Written By: Eric D. Dean
The Third Prong of the California Homeowners Bill of Rights is to codify on a state level the actions of local communities in imposing penalties for the failure of owners and investors to maintain foreclosed properties. The Act is draconian in its nature and mandates stiff fines, potential impossible deadlines and opens the door to a flood of risky and expensive litigation by groups with unrealistic expectations and bad faith agendas. The Act can be summarized as follows:
a) Enforcement Is Mandated: Municipalities are mandated to enforce the requirement of the Act.
b) Penalties: Civil Code Section 2929.3 authorizes municipalities to assess penalties against owners of unmaintained and vacant residential properties that were acquired through foreclosure of up to $1000/day. There is no cap on these fines. Under this Section the owner acquiring the property “at a foreclosure sale” or “through foreclosure” must be given at least 14 days’ notice and 30 days to complete the abatement unless the condition is considered a hazard in which case the municipality may allow less time. The municipality may also determine different compliance periods for different conditions. The Code Section defines a “failure to maintain” but in very general and broad terms which, according to the statute, are not inclusive of all possible conditions. These provisions are in addition to any local ordinance as to nuisance abatement. This would appear to mean that both local and state authorized fines could be imposed concurrently.
c) Waiting Period: Health and Safety Code Section 17980 requires municipalities to wait 60 days before imposing any penalty as long as any nuisance conditions are in the process of being abated in a diligent basis unless a local agency in its sole discretion determines to the contrary.
d) Release of Lien: The question arises whether a lender can avoid liability under the Act or under local ordinances by simply releasing its lien pre-foreclosure or quit claiming the property to a shell entity or charity post foreclosure. The answer appears to be no post-foreclosure because the predicate act under the Act is a change in ownership. It is not clear, however, whether a pre-foreclosure release of lien would be effective to insulate the lender from liability under local blight abatement ordinances.
e) Broadening Scope of Available Remedies: Health and Safety Code Section 17980.7 (c) allows municipalities to appoint a receiver and otherwise take steps to abate a nuisance existing on residential property that has been foreclosed and pass all costs of such proceeding and abatement onto the owner of the property. This is in addition to the penalties assessed under Civil Code Section 2923.3. These kinds of proceedings can now also be instituted by a tenant or a tenant association who shall have the same right to reimbursement.
Conclusion
The Act attempts to resolve the blight conditions in certain areas by placing dramatic and additional risks and burdens on Lenders and Investors without placing any responsibilities on the homeowners who may have created or contributed to the problems pre-foreclosure or the municipalities who did nothing to abate concerns pre-foreclosure.
Since the mandated time periods for abatement are so short, lenders and investors in residential properties appear to be mandated to monitor the condition of properties in foreclosure before the foreclosure is actually completed. In the case of vacant or tenant occupied properties owners should consider the appointment of a receiver pre-foreclosure to relieve any property concerns and even sell the property without a foreclosure being completed.