackerman [2001 Stats. Chapter 438]) addressed several
non-trustee issues (which will not be discussed in this article), it also
addressed a number of important trustee issues. As of January 1, 2002, SB
958 increases the base trustee’s fee in each of the three statutory fee
tiers; it clarifies how the 7-day stay under Civil Code § 2924g works when
the borrower has filed a bankruptcy entitling the borrower to a stay under
bankruptcy law; it makes some necessary clarifications relating to
reconveyance fees that were omitted in AB 1090 (the reconveyance bill); and
it requires that, under state law, trustees must send notices to the IRS
when required to do so by Federal law (a change requested by parties other
than CTA).
Increase in the Statutory Base Fees.
As before, the actual amount of trustee’s fees is a
matter of negotiation between the trustee and the beneficiary initiating the
foreclosure. Beneficiaries are free to select and substitute in the trustee
who provides the best service at a competitive price. However, for many
years, California has imposed statutory fee caps on trustee’s fees. When
the trustee’s fee does not exceed the applicable cap, it is entitled to a
conclusive statutory presumption that the trustee’s fee is lawful and
valid. It has been 8 years since the statutory fee schedules have been
increased.
For a number of years, the trustee’s fee schedule has
been divided into three tiers. “Tier 1” is from the default until the time
the notice of sale is deposited in the mail to the trustor. “Tier 2” is
from the time the notice of sale is deposited in the mail to the trustor
until the sale is conducted. “Tier 3” is when the sale is actually
conducted and concluded. SB 958 only changes the base fees
that apply at each tier and does not change the additional fee that is based
upon a statutory percentage (e.g., ½ of 1 percent) of the unpaid principal
balance (e.g., $150,000).
Under SB 958, base fees in Tiers 1 and 2 are broken
down into two levels depending on the size of the unpaid principal balance.
Just as under prior law, once the correct base fee is determined, an
additional percentage fee may be added to the base fee to determine the
maximum trustee’s fee. The percentages and the dollar thresholds (based
upon the amount of unpaid principal balance) remain unchanged.
For Tier 1, the base fee is increased from $240.00 to
$300.00 if the loan’s unpaid principal balance is $150,000.00 or less, and
to $250.00 if the loan’s unpaid principal balance is more than $150,000.
While this split base fee system may seem odd, it recognizes the fact that
foreclosures based upon small unpaid principal balances needed to be
increased to adjust for inflation over the past 8 years. On the other hand,
where a loan has a large unpaid principal balance, increase in the based fee
was not needed as much since the base trustee’s fee is increased by the
statutory percentages based upon the unpaid principal balance of the loan.
Since arguably loan balances have increased along with real property values,
trustee’s fees on larger loans have increased as well.
Tier 2 raises the base fee from $350.00 to $425.00 if
the unpaid principal balance of the loan is $150,000.00 or less, and to
$360.00 if the unpaid principal balance is more than $150,000.
Tier 3 still has only one level. The base fee is
increased from $350.00 to $425 at the time of sale.
As mentioned above, the additional trustee’s fees,
based upon a percentage of the unpaid principal balance, remain the same for
all three tiers. By the time this article is printed, the CTA website at
http://www.catrustee.org/ should have a fee calculator so that
calculating the new fee caps for any particular unpaid principal balance
under the new maximum statutory schedule is easy to do.
While the new schedule does affect a fee schedule
increase for most small loans, it creates some anomalies that could not be
avoided in the new dual-base fee systems. For example, the statutory
trustee’s fee would actually be higher for a loan with an unpaid principal
balance of $150,000.00 than it would be for a loan with an unpaid principal
balance of $150,000.01. That is in Tier 1, the base fee for the $150,000.00
loan would be calculated as follows: Base fee of $300, plus $500 (which is ½
of 1% of $100,000.00, which is the amount exceeding $50,000, up to
$150,000.00) for a total of $800. The Tier 1 fee for an unpaid principal
balance of $150,000.01 would be: $250 base fee, plus the $500 percentage fee
for a total of $750. Therefore, there are certain places in the new fee
schedule where a loan with a principal balance as little as $ .01 more than
another loan’s principal balance will result in the trustee’s fee being
lower for the larger loan. These anomalies are limited to loans between
$150,000 and slightly less than $170,000.00. For these principal balances,
the new base fees are slightly higher than under prior law.
All things considered, this statutory increase in the
base fees should be fair to consumers and give trustees help where it is
most need it, in the foreclosure of loans with lower unpaid principal
balances.
Amendment to the 7-Day Stay.
For a number of years, Civil Code § 2924g(d) has
required that the trustee postpone the trustee’s sale for 7 days after
dismissal of an action, unless the court expressly orders that the sale may
occur sooner. While certain ambiguities in the statute resulted in some
disagreement interpreting the 7-day period, most trustors, trustees and
beneficiaries, and their respective counsel, became comfortable with the
rule. When Bankruptcy Rule 4001(a)(3) was enacted
staying the effective date of a relief from stay order for 10 days (unless
the court orders otherwise), it cast substantial doubt on how to apply the
7-day state stay under section 2924g(d). That is, did the 7-day period run
concurrently or consecutively with the 10-day period under the Bankruptcy
Rule? Whether these two different stays ran concurrently or consecutively,
made a major difference. If the stays ran concurrently, the foreclosure
could be concluded after 10 days. If they ran consecutively, the foreclosure
would have to be postponed for 17 days. This was a particularly bitter pill
for lenders dealing with abusive debtors (e.g., those filing frivolous
multiple bankruptcy filings solely to delay foreclosure).
Amendments to 2924g(e) which passed last year were
intended to make is clear that the two stays run concurrently. However, the
actual wording was less than clear. SB 958 clarifies the language in Civil
Code § 2924g(e) to eliminate the confusion.
The amendment in SB 958 states: “(e) Notwithstanding
the time periods established under subdivision (d) [the 7-day rule], if
postponement of a sale is based on a stay imposed by Title 11 of the United
States Code (bankruptcy), the sale shall be conducted no sooner than the
expiration of the stay imposed by that title and the seven‑day
provision of subdivision (d) shall not apply.” [Bracketed material
and emphasis added].
The new wording should make inapplicable the state
7-day rule any time there has been a stay under the bankruptcy provisions of
Title 11 of the United States Code. Since there are stays other than the
automatic stay, this language should apply to all bankruptcy stays.
Even with the improved language, it still would be a
good practice to get a court in its order to specifically provide the date
on which the foreclosure sale may proceed to avoid arguments with debtors’
counsel during the time it takes for everyone to become acquainted with this
amendment.
Reconveyance Fees Where No Payoff Demand.
In an attempt to solve problems created by the court of
appeal decision in Bartold v. Glendale Federal Bank (4th Dist. 2000)
81 Cal.App.4th 816, 97 Cal.Rptr.2d 226, the legislature enacted AB 1090
(Hertzberg) (Chapter 560). The negotiations were so intense between the
various interested parties that correcting small problems with the bill was
not possible. Among other things, AB 1090 lowered reconveyance fees to $45
(originally the bill lowered the fee much more) and payoff demands fees to
$30. In addition, the bill appeared to prohibit charging a reconveyance fee
unless the fee was set forth in a payoff demand. Initially, some consumer
representatives thought this would effect a cost saving to consumers.
Overlooked was the fact that lenders in a number of
transactions (e.g., some line-of-credit payoffs, walk-in payoffs and loans
paid off through amortized installments) might currently not require a
payoff demand. This new rule would create an incentive for lenders to
require payoff demands (as they may have to pay the trustee’s reconveyance
fee), resulting in consumers having to pay both fees rather than just a
reconveyance fee. After realizing that the potential consumer savings was
illusory, an amendment was put into SB 958 (Chapter 438) which added Civil
Code section 2941.1 which provides that: “Notwithstanding any other
provision of law, if no payoff demand statement is issued pursuant to
Section 2943, nothing in Section 2941 shall be construed to prohibit the
charging of a reconveyance fee.”
Notice Of Sale To IRS When Federal Law Requires It.
In a provision which was not proposed by CTA, SB 958
amended Civil Code section 2924b(c)(4) requiring a trustee to: “Provide a
copy of the notice of sale to the Internal Revenue Service, in accordance
with Section 7425 of the Internal Revenue Code and any applicable federal
regulation, if a ‘Notice of Federal Tax Lien under Internal Revenue laws’
has been recorded against the real property to which the notice of sale
applies”.
This provision does not change the form or timing of
notices given by trustees when they are aware of an IRS lien which is of
record thirty (30) days prior to the scheduled trustee’s sale date.
However, it appears to attempt to do two things: (1) to impose a duty on the
trustee under state law that may not have existed heretofore (see,
Diediker v. Peelle Financial Corp. (1997) 60 Cal.App.4th
288); and (2) IRS notices are items required by Civil Code section 2924b
and, thus, should be included in trustee’s sale guarantees.
While this amendment will have little impact in the way
trustees give notice of IRS liens, it could have significant impact on the
liability of trustee’s and issuers of trustee’s sale guarantees. Trustees
are willing to give and TSG issuers are willing to require notice of IRS
liens when they are readily ascertainable from the public record. However,
there are a number of reasons making it difficult to find IRS liens against
the property. For one reason, federal tax liens are liens against the
taxpayer and against all persons having an interest in the taxpayer’s
property, with the possible exception of persons qualifying as a member of
one of the protected classes under section 6323 of the Internal Revenue
Code. These protected classes are a purchaser, a holder of a security
interest, a mechanic’s lienor, and a judgment lien creditor. The liens are
secret until they are recorded; however, the IRS holds the lien against the
property from the time it determines and imposes the tax lien whether or not
it is of record in the Recorder’s Office. Thus, there could be a federal
tax lien against particular property and it would be valid whether or not
evidence of it had yet been recorded. In addition, California law requires
that all recorded documents be indexed in order to appear in the chain of
title to real property. However, a notice of federal tax lien will not
appear in the chain of title in California unless it has been indexed in the
county in which it was filed.
This provision will need more work to improve notices
while at the same time finding a fair method of unwinding sales where IRS
liens cannot be discovered and notices should be sent.
Conclusion
SB
958 makes a long overdue increase in the base trustee’s fee schedule,
resolves ambiguity in the 7-day postponement provision after a termination
of a stay and it clarifies that, where there is no payoff demand issued, a
reconveyance fee may be charged upon payoff. Other provisions in the bill
are either irrelevant to trustees or likely to be refined in the future.
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