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October 21, 2011

E-Bulletin regarding a newly enacted California statute

October 20, 2011

Dear Insolvency Law Committee Constituency List members, please find
attached an E-Bulletin regarding a newly enacted California statute:

Governor Signs SB-4 (Calderon) Establishing New Requirements for Notices of
Trustee Sales

Most lenders with real property security in California foreclose by means of
nonjudicial foreclosure trustee's sales, rather than through
court-supervised judicial foreclosures. The first step in the nonjudicial
foreclosure process is to record and give a Notice of Default. The next
step, after the passage of at least three months, is to record and give a
Notice of Sale, giving at least 20 days' notice of the specified date, time
and place of sale.

Recent amendments to Civil Code section 2924f (2011, Chapter 229, S.B. 4,
approved by the Governor and filed with the Secretary of State on September
6, 2011), add three new requirements relating to the issuance of a Notice of
Sale. These requirements will become effective on April 1, 2012, and apply
only when the deed of trust or mortgage containing a power of sale is
secured by real property containing one to four single-family residences.

First, the Notice of Sale must contain a "Notice to Potential Bidders"
explaining some of the risks involved in bidding at the sale, including
that: (1) the successful bidder does not automatically receive free and
clear title to the property, (2) the lien being foreclosed may be a junior
lien, resulting in the successful bidder's title being subject to surviving
senior liens and the responsibility for paying off the senior liens before
obtaining clear title, (3) the bidder is encouraged to investigate the
condition of title to the property before bidding, and (4) the foreclosing
lender may hold more than one mortgage or deed of trust on the property.
The stated need for this requirement was to inform an increasing number of
unsophisticated bidders of the risks of bidding at a foreclosure sale.

Second, the Notice of Sale must contain a "Notice to Property Owners" to
better inform property owners about the foreclosure sale process and the
time at which ownership of the home is transferred to another party. This
notice explains that: (1) the sale date may be postponed one or more times
pursuant to Civil Code section 2924g, (2) the owner and the public can learn
of any rescheduling of the date and time for the sale by calling a telephone
number or visiting an internet website, and (3) the best way to verify
postponement information is to attend the scheduled sale.

Third, the statute requires a beneficiary, trustee, mortgagee or authorized
agent to make a good faith effort to provide up-to-date information, free of
charge, regarding sale dates and postponements, either by an internet
website, a telephone recording accessible 24 hours a day, seven days a week,
or through any other means that allows 24 hours a day, seven days a week, no
cost access to updated information.

These new requirements do not modify or create any substantive rights or
obligations for any person specified in either of the required notices, and
failure to comply with the new requirements will not invalidate any sale
that would otherwise be valid under Civil Code section 2924f. The
information provided in the required notices does not constitute the public
declaration of sale postponement required by subdivision (d) of Civil Code
section 2924g.

While the new amendments provide some helpful bidder caveats, they do not
obviate the need for a fully informed bidder to conduct additional pre-sale
due diligence and attend the sale with a clear bidding strategy in mind.

SB-4 may be viewed by clicking HERE

These materials were prepared by John R. Engel, a shareholder at Sullivan,
Hill, Lewin, Rez & Engel, LLP, in San Diego, California.

Thank you for your continued support of the Committee.

Best regards,

Insolvency Law Committee

October 21, 2011 | Permalink


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