Western Banker July/August 2022

Purported Consumer Protection Measure Tramples Borrower’s Rights, Incentivizes Institutional Investors

By Kevin Gould, EVP, Director of Government Relations, California Bankers Association

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measure working its way through the California Legislature makes sweeping reforms to how real property in foreclosure is sold. Applicable to all real property, including commercial and residen tial, Senate Bill 1323 bifurcates the methodology for the sale of property at foreclosure by requiring that proper ties where there is equity, defined as debt not exceed ing 90 percent of appraised market value, be sold by a licensed real estate agent on the open market. Property that does not have equity, defined as debt exceeding 90 percent of appraised value, would proceed to be sold un der the existing trustee auction sales process authorized

under the power of sale terms found within most uniform deeds of trust. To level set, in today’s real estate market, the measure would apply to the vast majority of proper ties that are in foreclosure. For equity sales, which is the measure’s focus, the bill dictates that the initial open market price must be set at the appraised value for at least 30 days. If not sold within that time-period, the price may be reduced by 5 percent and listed for another 30 days. As proposed, this process repeats itself four times, or 120 days, at which point the unsold property may be sold at a trustee’s auction.

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