By Kayo Manson-Tompkins, Esq.

The Wolf Firm, A Law Corporation *
USFN Member (CA, ID, OR, WA)

               For decades, non-judicial foreclosures have been processed pursuant to California Civil Code Section 2924, et seq. Basically, the trustee records a substitution of trustee and notice of default and then waits 90 days, or what is referred to as the pre-publication period. After the pre-publication period expires, the trustee schedules a sale date, records a notice of sale, mails out the notice of sale, publishes the notice of sale, posts the notice of sale, and then conducts the sale. 

Of course, this process, which used to take approximately 120 days to complete, has already been elongated by the passage of AB 1837, which created California Civil Code Section 2924m. This statute allows qualified bidders to submit a notice of intent to bid up to 15 days after the foreclosure sale, and then submit funds that exceed the original bid up to 45 days after the foreclosure sale. 

On February 18, 2022, Senator Bob Archuleta introduced a bizarre bill, SB 1323, that created a major stir in the industry and came incredibly close to passage. Under SB 1323, the foreclosure trustee was required to take steps to market the subject property prior to conducting a foreclosure sale if there was “equity” in the property. 

This approach was subject to a number of significant problems. First, the standard deed of trust does not provide the trustee with the power to market property prior to foreclosure sale. The trustee does not own the property and has no right to sell it except by foreclosure sale. Nonetheless, the proposed Bill required that the trustee list the property with a real estate agent and offer the subject property for sale. Again, the bill was silent as to what role the owner had in this process (e.g., could the owner refuse to allow the property to be shown), and whether the trustee and/or real estate agent could be held liable for trespassing on the owner’s property or for selling the property at a price less than what the owner claimed the true value to be.

               The determination of equity was also problematic. The only real way to obtain an accurate appraisal is with an interior inspection. The bill was silent as to what role the trustor (owner of the property) had in this process, and whether the trustee had the power to force the homeowner to allow an interior inspection. Also, there was concern that the trustee might have liability for an inaccurate appraisal.

               The good news is that the United Trustee’s Association, in association with other industry trade groups, killed SB 1323 - it is dead!!! Had this bill passed, at the very least, it would have caused major delays in the foreclosure process, opened up new litigation challenges to the foreclosure, and in the end, may have even caused most lenders to seek judicial (which was not subject to the legislation) as opposed to non-judicial foreclosure.

               The bad news is that the “equity sale” concept may arise from the dead. A new bill is being written to create a different procedure that would protect homeowners from losing the equity in their homes due to foreclosure. The industry organizations are working through their lobbyists to ensure that this Bill is carefully tracked once introduced and that it is refined so that it falls within the standard foreclosure process.

               We are ever watchful of what the California legislature is doing that might impact the foreclosure process and ultimately our clients’ portfolios. 

               Should you have any questions, please do not hesitate to contact Kayo Manson-Tompkins, kayo.manson-tompkins@wolffirm.com or Caren Castle, caren.castle@wolffirm.com.

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