Governor Arnold Schwarzenegger recently signed into law important foreclosure legislation, Senate Bill 1137. While SB 1137 is primarily focused on the mortgage and lending industry, it contains provisions which are critical for local government and their respective code enforcement departments.
SB 1137 applies to residential mortgage loans made between January 2003 and December 2007 for owner-occupied residences and requires mortgage companies to contact the defaulting homeowner and explore all possible options before starting the foreclosure process. If foreclosure is unavoidable, the property must be maintained.
With respect to the expected degree of maintenance, the law provides the following examples of “failure to maintain”:
The California Legislature intentionally designed the law to require the legal owner to proactively maintain the property. Nonetheless, the bill represents a compromise with the mortgage industry and, as such, the requirements of the law only set a minimal standard and are not especially onerous.
Failure to maintain the property carries a fine of up to $1000 per day, which may be imposed by the local government entity. However, before any fine may be administered and/or collected, local government entities must follow several procedural steps. First, the government entity imposing the fine must give notice of the claimed violation, including a description of the conditions giving rise to the claim of violation. The legal owner must be given an opportunity to begin remedying the violation within 14 days of the notice and allowed up to 30 days to complete the corrections. In addition, prior to imposing fines and penalties the local government agency must allow the legal owner a hearing to contest any fines and penalties. The fines and penalties collected under this provision are to be directed to local nuisance abatement programs. Also, a local government entity cannot impose fines under both this law and a local ordinance already in place.
As yet another incentive to dissuade lenders from foreclosing, the new law provides tenants of foreclosed properties with some added protection from the consequences of foreclosure. Specifically, if a property is foreclosed and there are tenants in possession of the property, the new law increases the lender’s time to evict the tenant by a notice to quit from 30 days to 60 days. The law will automatically terminate on January 1, 2013.
In summary, SB 1137’s provisions dealing with property maintenance are especially relevant to local governments and code enforcement. By imposing a maintenance regime specifically for foreclosed properties, the law indirectly discourages foreclosures.
For more information regarding implementing the property maintenance ordinance, please contact Andrew Jared or Matthew Gorman at (562) 699-5500.