AFFECTING REAL ESTATE
A brief summary of some recently passed laws covering topics such as Mortgages and Deeds of Trust, Blockchain, Property Taxes, Transfer Fees and more.
Source: California Land Title Association
State Working Group
Existing law, the Uniform Electronic Transactions Act, specifies that a record or signature may not be denied legal effect or enforceability solely because it is in electronic form and that a contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation. Among other things, the act provides that if a law requires a record to be in writing, or if a law requires a signature, an electronic record or signature satisfies the law.
Existing law specifies that there is, in the Government Operations Agency, the Department of General Services, which shall develop and enforce policy and procedures and institute or cause the institution of those investigations and proceedings as it deems proper to assure effective operation of all functions performed by the department and to conserve the rights and interests of the state.
This act, until January 1, 2022, requires the Secretary of the Government Operations Agency to appoint a blockchain working group on or before July 1, 2019. The act defines blockchain as a mathematically secured, chronological, and decentralized ledger or database. The act, on or before July 1, 2020, requires the working group to report to the Legislature on the potential uses, risks, and benefits of the use of blockchain technology by state government and California-based businesses.
Chapter 875 (AB 2658 – Calderon); adding and repealing Sections 11546.8 and 11546.9 of the Government Code.
Child Support Obligors
Interception of Insurance Payments
Existing law creates the Department of Child Support Services and provides for the interception of funds from state tax refunds, lottery winnings, unemployment compensation benefits, and benefits under the Public Employees’ Retirement System that otherwise would be paid to a person owing past due child support. Existing law creates the Department of Insurance, headed by the Insurance Commissioner, and prescribes the department’s powers and duties.
This act, beginning January 1, 2020, requires an insurer to cooperate with the Department of Child Support Services to identify claimants who are also obligors who owe past-due child support, and to report those claimants to the department. The act requires an insurer to identify and report a claimant if his or her claim seeks an economic benefit, but exempts specified economic benefits, including a payment to the mortgagee or lienholder of the property or a payment from an accelerated death benefit, and limits withholding from a qualifying disability insurance payment to 50% of the claim for the benefits. The act requires an insurer to comply with the requirements of a notice from the Department of Child Support Services that a reported insurance claim is payable to an obligor who owes past-due child support, unless the notice is received after the insurer has paid the claim. The act provides that an insurer, specified agent, specified insured, and a central reporting organization, that releases information in accordance with this act, withholds payments, and makes disbursements, is immune from liability under certain circumstances.
The act also requires that the data obtained by the department, or by an insurer or its designated agent, only be used for the purpose of identifying claimants who are also obligors who owe past-due child support, and specifies that various laws protecting the privacy and security of data apply.
The act authorizes an insurer to use a central reporting organization to automate its claims identifying process, and requires an insurer that does not use a central reporting organization to determine if a claimant owes past-due child support before paying a claim.
NOTE: The act defines economic benefits under a life insurance policy, disability income insurance policy, property and casualty policy and an annuity. The act does not address title insurance or economic benefits under a title insurance policy.
Chapter 439 (AB 2802 – Friedman); adding Article 8 (commencing with Section 13550) to Chapter 2 of Division 3 of the Insurance Code.
Language of Loan Modification Documents
Residential Mortgage Lending Act Administrative Hearings
Existing law requires a supervised financial organization that negotiates residential property loans primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean, provide a specific form, created by the Department of Business Oversight, in each of these languages to summarize the terms of a mortgage loan. Existing law authorizes the department, in creating the form, to use a specific federal disclosure form from the United States Department of Housing and Urban Development as guidance.
This act also requires a supervised financial organization that negotiates the modification of any of the terms of a loan or extension of credit secured by residential real property primarily in one of the above languages and that offers a borrower a final loan modification in writing, to deliver to that borrower, at the time the final loan modification offer is made, a specified form summarizing the modified loan terms in the same language as the negotiation.
The act additionally requires delivery of an applicable form or forms for transactions subject to certain federal regulations, and in this regard would authorize the Department of Business Oversight, in making available each of its forms in each of the languages set forth above, to use as guidance two additional forms from the Consumer Financial Protection Bureau and three additional forms from the Federal National Mortgage Association. The act specifies that these provisions become operative 90 days following the issuance of the forms by the Department of Business Oversight, but in no instance before January 1, 2019.
Existing law authorizes the DBO commissioner to summarily revoke the license of a licensee who fails to file a certified financial statement prepared by an independent certified public accountant.
This act specifies that, if, after a revocation order is made, a request for hearing is filed in writing within 30 days and a hearing is not held within 90 days, the order would be deemed rescinded as of its effective date. The act prohibits a licensee, during the revocation period, from conducting business unless otherwise specified. The act provides that the revocation of a license does not affect the powers of the commissioner pursuant to the act.
Chapter 356 (SB 1201 – Jackson); amending Section 1632.5 of the Civil Code, and amending Section 50200 of the Financial Code.
MORTGAGES AND DEEDS OF TRUST
Home Equity Lines of Credit
Under existing law governing home equity lines of credit, upon receipt of a specified written request from a borrower, a lender must suspend the borrower’s equity line of credit for a minimum of 30 days. Upon receipt of both that request and a specified payment, existing law requires a lender to close the borrower’s equity line of credit and release or reconvey the property secured by the line of credit, as specified. Existing law provides for the repeal of these equity line of credit suspension and closure provisions on July 1, 2019.
Under the existing law, various significant terms are defined and a suggested form for the Borrower’s Instruction to Suspend and Close Equity Line of Credit form is included.
This act only removes the sunset provision and extends the operation of those provisions indefinitely.
Chapter 90 (SB 1139 – Morrell); amending Section 2943.1 of the Civil Code.
Successors in Interest
Existing state law regulates reverse mortgages.
Existing law, known as the Survivors Bill of Rights, prohibits a mortgage servicer, upon notification that a borrower has died by a person claiming to be a successor in interest, from recording a notice of default until the mortgage servicer gives an opportunity for the claimant to show that he or she is
a successor in interest. Within 10 days of a claimant being deemed a successor in interest, a mortgage servicer must provide the successor in interest with information about the loan. Existing law also requires a mortgage servicer to allow a successor in interest to assume the deceased borrower’s loan or to apply for foreclosure prevention alternatives on an assumable loan, as specified. Existing law provides other protections for these successors in interest and deems a mortgage servicer, mortgagee, or beneficiary of the deed of trust, or an agent thereof, to be in compliance with the above- described provisions if they comply with specified federal laws. Existing law makes these provisions inoperative on January 1, 2020.
This act makes those provisions inapplicable to reverse mortgages and deletes certain obsolete references.
NOTE: This act clarifies an ambiguity in California law that requires notification to heirs of deceased borrowers that they may contact lenders and seek to qualify as successors in interest of borrowers and assume the mortgage. Because reverse mortgages are by their very nature not assumable, without an express exemption, lenders might be required to send notices about assumption rights which do not exist.
Chapter 136 (SB 1183 – Morrell); amending Section 2920.7 of the Civil Code.
Homeowners Bill of Rights Reinstatement
Laws enacted in 2012 and repealed on January 1, 2018, commonly referred to as the California Homeowner Act of Rights, established a variety of requirements in connection with foreclosures on mortgages and deeds of trust, including restrictions on mortgage servicers actions while a borrower is attempting to secure a loan modification or has submitted a loan modification application. The foreclosure provisions of the act were generally limited to first lien mortgages and deeds of trust on owner-occupied residences.
This act reenacts various provisions of the California Homeowner Act of Rights. The law is largely unchanged from when it was first enacted, with some differences: loan modification applications received less than five business days before a foreclosure sale are now excerpted from HOBR provisions, and; a “cease and desist” exception has been added, allowing borrowers to opt out of telephone outreach in cases where a borrower has submitted a cease and desist request.
NOTE: The act states that it is the intent of the Legislature that any amendment, addition, or repeal of a section or part of a section enacted by Senate Bill 900 (Chapter 87 of the Statutes of 2012) and Assembly Bill 278 (Chapter 86 of the Statutes of 2012), commonly known as the California Homeowner Bill of Rights, that took effect as of January 1, 2018, shall not have the effect to release, extinguish, or change, in whole or in part, any liability that shall have been incurred under that section, or part of a section, prior to January 1, 2018, unless the amendment, addition, or repeal expressly so provides. The section, or part of a section, that was amended, added, or repealed shall be treated as still remaining in force for the purpose of sustaining any proper action, suit, or proceeding for the enforcement of such a liability, as well as for the purpose of sustaining any judgment, decree, or order.
Chapter 404 (SB 818 – Beall); amending Section 2924 of, amending and repealing Sections 2923.4, 2923.5, 2923.6, 2923.7, 2924.12, 2924.15, and 2924.17 of, adding Sections 2923.55, 2924.9, 2924.10, 2924.18, and 2924.19 to, repealing Section 2920.5 of, and repealing and adding Section 2924.11 of, the Civil Code.
Notice of Tax Deficiency
Under existing property tax law, unpaid property taxes are declared delinquent and subject to penalties and costs, and, if the taxes remain unpaid, the property is declared tax-defaulted and subject to sale, as provided, if not redeemed by the owner within a certain amount of time. Existing property tax law requires the tax collector to provide assessees or parties of interest, as applicable, of tax-defaulted property subject to sale with specified notices, including, among others, a notice of default and power to sell the property for nonpayment of taxes, a notice of intended sale, and a notice of proposed sale. Under existing federal law, the filing of certain bankruptcy petitions or an application under the Securities Investor Protection Act of 1970, as provided, operate as a stay of specified enforcement and collection actions, except for the issuance by a governmental unit of a notice of tax deficiency.
This act requires the notices described above to constitute a “notice of tax deficiency” for the purposes of the exception under federal law described above if the property subject to the notices is the subject of a bankruptcy proceeding.
Chapter 119 (SB 1506 – Committee on Governance and Finance); mending Sections 3365, 3691, 3691.1, 3701, and 3704.7 of the Revenue and Taxation Code.
Payment of Deferred Taxes
Existing law authorizes the board of supervisors of a county to provide, by ordinance, for the reassessment of property that is damaged or destroyed, without fault on the part of the assessee, by a major misfortune or calamity, upon the application of the assessee or upon the action of the county assessor with the approval of the board of supervisors. Existing law also authorizes owners of eligible property, as defined, who have applied for reassessment under that ordinance, to apply for a deferral of payment of that installment of property taxes.
This act requires that the application for a deferral of payment be made in conjunction with the claim for reassessment.
Existing law requires the payment to be deferred without penalty or interest until the assessor has reassessed the property and a corrected bill has been sent to the property owner, at which time the taxes deferred pursuant to these provisions become due 30 days after receipt by the owner of the corrected tax bill and, if unpaid thereafter, are delinquent.
This act instead provides that deferred taxes on the corrected tax bill are due and payable for the current tax year, as described above, on the later of: (1) December 10 for the first installment or April 10 for the second installment, or (2) 30 days after the date that the corrected bill is mailed or electronically transmitted to the owner. The act additionally requires the payment to be deferred without penalty and interest until the assessor has determined that the property is not eligible to be reassessed and the assessor has so notified the property owner.
Chapter 149 (AB 3122 – Gallagher); amending Section 194.1 of the Revenue and Taxation Code.
Tax-Defaulted Property Sales
Existing property tax law attaches, as a lien against property, taxes that are owed on that property. Existing law generally declares in default the taxes, assessments, and penalties on real property if those charges are not paid by a specified time. Existing law requires the tax collector to attempt to sell
property that has become tax defaulted five years or more after that property has become tax defaulted, and in the case of tax-defaulted property that is also subject to a nuisance abatement lien, three yearsor more after that property becomes tax defaulted. During these three- and five-year periods, existing law allows a taxpayer a right of redemption whereby the taxpayer may pay specified charges to remove the lien against the property. Existing law specifies that this right of redemption terminates on the last business day prior to the date that the sale of the property begins and, if the tax collector approves a sale as a credit transaction and does not receive full payment on or before the date upon which the tax collector requires,
the right of redemption is revived on the next business day following that date. Existing law also provides that the right of redemption is revived if the property is not sold.
This act specifies that the commencement of the tax sale constitutes the actual sale date, regardless of the date of the conclusion of the auction. The act provides that the taxpayer loses all rights in the property during the auction period for failure to redeem the property by the final redemption date. The act provides that if a property has not been redeemed, any person or entity with title of record to the property loses all rights in the property, including all legal and equitable interest therein, upon close of the redemption period. However, those rights return if the right of redemption is revived. The act specifies that the provisions relating to the right of redemption do not affect the distribution of proceeds, and apply regardless of whether the tax collector or his or her designee conducts the tax sale in person.
NOTE: This act allows counties holding tax sales to treat the Bankruptcy Court stay as ineffective as to the tax-sale because the taxpayer/ bankruptee no longer has a legal or equitable interest in the property if they did not redeem the property prior to the redemption termination deadline. This express “loss of rights” provision addresses a bankruptcy-related court decision that has created uncertainty over the tax sale process where a property owner files bankruptcy in the window period after the tax sale commences but before the auction concludes. The issue giving rise to this act relates to public auction tax sales spanning multiple days and that involve Internet sales. To deal with internet sales more explicitly, the bill was amended to provide that the commencement of the tax sale constitutes the actual sale date regardless of the auction conclusion.
Chapter 284 (AB 2746 – Eduardo Garcia); amending Section 3707 of the Revenue and Taxation Code.
Senior Citizens Manufactured Home Property Tax Postponement Law
Existing law authorizes a claimant to file a claim with the Controller to postpone the payment of property taxes that are due on the residential dwelling of the claimant pursuant to the Senior Citizens and Disabled Citizens Property Tax Postponement Law, the Senior Citizens Tenant- Stockholder Property Tax Postponement Law, and the Senior Citizens Possessory Interest Holder Property Tax Postponement Law. Existing law, for purposes of these laws, defines a “residential dwelling” to mean a dwelling occupied as the principal place of residence of the claimant and owned by the claimant, the claimant and spouse, or by the claimant and another individual, as specified, including condominiums that are assessed as realty for local property tax purposes. Existing law continuously appropriates revenues in the Senior Citizens and Disabled Citizens Property Tax Postponement Fund for, among other things, disbursements relating to the postponement of property taxes pursuant to these laws. Existing law authorizes the postponement of the payment of property taxes of a claimant who is the owner of a mobilehome for loans established prior to February 20, 2009, pursuant to the Senior Citizens Mobilehome Property Tax Postponement Law.
This act expands the definition of a “residential dwelling” to include a manufactured home, thereby authorizing a claimant who is the owner of a manufactured home to postpone the payment of property taxes. The act, on July 1, 2019, and on July 1 each year thereafter, requires up to 1% of the amount available in the Senior Citizens and Disabled Citizens Property Tax Postponement Fund for disbursements relating to postponement of property taxes to be available for residential dwellings that are manufactured homes.
The act repeals the Senior Citizens Mobilehome Property Tax Postponement Law and, instead, enacts the Senior Citizens Manufactured Home Property Tax Postponement Law, which, commencing July 1, 2019, establishes a procedure for the postponement of the payment of property taxes of a claimant who is the owner of a manufactured home. The act requires a claimant applying for postponement under this law to file a claim under penalty of perjury. The act also makes related conforming changes.
Existing law requires all sums paid by the Controller to be secured by a lien in favor of the state when funds are transferred to the county by the Controller upon the real property for which property taxes have been postponed. Existing law also requires the Controller to maintain a record of all properties against which a notice of lien for postponed property taxes has been recorded.
This act additionally requires all sums paid by the Controller to be secured by a lien in favor of the state when funds are transferred to the county by the Controller upon a manufactured home situated on real property owned by the claimant for which property taxes have been postponed. The act, in the case of a manufactured home situated on real property not owned by the claimant, requires the state’s interest to be secured by a security agreement in favor of the State of California. The act also requires the Controller to maintain a record of all properties against which the Department of Housing and Community Development has been notified to withhold the transfer of title or permit for transport. The act requires the Controller, or authorized delegate of the Controller, if at any time the amount of the obligation secured by the lien or security agreement for postponed property taxes is paid in full or otherwise discharged in the case of a manufactured home, to direct certain local tax officials to remove specified information from the secured roll or assessment records.
NOTE: This act took effect as an urgency measure on September 29, 2017.
Chapter 896 (SB 1130 – Leyva); amending Sections 16180, 16181, 16182, 16183, 16184, 16186, and 16192 of, and repealing Article 4 (commencing with Section 16210) of Chapter 5 of Part 1 of Division 4 of Title 2 of, the Government Code, and amending Sections 2514, 20503, 20505, 20583, 20585, 20586, 20640.2, and 20641 of, adding Section 20639.13 to, and adding Chapter 3.3 (commencing with Section 20639) to Part 10.5 of Division 2 of, the Revenue and Taxation Code.
Change in Ownership
Retroactive Exclusion for Local Registered Domestic Partners
The California Constitution generally limits ad valorem taxes on real property to 1% of the full cash value of that property. For purposes of this limitation, “full cash value” is defined as, among other things, the appraised value of that real property when a change in ownership has occurred. Existing law provides that specified transfers are not deemed a change in ownership, including any transfer between registered domestic partners, as provided.
This act also excludes from the definition of “change in ownership” any transfer of property occurring on or after January 1, 2000, to June 26, 2015, inclusive, between local registered domestic partners. The act requires any transferee whose property was reassessed in contravention of this provision to obtain a reversal of that reassessment upon application to the county assessor. The act authorizes the county to charge a fee related to the application and reassessment reversal. The act requires the State Board of Equalization to prescribe the form for claiming the reassessment reversal. The act requires any reassessment reversal to apply commencing with the lien date of the assessment year in which the claim is filed.
NOTE: Registered domestic partners at the state level were eligible for the change of ownership exclusion. This act retroactively extends the exclusion to domestic partners who were only registered with a local jurisdiction.
Chapter 919 (AB 2663 – Friedman); amending Section 62 of the Revenue and Taxation Code.
REAL ESTATE TRANSFER FEES
Direct Benefit Requirement
Existing law allows various fees to be authorized in covenants, conditions, and restrictions and included in the price of a residential real estate transfer every time property is transferred.
This act prohibits the creation of a transfer fee on or after January 1, 2019, other than excepted transfer fee covenants that provide a “direct benefit” to the property as defined by Sec. 1228.1 of Title 12 of the Code of Federal Regulations. The act provides that any transfer fee created in violation of this prohibition is void as against public policy.
This act provides that those transfer fee covenants that provide a “direct benefit” as defined above are not required to comply with existing notice requirements advising that federal restrictions associated with private transfer fees may make it more difficult to obtain mortgage financing.
Chapter 306 (AB 3041 – Cunningham); adding Section 1098.6 to the Civil Code.
TRUSTS, WILLS, AND ESTATES
Revocable Transfer on Death Deeds
Existing law governs the execution, revocation, and effectiveness of a revocable transfer on death deed, defined as an instrument that makes a donative transfer of property to a named beneficiary that operates on the transferor’s death, and remains revocable until the transferor’s death. Existing law establishes a statutory form of revocable transfer on death deed that must be notarized and signed under penalty of perjury by the transferor and recorded with the county recorder, as specified. Existing law requires that subsequent pages of that form include common questions regarding the use of the form. Existing law requires that, in order to be effective, a revocable transfer on death deed must be recorded on or before 60 days after the date it was executed.
This act provides that the requirement of recordation described above does not require the recordation of the pages of the statutory form that include the common questions about the use of the form, and a failure to record those pages does not affect the effectiveness of a revocable transfer on death deed. The act applies these provisions to revocable transfer on death deeds executed before, on, or after the effective date of these provisions.
NOTE: This act took effect as an urgency measure on July 9, 2018.
Chapter 65 (AB 1739 – Chau); amending Section 5626 of the Probate Code.
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