California Non Judicial Foreclosures: Mastering the Changing Landscape

Melissa Martorella, Esq.: Thank you for joining us this morning or afternoon, depending on where you are today. Max and I will be talking about California non-judicial foreclosures and mastering the changing landscape. If you don't know me by now, my name's Melissa. I'm one of the partners here at For Law. I manage the banking and finance team, and then I also manage our non-judicial foreclosure practice group. And then with me today is Max, would you like to introduce yourself?

Max Newman: Absolutely. Thanks Melissa. My name is Max. I am the VP of operations at Total Lender Solutions. We are a foreclosure trustee company operating in multiple states, and I oversee the foreclosure processing through all of those states, particularly in California. So excited to be here and thanks for having me, Melissa, and the Fortune team. Awesome,

Melissa Martorella, Esq.: Thank you, max. To get started, before we launch into this, a couple of housekeeping items. First, you'll see a chat button. Don't use the chat if you have questions. There is a separate q and a button. It may be hidden under more under your task bar, but please use that q and a. If you have any questions, we'll open it up at the very end of the webinar and we'll answer as many questions as possible during the timeframe. The second one question we always get is, is this being recorded? Do I have access to the slides? All of that, yes, it is being recorded and a link will go out once it processes, a link will go out with that and it'll be available on our website. So if you have a colleague or you have to leave early, something like that, feel free to wait for that link. It should be going out either today or tomorrow, once it's done uploading. So that's that. Thank you all for joining us. We will go ahead and get started.

So today, little agenda overview. So what we're going to be talking about first an overview of the California non-judicial foreclosure process. We're going to go a little bit of what it used to be like and now what it's looking like based on all of the recent changes in legislative updates. And so we'll be talking about those recent changes to California laws and how they change this process pretty substantially. It needs to be something pretty straightforward, not looking that way anymore. And then last but not least, it is wonderful to have max year in particular. We're going to be talking about maybe some best practice considerations for foreclosing lenders to make to help this process go as smoothly as possible, especially with a lot of the changes in the laws. There's a lot of little things to trip you up along the way. So we're here to guide you through that process.

So first, just kind of wanted to talk about the old way of foreclosure. Back in the day when I first started taking over these, it was very simple and straightforward. You would send a demand letter if necessary to the borrower. So if your loan documents waived that, waived notice, that sort of thing, didn't have to send a demand letter. We always think it's still best practice to do so, but you would send a demand letter, Hey, borrower here in default, deal with that, or we're going to start foreclosing. Then you'd go and you'd record your notice of default, and if you needed to your substitution of trustee, you would wait a little bit and then you would record your notice of sale, wait a little bit longer, you'd go to sale. And then pretty quickly thereafter, you'd record the trustees deed upon sale. Pretty streamlined process, all laid out by statute.

There's all sorts of notices and things like that that happen along the way here, which Max and his team handle effortlessly and flawlessly listly. But otherwise, very straightforward and simple. You would just reach out to your foreclosure trustee, say, Hey, I need to foreclose. It would follow this statutory process and borrower interruptions like a bankruptcy filing or something like that. For the most part, it was really streamlined and straightforward and it was easy, it was great, nothing really to worry about, but what we're going to jump into is the new way. So you see we have this new bucket of things to deal with pre foreclosure. So even before you're thinking about maybe a demand letter, you have to be thinking of all these. So we're going to kind of give an overview of this now and then we'll dive into each of these in depth.

But just wanted to give a big picture framework that you can kind of reference back to as we're talking here. So now going through pre foreclosure, first you've got AB 30 88. This was something that came out during COVID. If it does apply, you have to figure out whether it applies way upfront because if it does, then you have to complete homeowner Bill of Rights, pre-contact requirements, even on business purpose loans prior to starting any sort of foreclosure process. So that's something that's new. And also if I have not said this yet, I specialize in business purpose loans. Max, I don't know if you guys handle consumer loans or

Max Newman: We do a small amount of consumer, for the most part, their business purpose. So in most instances, homeowner Bill of Rights, it's not required in those cases, but we do have clients and smaller individuals who come through and it's applicable in their case. So we can walk through that process if that's applicable for you too.

Melissa Martorella, Esq.: Awesome. Yeah, and so I guess big picture though, as we're talking in this webinar, most of the things that we will be saying will be relevant to business purpose loans. So if you are foreclosing on a consumer loan, there are other things that apply here. So this won't specifically apply to you, but at any rate, AB 30 88 passed, and in certain circumstances, we'll make homeowner Bill of Rights requirements apply to those business purpose loans. So we'll get through in a little bit of what that means. The next thing that you have to do is determine whether AB 2, 4, 2 4 applies. This is a recent one that came out this year. Again, we'll get into how to determine that, but if it does, there's an initial third party notice requirement that you have to provide before you start foreclosure, before you even start thinking about it. So that's another thing that you have to do before you even get going.

Another one, AB 2 38, figuring out whether you need to provide a forbearance. This is another new piece of legislation. This is related to the fires that happened up in la. Was that this year? I mean, it seems so long ago. I mean almost a year ago. I think that was January. So they finally passed it about a month or two ago or maybe a month ago. And so now we're talking about it because it does apply to some of your loans. And then last but not least, on the pre foreclosure side, you're also going to figure out whether AB one 30 applies. This is another new one that passed in, I believe June, and if it does apply, then there is a certification requirement that you need to make sure you do. It'll be alongside the NOD recording, but it's still something that you have to figure out upfront because there are things that you should have been dealing with all along during the loan that you might not have known about until now. So that's kind of the pre foreclosure new things to think about. Max, I don't know if you have anything you want to add on that part.

Max Newman: No, that was pretty much it. I mean, pretty much it. That's a lot of it, but there is, yeah, I just be in constant communication with our company with Fort Ultra. If you're thinking about foreclosure, there's just a lot of things these can add time to the timeline before we can even start and do the work that we do. So just be in contact. We're happy to walk through and see what you need. I know fortress the same way if you guys if have questions unsure about certain things, unfortunately, most of these are going to be on a case by case basis, so there's usually not just a general answer, but we're happy to review those and go through these with you. Again, there's a lot of steps and a lot of things to think about before we even get started. So yeah, just communication is key.

Melissa Martorella, Esq.: Absolutely couldn't have said it better. So yeah, so we've got those new pre-foreclosure rules that will apply to you. Then if you remember the old way, that first step might've been a demand letter if necessary. Well now you can finally get to that point. Once you've determined whether or not you need to deal with all these pre foreclosure items, now you can send that demand letter if you need to, and then record the notice of default and substitution of trustee if necessary. Alongside these, there are now two additional documents you need to record. The first one is the declaration of beneficiary under 80, 30 88. We'll get into that a little bit later on as well, but that's something that you'll have to deal with. Even if you've determined that 30 88 doesn't apply to you, you still have to record this so it doesn't quite go away. And then second is recording that AB one 30 certification. So all of those things need to happen at the same time as you are starting the foreclosure and I believe Max, you can let me know. I know for the notice of default and the substitution of trustee, we need originals of those documents. The substitution of trustee needs to be notarized for the other two documents here. Do you need a notary? Can you use what signatures? How does that work for

Max Newman: You? Sure. Process is pretty straightforward. The substitution really is the only document that we need a wet ink signature for. That is the only document that typically that we do need that for the notice of default, we will typically sign as we will have substituted our company in as the trustee. So we are in theory sending an original as our own, but realistically from the client or from anyone who's working with us, the substitution is the only thing we need the original and notarized version of for the AB one 30 certificate, it gets a little murkier for that piece. When we're proceeding with a notice of default, we're using it as an attachment. So there is no need for a notary on it, and when it's an attachment, there's usually no problems recording it. For the instances where we've gone forward after the deadline had happened for that law to be enacted, we had a notice of default already and we're recording with a notice of sale.

We have attached it to the notice of sale and changed the language slightly in there just to accommodate that. But we have had instances where we will need a notarized version of the AB one 30. If we've already prepared a notice of sale, we've already prepared a notice of default and we have a sale date set. How are you supposed to comply with that going backwards? So one of the solutions that our clients and attorneys we've discussed with, and again that's usually on a case by case basis, is we will record the certificate by itself and then we will send out the required mailing separately afterwards. That would be the only instance where we would need the original version and it will need to be notarized. Otherwise, it's for the most part relatively straightforward and just attached to either the NOD or the notice of sale and it gets recorded and there's usually no issues.

Melissa Martorella, Esq.: And I know the one under AB 38, 30 88, that one does not have to be an original as well, correct?

Max Newman: Correct, correct. Yeah. The only time we've had an original is if we are getting a notarized version when we already have a sale date and the notice of sale. Most of those are phasing out because we've already passed that period where we would need to go back in time. But yes, of all other instances, it's just a copy is perfect.

Melissa Martorella, Esq.: Understood. Thank you. So next up, so you've recorded that notice of default and substitution of trustee if needed, you've recorded any of those declarations as needed. You've waited and then you record the notice of sale after you record the notice of sale, AB 24 24 pops up again. So it had that pre-foreclosure requirement that may or may not you have to comply with. And then there's a different set of requirements though for after you have recorded the notice of sale, it has to deal with fair market value information and as well as evaluating postponement requests. So we'll talk about that a little bit more in depth as well and talk about the differences of when each one will apply. Then assuming all of that goes well, assuming there's no bankruptcies delaying you and all of that fun stuff, you finally get to go to sale, you'll prepare your bidding instructions, but this is where another law comes into play, SB 10 79, and depending on if that applies, you may want to revise your bidding instructions to accommodate for SB 10 79 in those post foreclosure, I guess bidding wars that can happen after that.

So that's something to know there. And similarly with SB 10 79, you used to just, you go to sale, you might wait a few days for funds to clear and you'd record the trustee's date upon sale. Now if SB 10 79 applies, then there's this whole waiting period that we have to go through to see if we receive any notices of intent to bid, and if you do waiting further time before you can record that trustee seat upon sale. So a lot more waiting, a lot more little steps to follow through, a lot more date tracking. We had to basically rebuild our spreadsheet for figuring out when to do follow-ups and what to do because there are so many different moving parts and whether or not certain things apply. I'm sure Max has had to deal with that as well

Max Newman: Very much,

Melissa Martorella, Esq.: But it's definitely not as straightforward, and that's why, especially with the recent laws passing AB one 30 this year and then AB 2 38 recently as well, adding all of these different requirements, I thought it really made a lot of sense to talk big picture about the foreclosure process in California to talk about how substantially that's changed. Yeah, that's the big picture overview. Max, did you have anything you wanted to add before we dive in?

Max Newman: No, I know we'll get into SB 10 79 in particular for that piece of the sale only for residential properties. So commercial buildings, vacant land, things like that. Those post-sale happenings don't exist, are not required. So slight benefits, but yeah, for residential properties, California seems to be trying to do whatever it can to give as much time to borrowers and as they can, and so not all of these really make sense or written very well, but we'll do our best to explain the processes and what we do on our end and how they work.

Melissa Martorella, Esq.: Couldn't have said it better myself. So then to jump in the first, I guess new law that we'll talk about, it's not really that new, but we'll talk about AB 30 88. This is one of the ones that came out during COVID. This is one of those pre foreclosure before you even think about a demand letter, foreclosure, anything like that, figuring out whether this applies the first question. Thankfully it was modified slightly. So now you can ask this question and if the answer is no to this question, then you can proceed as usual. So you need to figure out whether the borrower applied for or was approved for a loan modification or other foreclosure relief prior to January 1st, 2023. If they did not do that, then AB 30 88 will not apply and you can proceed as usual. So it's pretty rare at this point. I will say that AB 30 88 is going to apply.

That said, if you've had maybe a loan that's been in default for a long time and you've been doing modifications in forbearance is to deal with that default and those date back prior to January 1st, 2023. This may be something that will still apply to you, but big picture, this is that first initial question before you even think about property type borrower type, anything like that, ask this question. This should clear most loans from needing to apply to come comply with AB 30 88, but say it does apply. Say you do have that long drawn out loan, you've been in mods and forbearances with them for quite some time, so you can't say no and eliminate compliance with AB 30 88 right away. Well, now you have to figure out if you're exempt some other way and you don't have to comply. So based on the statute and the reading of it, if you can prove that at least one of the following is not true, then you do not have to deal with 80, 30 88 compliance and reminder.

This is those homeowner bill of rights, pre foreclosure or pre-contact requirements. So if any one of these is not true, then you're fine. So the property is a one to four family property. The loan is a first position lien. The property is owned by an individual. The individual owner not own more than three, one to four family properties. Property is occupied by a tenant subject to an arm's length market lease, and the tenant is unable to pay rent due to a reduction in income related to COVID. We'll talk about these. So remember, any one of these has to be not true, and it's really tough because it's that double negative. But so for example, if the property is a commercial piece of property, well then the first one is not true. It's not a one to four family property. So right there, if it's a commercial piece of property, you do not have to deal with 80, 30, 88.

That's a really easy way to get out of this. Similarly, the second one, if you have anything other than a first position lien, so you have a second, third, fourth, whatever you're foreclosing on, if that's the case, this will also not apply. So another really helpful way, or if the borrower is an entity of some sort, as long as it's not an individual again, then it won't apply. So it makes it really easy, at least on those first three to potentially have this not have to apply to you. The last three are a little bit harder to ascertain because this probably requires a little bit more due diligence, and I think it's hard for a lender to be able to say definitively that these are not applicable. So the individual owners do not own more than three, one to four family properties. So if you've gotten through this checklist and you're like, it is a one to four family, I'm in first position and it's an individual borrower, now you're trying to find some other way out.

And so now you're saying, okay, does that individual owner not own more than three, one or four family properties? I don't know, maybe you figured that out during underwriting, but this might require a lot of due diligence and you might not know this. It might've changed from the time the loan originated to the time you're trying to foreclose. You might not be able to ascertain this. This is one that I would also not be like, yeah, I think so. You really have to be able to ascertain that you know this, and if you don't know this, then I don't think you can rely on it. The property is occupied by a tenant subject to an arm's length market lease. Maybe you know this at underwriting, maybe you got a copy of the lease in place and you can see looks market and all of that, but is it still in place?

I'm not sure. And then in addition, is that tenant unable to pay rent due to a reduction in income related to COVID? Do you know that? And I don't think lenders a lot of times will know that in information. So really if you can't figure out that you don't need to deal with this based on the first three proven, these next three are very difficult to do. There's one last one that can save you. So if the lender is A-C-F-L-D-R-E-R-M-L or CER Federal Bank, if you're not one of those, so maybe you are an unlicensed lender and a broker arranged the loan for you, then you don't need to comply with this either. But that's also fairly rare that I will say a lot of our lenders are CFLs or do have their broker license in California, so it's going to be a little bit tough for you. Max, do you want to add anything there? That was a lot to go over.

Max Newman: Absolutely. Yeah, there's a ton of steps and then there's still the compliance piece. This is just looking to see if you are required to comply with AB 30 88. So this is a lot to deal with. Again, as Melissa said, most of the clients and loans that we deal with are business purpose. So most of these are not subject to this law. However, we have, what was I going to say? I completely just lost train of thought.

Melissa Martorella, Esq.: Okay.

Max Newman: If you are unsure about any of those steps, even if it's not the first three, although typically the first three are pretty straightforward, if you're uncertain and not a hundred percent confident on any of these, we are suggesting to comply with the requirements regardless. We tend to err on the side of caution and comply with these things. If it's not necessary, great, but if you are unsure of the information and there's no, we're not confident about all of these, we'd rather comply start the process a little bit later and then there's no need to 'em all the way back to the beginning of the foreclosure, start over a new notice of the fall. If at some point in that three month waiting period, the borrower comes back and says, I'm living here, or the borrower says Whatever happens, that'd be the only thing I'd add to this is just again, if you're not confident about any of these or unsure, we're going to suggest that you err on the side of caution and we err on the side of caution, comply with this and just kind of cover yourself.

Melissa Martorella, Esq.: Totally agreed with that. I think as annoying as it may be to learn how to do the pre pre-foreclosure contacts, I think it is a month or so adding on to the timeframe versus getting all the way through sale. Now there's a litigation of some sort because you were supposed to comply. So definitely agree with that.

Max Newman: And the courts tend to, again, in most instances, tend to favor with the side of the borrower or someone on their property because they're going to potentially be losing it through a foreclosure. Again, we can get through at a minimum, it's about four to five months for the foreclosure process with bankruptcies or TROs that can be extended a lot longer while we're waiting for a sale. And again, we'd rather have you covered and be completely set at the beginning and say, well, we complied, but okay, we didn't need to. So we only added 30 days rather than have to start again from the whole four month process and start all the way over at the beginning just because we weren't sure or it was sort of up in the air if we needed to comply or not.

Melissa Martorella, Esq.: Right? Exactly. So yeah, so even if you figure out that you don't need to deal with compliance, you still have to record that declaration of beneficiary called the DOC, you still have to record that alongside the notice of default. So just be mindful that you should be getting that document from your trustee or if you're, hopefully you use me or Max to help with your foreclosure, but if you don't, just make sure you're on the lookout for that because even if you didn't have to comply with this, you still have to record that and say that you are exempt from compliance for various reasons.

Max Newman: Right? Agreed there. And again, we as a trustee will provide that form, get it all set up. You're literally just marking a box. If compliance was required and you complied, compliance was required and you complied but didn't actually make contact with a borrower or it's not applicable. So it's really one of, there's four options on the form, but it's one of those three. It's either you needed to comply and made contact, you didn't make contact, or it's not required. So it's relatively straightforward. And again, when we have that form, we can go back and forth with you two if you have questions or aren't sure how to complete it or if compliance is required, we can walk through that process too.

Melissa Martorella, Esq.: Then one last little bit probably should have had this prior to that last statement. But yeah, if you can't determine that one of these is not true, then you have to comply with it. Free foreclosure contacts, you have to call the borrower on different days at different times and send letters, and it's a whole thing. You have to say certain things on the phone. Thankfully though, like we were saying, this likely does not apply to many business purpose loans anymore, but in the event that it does, we can certainly help you either to do that or I know that we can handle it sometimes. So just let us know and we can help walk you through this process.

So that is the first pre foreclosure rule to figure out. We haven't even gotten figuring out if we can even go to a notice of default yet. The next rule or law in place is AB 2 4 24, another one from this year. And remember, there are two times when this can apply. The first one is pre-foreclosure. Thankfully though, if AB 30 88 applies, then there's an additional notice requirement you have to provide to the borrower to say that basically certain third parties can request to receive copies of foreclosure documents and help the borrower in avoiding foreclosure. So if 30 88 applies, then you have to deal with this notification requirement if it doesn't. So if you've gone through that analysis determined AB 30 88 doesn't apply, well then AB 24 24 also will not apply specifically to this pre-foreclosure notice requirement. So that's thankfully fairly simple and straightforward to figure out. Max, I don't know if you have anything you'd like to add there.

Max Newman: Not much that'ss. Mostly the important part, again, the free foreclosure notice requirements for AB 24 24 I know are also supposed to be included at loan origination now too. So that kind of helps with this piece. So again, something to look at when you are originating and kind of starting at the beginning with a new loan. Just make sure, double check with counsel, double check with whoever you're working with, just make sure that this is included or not, depending on what's required as part of your documentation

Melissa Martorella, Esq.: Absolutely, and I will do a shameless plug if we're drafting your loan documents. We do include this in California now, so use us. You'll be covered there. The next law, pre foreclosure AB 2 38, or sorry, 2 38, remember, this is the one that's in the aftermath of the fires. It's a little bit confusing, but bear with us. If you recorded a notice of default prior to January 7th, 2025, you can continue as usual, even if the borrower was affected by the fires. So as long as that notice of default was reported prior, you're okay. But if you rescind that NOD for some reason, or say the default existed prior to the fires, but you were waiting to record the notice of default, unfortunately, you will have to comply with this. So the timing of the notice of default is really important here to know whether it's recorded, when it recorded and all of that. It applies specifically to one to four family properties and individual borrowers that have been affected by the fires. So commercial buildings, you're going to be more okay there. Entity borrowers theory should be fine, but if you're hearing even a little bit that potentially ownership has changed or somebody's living in the property might be a good thing to just pause for a second and check.

But basically all that has to happen under AB 2 30 88 or 2 38, too many numbers, I swear. All that has to happen is if the borrower affirms to you, the lender, that they were affected by the fire, then there's an automatic 90 day forbearance put into place. They don't have to prove anything. They don't have to show you a picture of their house, they don't have to do anything. They just have to say, I was affected by the fires. And if these other factors are true, then you have to give that 90 day forbearance. They can also request additional 90 day forbearances for up to 12 additional months after which time the lender can then choose to deny subsequent requests for forbearance. So it definitely adds a timeline prior to starting the notice of default for those people that were affected by the fires. Max, I don't know if anything you want to add on this one?

Max Newman: Yeah, we haven't really seen any of this yet, at least from our end. I would imagine, again, as most of these are business purpose and it's not really a ton of individual borrowers, it's not as applicable for most of our clients. Haven't seen it come up yet. I imagine it will, and there's always that opportunity. But yeah, I haven't really seen anything yet, but just concurring with what you've said, again, they just need to say that they've seen that they're affected by the fires and they get the 90 days automatically. So just again, something to be aware of, try and keep, as I will always reiterate, just communication is key. Keeping everyone in the loop that you've heard from them, whether that's fortress team, whether that's our team, everyone, anyone who's working on your files or who might be affected or it might be relevant. Just keep everyone in the loop regarding these kinds of communications if you're getting them from the barber.

Melissa Martorella, Esq.: Absolutely. And I do know that this law just actually very recently passed, so maybe that's part of the reason we haven't seen as much. But also I agree with you, we tend to be dealing with business purpose loans and it's a little bit less likely, but as you're going through right now, if you're seeing any pop up, then just know that there are some requirements for you to wait before you can start the foreclosure process.

We have one more before you can get started. We have AB one 30, another new one this year. We did do a webinar a few months ago on this topic, so I'm sure we'll link to it in the follow-up if you want to watch that. It'll go really in depth on AB one 30. So we're just going to do more of an overview here. I know there might be a lot of questions related to it, but this is more to be big picture related to the foreclosure process. But AB one 30, it's another new one, it's going to apply to all junior liens secured by residential property, and it's retroactive to all junior loans. So it doesn't matter if you have had these loans on your books for a while or if you just started originating them, it's going to apply to all of them.

Remember, junior liens secured by residential property, commercial property only. Loans do you fall outside this statute? But it is not clear if there is any component of commercial property, if the whole property would be exempt based on the way the statute's written. So the way that we have interpreted this is that if there's any residential component at all to the property, AB one 30 will apply again, and it's junior lien. So if you have a storefront, but then there are apartments on top, anything like that, AB one 30 will apply. If it's a junior lien, unfortunately it doesn't matter that there is partial commercial building if it applies, then alongside recording the notice of default, the lenders have to include this sworn statement. We talked about it a little bit before, but this is what that sworn statement has to include. And you'll see here that this is stuff that should have been happening all during the life cycle of the loan, not just at foreclosure.

And it's going to be something that's really difficult for you to fix if it wasn't happening previously. So first in that statement, you have to say that the loan was serviced properly, including communications and notices. Also making sure that you haven't gotten an extended period of time without having written communication with your borrower. All ownership and servicing transfers were disclosed to the borrower. No unlawful practices like starting a foreclosure after a 10 99 C debt relief expired statute of limitations or missing account statements have occurred. And then if you can't attest to those facts in that statement, you have to outline where any faults may be. And this seems like, oh, this is straightforward. Like I talked to my borrower, whatever. And I would say it's probably not as straightforward as you think. Hopefully if you're servicing the loan or you have a servicer, they're sending out those periodic statements that should help with that first one.

But if you weren't, so say it was a very informal relationship with your borrower and you're just collecting payments, but you're not sending statements, you're not talking to your borrower or anything like that, this one may be difficult to show that you have done. The second one is also a big one that gets people into a little bit of trouble. So if an ownership transfer occurred, you had to have told the borrower. What that means is say I make a loan to Max, but then I six months later decide to sell my loan to nema, and NEMA is now Max's lender, but I don't tell Max because say I had a loan servicer, that same loan servicer is still going to service the loan. They're collecting payments, who cares? Unfortunately under AB one 30, if I never notified Max, Hey, I am transferring this ownership of this loan over to nema, that's in breach of AB one 30. Similarly, if you change servicers, I would hope that servicers are telling you where to make your payments, but if you did, if you change from one servicer to another, or maybe you went from self-servicing to a servicer or vice versa, you have to be telling your borrower about where to be making these monthly payments. If those transfers were not disclosed, that's also a problem and a defect under AB one 30.

So those are big ones in particular, that ownership transfer. If those didn't happen, then like it's saying at the bottom in that sworn statement, you have to say, Hey, I never told Max that I sold the loan to nema, or really NEMA at that point trying to foreclose. He's going to say, oh yeah, we never let Max know because that's a defect. I'll just click over to the next slide. Based on that, the borrower has a right to postpone any foreclosure action based on the belief that any of those items were not completed properly. And so the big issue that you have there is you have to record this alongside the notice of default, but these are things that you should have been doing all along, and all it does is it opens the borrower up to a right to start postponing the foreclosure sale because they think AB one 30 was violated. So it is just something that opens up another reason for delay, and it is pretty vague, vaguely written. And then the fact that it does it's retroactive to junior liens previously where maybe there isn't the best servicing or maybe you purchased a note and you don't know all of this information, you can't really provide a sworn statement as to that fact. So it does create a problem there. Max, anything you want to add?

Max Newman: Yeah, so a couple of things to note. Again, to Melissa's point on the first slide for AB one 30 for commercial properties, again, just reiterating in most cases single family residences are one to four units. So five plus unit apartment buildings or things like that would be considered commercial property. In this instance, you're still required to comply. And again, to reiterate Melissa's point, we are taking the same stance from our end if there is any sort of residential anything on the property, we want to be complying with this. Again, it has to be junior and have all of the other applicable pieces. But again, we err on the side of caution. We'd rather comply with this. And again, maybe it wasn't necessary or required, but we'd rather have everyone be covered and we complied and did what we were supposed to do. The other issue again with the statement is mortgage.

It says mortgage servicer, but that also, if you're an individual lender, you are technically the mortgage servicer. So there's no exemption if you are loaning by yourself or through a company that isn't a servicer per se, but you're swearing under penalty of perjury that nothing went wrong. So I mean, what if it transferred from a previous servicing company and that company is now out of business and now you can't get any records or anything from them. You're still swearing under penalty of perjury that everything was done correctly. It just adds a lot of complication and a lot of reviewing that needs to happen again, we will typically err on the side of caution on the form we provide to our clients for this. On these junior liens, it says Nothing unlawful was done. Or please note what's been done. No law firm or attorney we have talked to has advised a client to put anything that they've done anything wrong on there.

So if there has been something that you think might be you're uncertain if it's right or wrong, uncertain. If that's unlawful based on this, talk with Ttra, talk with your counsel, talk with whoever you need to make sure you are covered in this case and how the best way to proceed. Again, because it's under penalty of perjury, I don't know any attorney or anyone that we work with who would advise to, yeah, let's put that knowingly, we did something wrong. Let's write it and sign it here and then proceed with a notice of default. And as part of that, again, we are providing that form to you. You will complete it with all of our other paperwork and things. And once we get that back, we just attach it to the notice of default as another exhibit, and then it gets recorded as one document in the county recorder where the property is.

Melissa Martorella, Esq.: Thank you Max. And I guess in big picture too, we do send a lot of forms when we're doing foreclosures, right? And if you ever have questions about what they mean, don't just sign them talk to us. We are happy to walk you through it to see whether you should do this, whether you should actually reach out to counsel for a different alternative and all of that. We're not just trying to check the boxes and go down the line and we want to make sure you're doing this properly.

Max Newman: Exactly. And to go even farther back, we don't have to go slides back, but for AB 30 80 for the homeowner Bill of Rights people, when you're marking that compliance was done and you made contact with the borrower, there is very specific requirements for that contact. We have plenty of clients if you are marking that box and we haven't discussed it over the phone or via email or something, we're requesting copies of the documentation that was sent to make sure you did do it appropriately. It's not just, Hey, let me send you a demands letter that's not complying with it. There's a lot of pieces and a lot of steps to it. So if we're receiving that without having known about it beforehand, we're going to be double checking with you to make sure compliance actually was done and was done appropriately if it's required. So just another thing, again, to Melissa's point, ask questions. We have to send over a lot of forms and we have to get a lot of information from you. We are happy to walk through every single form, every single line, answer whatever questions you have. So again, as will be my just continuing point, is just communication is always great and the best thing we can ask for. So always welcome those questions and anything you guys might have when we're processing or even before we even start a file.

Melissa Martorella, Esq.: Absolutely. Awesome. So like we said for AB one 30, if it applies, and even if you put that sworn statement in saying that is perfect, if the borrower doubts it at all, they can use AB one 30 as a basis for relief, and then you have to deal with that. And again, the other webinar we did talked about this more in depth, and I am not a late litigation attorney, this is where I stop. And so if something happens under this, I cannot help you, but we have a wonderful litigation team here who can. The other thing to know though is if it does apply, junior lien residential property lenders cannot threaten foreclosure. And so this is an interesting thing. So even those demand letters, make sure you are revising those slightly. So in typical fashion, we used to write a demand letter and be like, Hey, borrower, we've got a loan.

You're in default under the loan for X, Y, Z reason. You've got 15 days to deal with this. Or we will pursue our options under the loan documents, including but not limited to a non judicial foreclosure, pretty standard language for a demand letter. Now, you really can't even say that. It says you cannot threaten foreclosure. And so you could still send a demand letter, I suppose, but it's a pretty threat less demand letter. If you're just like, Hey, you're in default, come talk to me about getting this dealt with. But you're almost doing this without warning to the borrower because until you record that notice of default under AB one 30, there's no even threat of foreclosure. You can't even say, Hey, borrower, I don't want to foreclose on you, but if you don't do this, that might be my option. Can't say that to them. So it ends up escalating something to a pretty serious level with potentially the borrower not even realizing that you're heading there because they don't want you threatening borrowers. So just something else to know before you do that.

Max Newman: Yeah, there's a lot of contradictory and confusing language in this one particularly. It wasn't, this bill should not have been enacted the way it was written, and it's just got attached to a budget bill and now we have to deal with it. So a lot of this is contradictory and doesn't make sense, particularly to Melissa's point where we can't talk about foreclosure beforehand. But we also, if what you're required to send notice beforehand to let them know what if your documents specifically say, so again, there's going to be a lot of specific instances. A lot of it's going to be based on loan documentation and your specific loan. Again, at TLS, we're not a law firm. I'm happy to refer to Fort or to any law firms, talk with your attorneys and make sure the language and stuff regarding these, if you have junior liens on residential property is appropriate. And again, keep everyone in the loop with where these things are at because we don't want you to say something where you are going to start foreclosure and now we have to have a deeper review. And then are we even allowed to proceed? If you've threatened it, it's very unclear. So unfortunately, again, just keep in constant contact and communication and make sure your documentation is up to date and in accordance with this stuff.

Melissa Martorella, Esq.: Awesome. So those just recaps. Those are the four things you have to deal with before you can even think about a foreclosure. You got to have those all in your mind. Then you go through now if needed, now you can send a demand letter. You can record that notice of default and substitution of trustee along with those two declarations if needed, and then go forward with the notice of sale. So just now we're just jumping way forward in time. We've recorded a notice of sale, we have a sale date set. Now what else applies? And this is where AB 24 24 comes back into play, because remember, it applied in two parts. One, if AB 30 88 applied, there was that pre notice requirement that you might've had to deal with. And now later on it might apply again, post notice of sale and pre-sale. And this is going to apply to all loans secured by one of four family properties.

So it doesn't matter lien position and borrower type or anything like that. If it's a one to four family property, AB 2, 4 2 4 is going to apply to you at this point. So the first thing, and there's two different things under AB 2 4 24. The first part is a fair market value requirement. And what this means is no less than 10 days prior to the sale date, the lender servicer has to provide a fair market value to the foreclosure trustee via any of the following methods here. So it can be a BPO, it can be a licensed appraiser value from a commercial utilized automation model. Any other property value system used to derive real property value. It doesn't have to be anything formal like this, but this is what the statute says. These are the examples. It says, so this is what we know for a fact will work under here.

If you get your valuation some other way that you don't know how to define in here potentially, that's fine, but we know that these are okay under 82, 4 2 4, so no less than 10 days prior to the sale date, you have to give us this amount. If you don't, then we have to postpone the sale a little bit to get this information in. So when we're asking you, Hey, we need that fair market value by the end of the day today, otherwise we have to postpone, that's because of this. So get that into us so that we can deal with it. The second thing with it is that fair market value is valid for six months, and then if the sale hasn't occurred, say there's a bankruptcy or maybe a forbearance agreement, something like that, after six months, you have to give us a new fair market value. Otherwise, we again have to postpone. So just something to keep an eye on. So that's the first part of part one. The second, oh, go ahead.

Max Newman: Just to cut in quick, Melissa, for I believe only this specific piece of AB 24 24 is actually for senior liens only. So if it's a junior lien, just to clarify, it says by one to four family, it is only on senior liens on one to four family properties. If you were in a junior position, we do not need a fair market value. Bidding stays the same. There's nothing crazy that happens here.

Melissa Martorella, Esq.: Perfect. Thank you so much.

Max Newman: Of course.

Melissa Martorella, Esq.: So yeah, so we've got that. The other part of this is, so now we've got this fair market value in the door, and what do we do with this? And so as Max was alluding to, there's an opening bid requirement. So if you're opening bid, it's going to be less than 67% of the fair market value. Then the trustee has to first open a sale at 67% of the fair market value. If nobody bids at that sale, then you postpone for seven days, and then you can proceed with regular bidding instructions. So if a really easy example, say it's a hundred thousand dollars is the fair market value, you want to open up fitting at $50,000, well, that's less than the 67%. So Max is going to have to open bidding at $67,000. If nobody bids, then he postpones a week, and then you can proceed with bidding and opening up at $50,000. Similarly, it's a hundred thousand dollars fair market value, but you want to open bidding at $80,000. Well, that's greater than the 67%, 67,000. So you can proceed right away with that. So it adds just another level of complexity and annoyance to this issue, max, to say the least.

Max Newman: Yes. And as a follow up too, the idea behind this was that Congress, the legislature enacted this because I think there was a story where someone had tons and tons of equity in a property, and the debt on the foreclosure on a junior lien or on a lien in general was significantly lower. They received no contact. They proceeded with the foreclosure, but I had hundreds of thousands of dollars in equity. Why didn't they sell it? Why didn't, whatever happens, who knows? But they decided to try and prevent that from happening. So the idea here is that when the fair market value, and there's a lot of equity in the property, if your debt isn't covering how they determine 67%, I don't know, but they decided 67% was the best number. And so again, if your debt is less than that, anything in addition to that debt is surplus funds.

So again, if it was the 50,000 Melissa gave and the 67,000 or $17,000 of extra funds, that ideally will flow down to any junior lien holders that are getting wiped out, getting or the borrower to. So the idea was that when there is equity in the property, maybe it will sell at this first auction to begin with. Most instances, at least from what we've seen in our perspective, that the sale doesn't happen the first time. We end up postponing a week and then proceed the same way the following week. Of course, there have been instances where we have gone forward on the first sale and it's sold to a third party, and that's great, and the surplus funds trickle, but for the most part, we just end up postponing by a week because no one's interested at that price.

Melissa Martorella, Esq.: That'll love it. That's the first part of abt

Before, there's a second part, postponement requirements. So there's a first postponement that can occur. So if within five days of a scheduled sale date, the trustee receives notice that at least five days before the sale date there's a listing agreement in place for the property with a licensed California broker and published in a publicly available platform, then the trustee must postpone for 45 days. And what I would say here is obviously there's clear dates and requirements. You can play wiggly with this if you want to, if you're like, oh, well, they told me four days or something like that. But I would say, I don't know if you agree, max, if they're giving you this and it's a day late, I would probably comply with it anyways because I think you're opening yourself to a lawsuit potentially,

Max Newman: Right?

Melissa Martorella, Esq.: Yeah.

Max Newman: And I think we, in most instances, for us, we're deferring to our client as to how they want to proceed. If we're receiving this, most of the time we as a trustee are receiving a document because our name and contact is on the forms. So we're receiving this. If I receive it on the fifth day, if I receive it on the fourth day, third day, whatever it is, I'm still sending it to our client and letting them decide we're not. I'll advise and let them know, Hey, we're within the five days of the sale. We're not required to postpone. But again, in most instances, our clients and most lenders are not looking to take these properties back after the sale, and you want your money. So in most instances, it might behoove you to do that. We've had clients go both ways. Some of them don't want to accept it, and that's absolutely fine if they aren't within these requirements. And some do and we postpone accordingly. And one thing to note for these two postponement pieces, pieces, this is where the law changes a little bit from the previous slide. So where that bidding was set for senior liens, these postponement requirements are for any lien position. So as long as it's a one to four residential property, you could be first, you could be 10th position. These postponements are applicable to you, whether the bidding or not is only for senior liens, but this piece, if it's a residential property, this will be applicable regardless.

Melissa Martorella, Esq.: Thank you. And again, just adding to the confusion,

Max Newman: Yes, there's no just uniformity or straight across. It always has to be tiny pieces and little bits to make it more of an exciting for us.

Melissa Martorella, Esq.: And not to complain, but does the trustee get paid anymore for dealing with.

Max Newman: Oh, no. No, of course not. Why would we?

Melissa Martorella, Esq.: Awesome. So we've got that first postponement in place. If that happens and we postpone for 45 days, there is a second postponement option. So if the sale was postponed for that first reason, and then within five days of that new sale date, the trustee receives notice that there's a purchase agreement for that property dated at least five days prior to the new sale date, then you have to postpone again for another 45 days. So just know that there's these two steps, and either case, the sale can only be postponed once and the second postponement option is not available if the first one wasn't exercise. I think I agree pretty strongly with the each postponement can only occur once. I think though on the second one, I mean, again, we defer to clients technically, if they only came to you and said, Hey, we've got a purchase agreement, can we postpone? And they didn't do the first postponement. If they do, it might be something where I say, Hey, you don't technically have to comply with AB 2 4 24, but you might consider it because it looks like the bar might actually have a way out of this thing too. So just a consideration there.

Max Newman: And that's once per notice of sale. So for every notice of sale, they have a one year expiration date from the original sale date to the next, from one year from then. So this can happen twice within that one year timeframe. If we get to a new notice of sale and we didn't proceed for whatever reason, and we need to republish and create a new one, these two can be introduced again for another set of postponements on that new notice of sale. So important to clarify, I can't say again, we've seen it happen multiple times. In most instances, we've either postponed and then nothing happens and nothing comes of it, and then we move forward with the sale. Typically, if we receive a purchase and sale agreement, in most instances, it's been pretty consistent that we've closed. It just doesn't happen often, and we'll cancel the sale and everyone's happy at the end of that. But we haven't really had many that we've created new notices of sale and had to redo this process yet. But it can happen.

Melissa Martorella, Esq.: Good to know extra delays, which we all love. All right, so that's AB two four. Two four. We've gotten through notice of sale. We've dealt with all of these little requirements if needed. Now we're finally, we're ready to go to sale. We have one more thing. We have SB 10 79, so this is going to apply to all loans secured by one of four family properties. So commercial properties don't need to worry about that sort of thing, multifamily. But if it's one in four family properties, SB 10 79 will apply. So for commercial, multifamily, whatever you proceed with, whatever bidding instructions you want to do, you don't have to worry about any of this. So it might make sense to open low and do increments and all of that fun stuff. Talk to your council and figure out your strategy, you don't have to think about this at all. For these loans though secured by one of four family properties, some of those old traditional methods bidding where you might open at a certain amount and bid in increments and all of that, that kind of goes out the window, especially for loans for example, where maybe you have an entity borrower and there's an individual guarantor and you're like, oh, maybe there's a deficiency here.

Maybe not. You have to be pretty strong on that deficiency argument to bid like that going forward and talking about that here. So what 10 79 does is it permits certain eligible bidders to bid on foreclosed properties post sale, so they don't have to show up to the auction that we've now spent a decade getting to with all these new requirements. They don't have to show up up. They can come in after the fact and they can bid even one penny more than the final bid at that actual sale and win the property. So in that case, you can still obviously proceed with the deficiency strategy of bidding, of opening lower and bidding up. But what I tell my lenders now is more likely you should open with that credit bid, so the total amount owed to you as of the sale date or open at the amount that you would be okay walking away from that property for if it's less than that, because that way you've at least got yourself covered there in the event somebody under SB 10 79 comes and bids.

Because what I don't want to happen is you'd bid too low and it goes back to you at that price, but then somebody comes and bids under this for a penny more and they get the property and you're paid partially, but then now you've got a huge deficiency and it turns out that guarantor is not worth anything and you didn't accommodate for that in your bidding instructions. Maybe there was more value at that property. So just something to consider there. And Max or I are happy to talk to you about. The bidding strategy is a super important thing to get down, and it's something that I would even say if you're not sure about your strategy and you need more time to think about it, I would say postpone a day or whatever it is to get this locked into place. Don't just wing it with this, make sure you know what you're doing.

So that's SB 10 79 and there's all sorts of requirements here about eligible bid or we're not going to get into any of that. Just know that this is an option. What happens is if it's a property that's subject to SB 10 79, so these loans secured by one of our families now, instead of just waiting for funds to clear after the sale and then reporting that Trustee Zed upon sale, now we have to wait. So first we have to wait 15 days to see if any of these eligible bidders have submitted a notice of intent to bid on this property. If they have, or I'll say if they don't, 15 days post sale go by, we don't receive any great, then now we can record that trustee upon sale and we're finally done with this process. But if we get even one, even if we don't think it's legitimate and if we think it's not likely to come to anything if we get any at all, now we have to wait another 30 days after that 15 day period.

So 45 days after the sale took place to see if we get the actual bids in. So the notice of intent to bid is really just a form being like, Hey, I'm interested. I intend to bid on this property and I'm notifying you trustee that I intend to do so now we have to wait to see if they actually give us money. And so you continue, you have to wait. It's also blind bidding. So if you're thinking like, Ooh, this is a cool way of doing things, well, you might not even be able to do it and you're sending funds into the trustee, but then somebody bids two pennies over and they get it and not you. And so it's something to consider here. In either case though, whether somebody does ultimately bid, and I feel like that is fairly rarely happened where somebody has ultimately bid under SB 10 79 or nothing happens after that period expires at 45 days. Now we finally have finality as to who will own this property post sale and we can record that trustee's seat upon sale. Just a lot of waiting periods. Max, anything to add about SB 10 79?

Max Newman: Yeah, it's a ton. There's no requirements. There are requirements to be an eligible bidder. There are absolutely requirements and things that are required when we receive these notices of intent. We're reviewing them based on what the statute says and what's required language wise and things like that. If we see everything looks good on our end, again, we send to our clients so they can have a copy if they'd like and let them know we've received a notice of intent. To Melissa's point, a majority, I'd say over 90, potentially over 95% of these will receive a notice of intent. And maybe not that high, but 90 to 95% of the ones that we do receive a notice of intent for. Nothing happens. No one submits bids, no one submits funds. There's occasionally an option where that happens, but a lot of the time it's just we end up waiting 45 days for nothing different to happen than what happened at the sale. So again, a lot of time interest doesn't accrue over that time period. If you're sitting there waiting, you're just waiting for 45 days, you don't technically own the property, they were still in that property or still in the process. You can't change the locks, you can't do anything. There's no trustees deed recorded.

It's very frustrating to a lot of our clients and unfortunately there's nothing really on our end we can do. If we receive one of those, we've reached out on a couple of them before to confirm if they're planning on sending funds. If they tell us they're not interested or something like that, and there's only one person, we will get something in writing from them. And with confirmation from our client, we'll typically proceed. But again, that's happened maybe once or twice, but for the most part, nothing comes of this. We end up waiting. Clients are frustrated because we're waiting 45 days for nothing to happen. There's no deposit that's required for any of these eligible bidders. No, again, nothing's happening. There's no requirements. They're just saying, yeah, I intend to submit a bid and that's it. There's no punishment, there's no fee, there's no anything that comes out of it.

So anyone can submit one of these if they're one of those eligible bidders and we're just required to wait. So it's a little unfortunate. But to Melissa's point for bidding, please reach out and confirm with us for bidding on things like this. We send over an authorization to bid form where you say, here's the total amount that's owed to me, and here's the amount I'm comfortable with of walking away with to Melissa's point. And we will reiterate and double check that every time when we're going to sale on these, especially if you are going for less than what you are owed. Just to confirm that, again, if you're owed a million dollars but you want to start the bidding at seven 50, someone can come in at 750,000 and a penny and it's their property. So we want to confirm and make sure you're comfortable and understand the ramifications of what's happening of that. But again, double check and just be in communication and make sure everyone's on the same page. We're doing our best to double check and confirm those things when you're sending them to us to make sure we're all on the same page and know what's happening.

Melissa Martorella, Esq.: Absolutely, and Max alluded to this, but just to even clarify, the real issue with a lot of this too is that lack of finality. Because as Max said, you don't own the property yet until that trustee's deed records. I mean, you don't have anything. So if you wanted to evict people, you need a trustee's deed, you want to change the locks, you need that. You need that document for a lot, and this is going to delay a lot of the post foreclosure strategy that you have in place as far as taking over the property and dealing with it as an REO. So it's just something, or even as a bidder on the property, it's something that you'll have to wait for. So just something to bear in mind with SB 10 79 with that, that is all of the things as if it weren't enough. What does it all mean?

I think it really, a lot of this goes contrary to what a non-judicial foreclosure process is meant to be. It's meant to be a streamlined process to avoid lengthy court proceedings, to help lenders recover quickly under defaulted loans, especially business purpose loans. And I just think over the last five years, all of these laws have been created that kind of attack, that simple, straightforward process and really make it drawn out. It creates all these hurdles for lenders, servicers, trustees, and it makes this process that was very easy and straightforward to go through to now be a complicated mess. And at this point, you might be thinking to yourself, why bother with this? I'll do a judicial foreclosure. And that might be your option too, based depending on the facts of your circumstance, that might make more sense for you. So just something to bear in mind, little tips meticulously document your files for compliance, especially with AB one 30.

If you're making those junior liens, just make sure servicing and transfers, all of that documented. Talk to your borrowers. And then something that I've seen a lot, especially with AB one 30, is lenders changing the kinds of loans that they're making so that they don't have to comply with any of these laws. So doing commercial buildings only, no individual borrowers, that sort of thing to try to eliminate as many of these as possible. But that said, there's a demand in the market. And so with that, we're here to help. If you need us, we are experts. We can help you. Feel free to reach out to us, max and I would be more than happy to answer your questions or help you with your foreclosures gunner contact information here. Max, anything you'd like to add as closing words? We are definitely over on time, so I do see a few questions. I don't think we're going to get to those. If you had a question, email us. We're happy to answer them. But max, any parting words before we let everyone go?

Max Newman: Kind of just the reiteration. Again, to Melissa's point, we're both available. We are here to help in any way. Whatever needs you need assistance with. Again, whether or not you're looking to foreclose, you're ready to foreclose, whatever the case may be, we're happy to help in that regard. Again, I would say it's a lot of communication. Just be active in communicating with our firm. I'll even say with the borrower, we take over a lot of that communication. If there's an unsavory relationship between the borrower and lender, we're happy to be the middleman and go back and forth between things. As the trustee, we're not making decisions, we're deferring to you, so we'll take the information that the borrower is providing and see what you think. We're happy to discuss or walk through scenarios and things like that. But you're still making all the calls for how you'd like to proceed, obviously, as long as that's in line with the law and how we're allowed to operate.

But again, constant communication is just always best. Keep everyone up to date on all things that are happening, and if you need to involve additional parties, let us know. Melissa and I know plenty of people in this industry at Fort, they have plenty of attorneys who can assist with all of these things, reach out to them, ask the questions. Again, we'd rather err on the side of caution and be safe and protect ourselves in the beginning of all of this because again, while this process is typically pretty quick and short in between four and five months with all these new steps, it can get extended with court hearings and bankruptcies and things like that. It can get extended further. And with courts being borrower friendly, you don't want to have to start the entire four to five month plus process all the way at the beginning because we weren't sure about one step or you weren't a hundred percent certain or we complied. We didn't comply when we maybe should have. But communication is key. Always a proponent of that. Yeah, and feel free to reach out. Any questions from the chat or just in general, any questions. Always feel free to reach out. I'm happy to jump on a call or Zoom or teams, whatever technology anyone wants to use and a walkthrough. Anything you guys need.

Melissa Martorella, Esq.: Awesome. Well, with that, communication is key. I hope you all have a wonderful rest of your day. Again, for those few people who had Q and A's, please feel free to send us an email. Otherwise, happy Wednesday. Have a wonderful rest of your week. Thank you all.