Foreclosure “Reform” Stays Alive

By Michael D. Belote, Esq.
CMA Legislative Advocate

The calendar may say that 2022 is only half over, but in “legislative time” the year is rapidly coming to a close. The California Senate and Assembly take the month of July off for summer recess, returning on August 1 for one final month of bedlam. The state constitution requires the legislature to adjourn by midnight, August 31, after which Governor Newsom will have September to wade through the many hundreds of bills to reach his desk.

In the spirit of David Letterman (a somewhat archaic cultural reference, to be sure) this column is dedicated to the Top 10 bills of interest to CMA this year, from tenth to first, with special emphasis on Number 1. So without further adieu:

  1. SB 1176 (Limon): Community Reinvestment Act.
    Requires the Department of Financial Protection and Innovation to study whether nonbank lenders are meeting the credit needs of underserved communities as compared with depository institutions already subject to the Community Reinvestment Act. Pending hearing in the Assembly Banking Committee.
  2. AB 561 (Ting): ADU Financing.
    Requires the state Treasurer to establish the “Help Homeowners Add New Housing Program” to provide participating lenders protection against defaults in ADU lending. Pending hearing in the Senate Banking and Finance Committee.
  3. AB 2001 (Grayson): CFL Remote Work.
    Allows a finance lender or MLO to designate an employee to work at another location, such as home, despite current law which prohibits employees from working at other than the licensed location. Pending hearing in the Senate Banking, and Judiciary, committees.
  4. AB 1093 (Jones-Sawyer): Remote Online Notarization.
    Would make California the fortieth state to permit remote online notarization (“RON”). The bill continues to generate controversy over the extent to which out-of-state RONs will be recognized in California, among other unresolved issues. Passage is uncertain for 2022. Pending hearing in the Senate Judiciary Committee.
  5. AB 2170 (Grayson): First Look Program.
    Creates requirements for sale of REO property similar to the federal First Look Program. At the request of CMA and others, the bill is limited to larger financial institutions, which annually foreclose on 175 or more properties. Pending hearing in the Senate Judiciary Committee.
  6. AB 1837 (Bonta): SB 1079 Clean-Up.
    Continues the refinement of the SB 1079 process which was enacted several years ago and permits certain individuals and entities to place bids on properties after the trustee’s sale. Amendments this year focus on preventing bids from fraudulent nonprofit entities. Pending hearing in the Senate Judiciary Committee.
  7. AB 2710 (Kalra):
    Would have imposed complicated first right of refusal standards on the post-foreclosure sale of properties inhabited by tenants, including just cause eviction. CMA was opposed. DEAD.
  8. SB 975 (Min): Coerced Debt.
    Would permit a debtor to bring an action alleging that debts were incurred as a result of coercion or duress. If the court found that by a preponderance of the evidence that the allegation was true, the debtor would be relieved of the debt, with uncertain impacts on collateral. At the request of CMA and others, the bill was amended to exclude real property secured debt. Pending hearing in the Assembly Judiciary Committee.
  9. AB 1771 (Ward): Capital Gains Taxes.
    Would impose an additional capital gains tax of 25% on rental properties held for less than three years, declining to zero after 7 years. The bill is designed to discourage the flipping of residential properties. CMA and a host of other organizations were opposed to this well-intentioned but counterproductive measure. DEAD.
  10. SB 1323 (Archuleta): Foreclosures.
    Would massively modify California’s nonjudicial foreclosure statutes. During the pendency of the foreclosure, the bill requires trustees to obtain an independent appraisal of the property. If the appraisal shows that the trustor has at least 10% equity, taking into account all liens and encumbrances, the bill would require the trustee to select a “realtor” to list the property, accept offers and sell the property, without the involvement of the trustor. If offers are not received at the list price, the bills requires the trustee to gradually reduce the price, which could significantly lengthen the foreclosure process. Proponents argue that the current nonjudicial foreclosure process systematically strips homeowners of equity, necessitating this change. A large coalition of real estate groups are opposed, including banks, mortgage banks, the title insurance industry, and CMA are opposed. As this column is written, proponents are drafting amendments to respond to the opposition, but they seem committed to creating an “equity sale” process to run concurrently with the existing nonjudicial foreclosure process. Pending hearing in the Assembly Judiciary Committee.

Taken together, this TOP 10 list shows that a number of bills opposed by CMA are either dead or have been amended to eliminate concerns, but a good deal of work remains, especially relating to SB 1323.

On to September!