Miller Starr Regalia

On July 8, 2008, Governor Schwarzenegger signed into law Senate Bill 1137 (“SB 1137”), also known as the “Perata Mortgage Relief Bill” in honor of its principal author, Senator John Perata of Oakland, California. The statute, with exceptions, became effective immediately as urgency legislation upon signature by the Governor. The Perata Bill implements three categories of “protections” for borrowers and tenants in foreclosure: First, it imposes a mandatory notification, meeting and consultation process that must be made available to the borrower by the foreclosing lender prior to filing a notice of default under Civil Code § 2924. Second, it requires tenants of residential property to be given a mini-mum of 60 days’ written notice to quit before the tenant can be evicted following foreclosure. Third, it authorizes local governments to impose civil fines of up to $1,000 per day for failure of a lender or other purchaser in foreclosure to maintain vacant residential property in good condition and repair. As discussed in this article, the Perata Bill reflects the Legislature’s desire to take some action in response to the “foreclosure crisis,” not only for the protection of borrowers in foreclosure, but also to remedy some of the potential social impacts of blight and pubic health concerns arising out of the foreclosure process. In the process of doing so, the Legislature also may have created as many problems as it solved. The pre-foreclosure consultation process burdens lenders with procedural hurdles, delays, and the potential for recalcitrant borrowers to simply prolong their tenure at the lender’s cost when there is no realistic possibility they can afford their mortgages—and may be construed as compelling a lender to offer a reduced payment plan or forbearance before being allowed to foreclose, or else face a legal challenge to the validity of its notice of default. The tenant protections may have given all residential tenants the practical equivalent of guaranteed occupancy of their units for 60 days after all foreclosures, whether or not they have defaulted under their leases before or after foreclosure. The onerous penalties for failure to maintain the property may lead lenders to push the properties back into the rental or resale market faster than they otherwise would do so. Of these possibly inadvertent results of the Perata Bill, only the third can be considered a predominantly beneficial result of the legislation.

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