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The dictionary defines the word "oxymoron" as a combination of contradictory or
incongruous words. The term would apply to such terms as "honest car salesman",
"quick justice", "no-cost loan", and "airline food". The
oxymoron "responsive government" would aptly describe the California
legislature. Perceptive citizens will quickly understand that to mean more regulation, at
higher cost with less benefit.
And so it was for the 1996 session of the California legislature. New laws were enacted to
help the industry in small ways; but the evident compromises that were reached in such
important areas as earthquake insurance were not very considerate to California property
owners. Although many felt that some insurance was better than no insurance (because most
of the property casualty insurers pulled out of the California market following the
Northridge earthquake), the new CEA insurance policy provides less benefits with higher
cost-- a "no-gainer".
A short summary of the significant new legislation follows. If more detailed information
is desired, please go to the bill number following the summary.
If you should have any legal questions, please leave an e-mail me at drd@wolffirm.com.
BROKERS
1. Broker's duty of disclosure clarified and made applicable to "as is" sales.
[AB 2383] Agents cannot refuse to disclose reports of physical inspections if they affect
value or desirability of property (even if their own visual inspection does not indicate
such items exist).
2. Broker's duty of care specifically set forth in Civil Code 2079 to 2979.6. Brokers
duties are now solely statutory ones.
HOMEOWNERS ASSOCIATIONS
1. Summary of property, general liability, earthquake and flood insurance information must
be distributed annually to HOA association members. [SB 1525] 2. Immunity of directors for
deciding or not deciding to investigate or sue the developer for latent defects in design
or construction. [SB 1711]_
INSURANCE
1. Limits for amounts of required PMI guarantee insurance to no more than 30% of the risk
of the entire indebtedness. [SB 1863]
2. Earthquake insurance authority established and procedures for rating, capitalization
and policy issuance. [SB 1993; AB 2086; AB 3232] This was the long awaited "fix"
to Northridge aftermath.
New California Earthquake Authority established, with existing policies going into the
plan, and new policies written by private insurers and backed by CEA. Insurers continue to
handle premiums and claims. Premiums are $3.29/$1000 of coverage, $5.20/$1000 in high risk
areas. There is a hefty 15% deductible, and No guaranteed replacement coverage. There is a
$5,000 limit on personal contents, and only $1,500 for living expenses.
LANDLORD/TENANT
1. No recovery of utility charges from foreclosing beneficiaries or subsequent owners. [AB
1770]
2. Landlords may charge applicant screening fee of $30.00 per applicant prior to renting an apartment. [AB 2263]
3. Owner's agent may appear in small claims cases. [AB 2567]
4. Tenants may be compelled to make rent deposit with the court during an unlawful detainer action. Pilot project, applies in City of Los Angeles, San Bernardino County. [AB 2966]
5. Rent increases for sublessees or assignees of the original tenant not residing in
the unit as of January 1, 1996. [AB 3244]
LENDERS
1. Finance lender can sell notes purchased from institutional lender. [AB 3115]
2. Residential mortgage lenders may provide brokerage services to a borrower if a written contract is signed. [SB 411]
3. Lenders immunity from toxic remediation. [SB 1285] This law substantially changes the potential liability of foreclosing lenders when they find toxic materials on the property. Existing law made such lenders liable for failure to take remedial action and for potential assessment of 3 times the amount of costs incurred. Under the new law, lenders are exempt from taking remedial action and from penalties as a result of foreclosure. These immunities are eliminated to the extent of any actual benefits realized by the lender.
4. Lenders prohibited from using geographically based assessment systems for earthquake insurance on loans secured by a condominium. [SB 1327]
5. New laws dealing with letters of credit and the relationship, rights and duties of
the parties that deal with letters of credit. [SB 1599]_
6. Amount of security for industrial loans secured by real property limited to 110% of the
principal amount owing. [SB 1890]
7. Unfair or deceptive act for mortgage lender to allow home improvement contractor to
negotiate loan or use loan application documents. [SB 2045]
MORTGAGES
1. Guarantor may now waive the right of subrogation and reimbursement. Not applicable to
purchase money loan guarantees for properties containing 1-4 dwelling units. [AB 2585]
2. Complete revision of law regarding assignment of rents and appointment of receivers, and requirements for such assignments to be valid. [SB 947]
3. Enlargement of rights of borrowers to prepay loans without penalty. [SB 1106]
4. Requirement for assessor's parcel identification number to be contained on documents
as a condition to its recordation in LA County. [SB 1631]
SALE OF PROPERTY
1. Additional disclosures are now required for security safeguards, security bars on
windows, child resistent barriers, safety covers for spas. [AB 3026]
2. Home inspectors duty of care. [SB 258]
3. Revised standards for and disclosure of seismic gas shut off devices and bracing requirements for residential water heaters. [SB 577]
4. Prohibition against use of designation SLREA or use of the term "state
certified real estate appraiser" except for licensees. [SB 1316]
TRUSTEES
1. Reconveyances to be made by trustee within 30 days of final payment. $65.00 fee is
presumed reasonable. [AB 372].
2. Privilege from defamatory information in mailing, publication and delivery of notices in connection with foreclosure of loans under Civil Code 2924 given to trustees. [SB 1488]
3. New procedures for change of trustee by a majority of beneficiaries. [SB 1638]
CALIFORNIA ASSEMBLY BILL SUMMARIES
BILL NO. AB-372 Mortgages Amends Civil Code 2941
Existing law requires that reconveyances (Certificates of Discharge of Mortgage) must be
made by the mortgagee within thirty days. The beneficiary or assignee of the beneficiary
must then deliver to the trustee the original note and deed of trust and request for a
full reconveyance and the trustee must record the reconveyance within 21 days. The law
presumed that a fee charged by the trustee, prior to 1/1/88, of $65.00 was reasonable. The
new law deletes the date and keeps the presumption.
BILL NO. AB-1770 Public Utilities/Tenants Amends Public Utilities Code 10009.6
A municipal utility may not recover from a subsequent owner or tenant of a residence,
charges and penalties for services provided to a previous owner or tenant, unless the
subsequent tenant lived at the residence while the charges accrued. Note: this law is not
applicable to master metered apartment buildings.
BILL NO. AB-2263 Landlord Tenant/Screening Adds 1950.6 to Fees Civil Code
Landlords or their agents may charge an applicant a screening fee of $30.00 per applicant
prior to renting an apartment.
BILL NO. AB-2383 Real Property Transferees Amends Civil Code
-- Written Disclosures 1102.1
This law clarifies the obligations of disclosure by brokers. It also prohibits waiver of
the disclosure for "as is" sales.
BILL NO. AB-2567 Rental Agents--Appearance Amends Code of At Small Claims Trial
Civil Procedure 116.540
Agents of an owner of rental property may appear in small claims actions for the owner if
the written contract provides the agent is to manage the property and not principally to
represent the owner in court and the claim relates to the rental property.
BILL NO. AB-2585 Guarantors -- Waiver of Repeals and adds Defenses new 2856 to Civil
Code
A guarantor or other surety, including a guarantor of a note or other obligation secured
by real property or an estate for years may now waive any or all of certain specified
rights and defenses, including the right of subrogation and reimbursement. However, the
waivers do not apply to purchase money loan guarantees for properties containing 1-4
dwelling units.
BILL NO. AB-2935 Real Estate Licensees -- Amends 2079.12 Duty of Care of Civil Code
Clarifies holding of Easton v. Strassburger [152 Cal.App.3d 90] by providing that the
duties set forth in Civil Code 2079 and 2979.6 defining the duty of care for such agents
preempts the common law definitions of said duties.
BILL NO. AB-2966 Unlawful Detainer Pilot Amends 1167.2 of Projects -- Rent Deposit the
Code of Civil Procedure
The pilot project provides a procedure whereby a tenant may be compelled to deposit with
the court prospective rent for the period commencing with the filing of the unlawful
detainer action to the anticipated date of trial, without causing a waiver of rights on
the part of the owner/landlord. If the deposit is not made, the court will order judgment
for possession of the premises to be entered. The project is applicable only in the Los
Angeles Municipal Court--Central Division (downtown) and the County of San Bernardino.
BILL NO. AB-3026 Real Property Sales - Amends 1102.6 of Disclosure of Security the
Civil Code Safeguards
This law adds additional required disclosures to be made in connection with the sale of
property, including security safeguards, security bars for windows, child resistent
barriers, safety covers for spas. It deletes the disclosure requirements for hot tubs.
BILL NO. AB-3115 Financial Institutions -- Amends 22340 of Sales of Promissory Notes
Financial Code
A licensed finance lender may sell promissory notes that evidence the obligation to repay
certain types of loans purchased from and made by an institutional lender (including
federally related mortgage loans), and may enter into agreements for the collection of
payments and performance of services with respect to the notes. It permits sales of loans
to residential mortgage lenders.
BILL NO. AB-3244 Rent Control Properties -- Amends 1954.53 Rental Rates of Civil
Code
This law permits owners to increase rents to subleasees or assignees of the original
tenant who were not residing in the unit as of January 1, 1996. The amount of rent may be
15% more than the preceding rent or 70% of prevailing market rate, whichever is greater.
BILL NO. SB-258 Home Inspectors -- Adds 7195 to Standard of Care B & P Code
The law defines the acts of home inspection and imposes a duty of care upon home
inspectors and who are not licensed contractors. It also imposes a statute of limitations
for malpractice actions against home inspectors of four years from the date of inspection.
BILL NO. SB-411 Residential Mortgage Adds 50700, Lenders -- Brokerage Chapter 9, Div.
20 Services of Financial Code
A residential mortgage lender (RML) may provide brokerage services to a borrower if the
lender first enters into a written contract in advance of rendering such services. An RML
is prohibited from obtaining "high cost mortgages", and from failing to give a
good faith estimate of fees that will be received. The RML is prohibited from having
higher than 5% level of business the first year.
BILL NO. SB-577 Earthquake Safety Gas Amends 19180, Shut Off Devices -- Health &
Safety Water Heaters Code
This law affects seismic gas shut off devices. It revises bracing requirements for
residential water heaters. Sellers must certify to prospective purchasers that this
section has been complied with.
BILL NO. SB-947 Real Property Assignments Repeals and adds 2938 of the Civil Code
This law changes the law regarding assignment of rents and appointment of receivers and
applies to a written assignment of an interest in leases, rents, issues or profits made in
connection with an obligation secured by real property regardless of how the assignment is
denoted and specifically provides requirements for the assignment to be valid.
BILL NO. SB-1106 Real Property Loans Adds 2954.11 to Prepayment Civil Code
Borrowers under installment loans secured by a deed, mortgage or other lien on certain
residential real property (4 units or less) are entitled to prepay the loan, in whole or
in part, at any time, subject to the condition that the borrower pay prepayment charges
specified in the written agreement. Payments up to 20% of an original loan amount may be
made in any 12 month period without penalty. The penalties, where applicable, may not
exceed 6 months advance interest on the amount prepaid in excess of 20%.
BILL NO. SB-1285 Hazardous Materials -- Adds 25548 to Lenders and Fiduciaries Health
& Safety Code
This law substantially changes the potential liability of foreclosing lenders when they
find toxic materials on the property. Existing law made such lenders liable for failure to
take remedial action and for potential assessment of 3 times the amount of costs incurred.
Under the new law, lenders are exempt from taking remedial action and from penalties as a
result of foreclosure. These immunities are eliminated to the extent of any actual
benefits realized by the lender.
BILL NO. SB-1316 Real Estate Appraisers Amends 10232.6 Licensing & B & P
Code Certification
This law revises the definition of license to mean any license or certificate issued by
the Office of Real Estate Appraisers and prohibits the use of designation SLREA or use of
the term "state certified real estate appraiser" except for licensees.
BILL NO. SB-1327 Residential Earthquake Adds 10089.5 to Insurance -- Geographic-
Insurance Code al Assessment
Lenders may not use geographically based assessment systems for the purpose of requiring
earthquake insurance for loans secured by a condominium. This statute virtually abrogates
the FHLMC rule-making earlier in 1996.
BILL NO. SB-1488 Real Property Mortgages Amends 2924 Defamation Civil Code
This law provides that the mailing, publication and delivery of notices in connection with
foreclosure of loans under Civil Code 2924 are privileged communications for the purposes
of the law relating to defamation.
BILL NO. SB-1525 Common Interest -- Amends 1365 Civil Earthquake and Flood Code
Policies
This law provides that a summary of the association's property, general liability,
earthquake and flood insurance policies shall be distributed to the association members at
least 60 days preceding the beginning of the fiscal year and provides for the matters that
must be contained in the summary.
BILL NO. SB-1599 Letter of Credit Amends 2787 Civil Code, 580.5 C.C.P. 580.7 C.C.P.
This completely reworks the law regarding letters of credit and changes the effect of a
letter of credit with respect to the Gradsky case. It repeals the provisions of the
Commercial Code that govern letters of credit and the relationship, rights and duties of
the parties that deal with letters of credit and institutes completely new provisions.
BILL NO. SB-1631 Los Angeles County Adds 27297.6 and Recorder's Office 27387.1 to
Government Code
This law allows an increase in the recording fees at the L.A. County Recorder's Office and
reauthorizes the recorder to require an assessors parcel identification number to be
contained on the document as a condition to its recordation.
BILL NO. SB-1638 Deeds of Trust -- Amends 2934a. Civil Trustee Substitution Code
This law sets forth procedures for the substitution of trustees under a deed of trust upon
real property or an estate, where the request is made by beneficiaries holding more than
50% of the beneficial interest. The law also establishes a process through which all of
the beneficiaries under a trust deed can agree to be governed by a majority, if all
parties sign and record a separate document containing specified information.
BILL NO. SB-1711 Common Interest Amends 1365.7
Developments -- Civil Code Officers and Directors Liability
Directors of common interest developments are now insulated from liability for deciding or
not deciding to investigate or sue the developer for latent defects in design or
construction.
BILL NO. SB-1863 Mortgage Guaranty Amends 126409.09
Insurance -- Nonpayment Insurance Code
This law requires a mortgage guaranty insurer to limit its coverage for insurance against
nonpayment in specified situations to no more than a net of 30% of the risk of the entire
indebtedness. If FNMA or FHLMC increase the required amount of mortgage guaranty
insurance, regulations may be adopted to limit the insurer to no more than 35% of risk of
the entire indebtedness.
BILL NO. SB-1890 Industrial Loan Amends 18266
Companies Financial Code
Industrial loan companies making loans greater than $10,000 secured primarily by real
property may have security that is valued at 110% of the principal amount owing and other
encumbrances. The amount of PMI may be included in making the computations.
BILL NO. SB-1993 Earthquake Insurance Amends Insurance AB-2086 and Earthquake Code
AB-3232 Authority
The CEA is created to issue policies of basic residential earthquake insurance. Membership
on the CEA advisory panel is provided by appointment by the governor rather than the
insurance commissioner for four year terms. Extensive provisions concerning capitalization
requirements and risk assessment for rate setting.
BILL NO. SB-2045 Unfair Practices - Amends 1770 Civil Mortgage Brokers Code
This law provides that it is an unfair or deceptive act or practice for a mortgage broker
or lender to provide loan application documents to home improvement contractors for
specified uses, and to use home improvement contractors to negotiate the terms of any loan
secured by the borrower's residence.
For further information please contact:
The Wolf Firm, A Law Corporation, is an "AV" rated law firm which concentrates on providing superior legal services to the mortgage banking industry. The firm's national clientele includes many of the largest mortgage bankers in the country, as well as a variety of savings banks, commercial banks, commercial finance companies, credit unions, and the Resolution Trust Corporation. With a staff of approximately forty individuals, including attorneys, certified paralegals, legal secretaries, administrators, clerical personnel, and a full time computer systems analyst, the firm represents its clients on a wide range of matters including all aspects of both residential and commercial/multifamily mortgage loan origination and servicing, securitization, regulatory compliance, bankruptcy, and litigation related to the foregoing in both federal and state courts throughout California. For more routine matters, such as residential bankruptcies, evictions and receiverships, The Wolf Firm has developed extremely cost-effective and efficient programs using specially trained paralegals and computer technology to assist its attorneys in handling these matters at rates that are the most competitive in the State of California and, through its membership in the USFN, the Firm is able to arrange similar services in virtually every state in the nation.
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