By Michael Belote, Esq., California Advocates, UTA California Lobbyist
Every year the California Legislature introduces approximately 2500 new bills to, ahem, improve our lives, making the state capitol a veritable bill factory. Perhaps forty percent ultimately are enacted and signed into law. Around 1000 new laws are “chaptered” into the California Codes every year.
In what may well be the busiest legislative year ever for UTA, bills were considered in Sacramento which arguably would have had diametrically opposite effects on nonjudicial foreclosures. The best example was SB 1323 (Archuleta) and AB 1837 (Bonta). The public policy at issue was the role of institutional investors in purchasing foreclosed properties.
At the conclusion of the legislative session, AB 1837 was enacted but fortunately SB 1323 was not. But the story of how each proceeded through the legislative process illustrates just how difficult it is to ask legislators, who have hundreds of bills to consider on an almost limitless series of topics, to thoughtfully consider proposals on as technical an issue as foreclosures.
By now, most UTA members are aware of SB 1323. The bill would have radically altered the foreclosure process by creating an “equity sale” process during the pendency of the foreclosure. The trustee would have been responsible to obtain a fair market value appraisal of the subject property, select a real estate agent to list the property on a local MLS, receive offers and somehow select the offer that is best for the trustor, and then actually sell the property. All without any involvement whatever by the trustor.
Ultimately Senator Archuleta, who was an honorable actor throughout the entirety of the legislative process, elected not to bring SB 1323 up for a vote on the Assembly floor, and the bill died. But incredibly, before the bill died it was approved 8-2 by the Senate Judiciary Committee, 30-9 on the Senate floor, 7-3 by the Assembly Judiciary Committee, and 11-5 by the Assembly Appropriations Committee. SB 1323 literally was one step from reaching Governor Newsom’s desk.
UTA was a very central part of a large real estate and business coalition opposed to SB 1323, and many organizations collaborated in opposing the bill. One of the most effective arguments related to the availability of title insurance in these “equity sales”. Given the likelihood, if not certainty, of protracted litigation in these sales (does the trustee even possess the authority under the deed of trust to conduct a voluntary sale of the property?), the California Land Title Association expressed grave reservations about whether title companies would be willing to take the risks of issuing coverage.
Of course, if title insurance is unavailable, financing would be difficulty if not impossible to obtain, which would mean that these sales would go to cash buyers. This would most certainly favor large institutional/corporate purchasers, the very entities that the legislature was attempting to limit with the enactment of SB 1079. What about the prospective owner-occupants which were the goal of that bill?
Ironically, at the same time that SB 1323 was moving through the process, with the goal of maximizing equity for trustors, AB 1837 was also moving forward, with the goal of cleaning up issues surrounding SB 1079. Of course UTA and many others pointed out that SB 1323 would effectively eviscerate the SB 1079 process. The result would have been the very corporate rental neighborhoods which SB 1079 hoped to prevent.
UTA worked closely with the sponsors of AB 1837, the California Community Land Trust Network, and the group’s very capable lobbyist. We made a number of suggestions for improvements in the SB 1079 process, many of which were included in the enacted version of the bill. Although space does not permit an exhaustive description of these changes, they included language designed to prevent the formation of sham nonprofits to purchase properties under SB 1079, a requirement that casualty insurance be maintained throughout the post-sale process, and clarifications of deadlines for submitting notices of intent to bid and actual SB 1079 bids. The bill also amends Civil Code Section 2924d authorizing trustees to collect an additional fee equal to 1/6 of one percent of the unpaid principal balance if notices of intent or bids are submitted pursuant to the SB 1079 process. All of these changes are effective on January 1, 2023.
How could the legislature simultaneously move both bills forward, when they were at such cross purposes? There are lots of answers to the question, including the fact that Senator Archuleta is very-well liked and legislators wanted to give him the benefit of the doubt on SB 1323. At the end of the day, however, another part of the answer relates to the “bill factory” concept discussed earlier: sometimes legislators are simply so busy with 2500 bills that it is difficult to thoughtfully evaluate contradictory proposals.