CBA Publications >> CBA Regulatory Compliance Bulletin >> Vol 2001 No. 12 October 30, 2001

Vol 2001 No. 12 October 30, 2001

California Restores Reconveyancing Timing Rule

Governor Davis signed a new law, AB1090, sponsored by a coalition of lenders including CBA, which clarifies the requirements pertaining to reconveyance of deeds of trust after full repayment of a loan. AB1090 effectively abrogates the holding in Bartold v. Glendale Federal Bank(2000) 81 Cal.App.4th 816, which interpreted Civil Code 2941(b) to require immediate reconveyance of deeds of trust when the underlying debt is repaid.

Introduction

Existing Civil Code Section 2941(b) provides that the beneficiary of a deed of trust must deliver the original note, deed of trust, request for reconveyance, and other documents as necessary to reconvey a deed of trust to the trustee after payoff. This is to be performed "when the obligation secured by any deed of trust has been satisfied." [Emphasis added] The trustee then has 21 days to deliver the necessary records to the applicable county recorder for recordation. Section 2941(b)(1)(A).

The preceding paragraph, Section 2941(a), which addresses mortgages not involving a trustee, provides a mortgagee with 30 days after payoff to issue and record a certificate of the discharge. Also, Section 2941(b)(2) provides a total of 60 days before a trustor (e.g., borrower) has the right to demand the beneficiary of the deed of trust to issue a reconveyance when the trustee has failed to do so.

Despite the statutory "when" language in Section 2941(b) pertaining to reconveying deeds of trust, lenders in California have operated under the assumption that they have 39 days to deliver reconveyance documents to the trustee (together with the trustee's 21 days makes 60 days), especially given that immediate reconveyancing is a practical impossibility.

The Bartold court interpreted "when" literally, and thus left California lenders exposed to substantial liability that cannot be avoided. Thus, CBA and the coalition pushed to overturn the case legislatively. AB1090 did pass and with only a few concessions: certain allowable fees are reduced and the penalty for failing to reconvey is increased from $300 to $500.

Bill Summary

AB1090 clarifies that a beneficiary under a deed of trust has 30 calendar days after payoff to request a reconveyance. Also, the trustee is responsible for specifying in the reconveyance instrument that the trustor is the person to whom the recorder will deliver the recorded instrument.

Beneficiaries now also have the option to deliver the original note and deed of trust to either the trustee or trustor within 120 days of satisfaction of the debt, as long as the beneficiary has executed and delivered a request for full reconveyance to the trustee within 30 days after payoff and the note and deed of trust are altered to indicate that the obligation is paid in full. If the original note or deed of trust or any copy is in an electronic format, upon repayment, the electronic original or copy that has not been marked solely for use as a copy must be altered to indicate that the debt is paid in full.

Also, a beneficiary may choose to effect the reconveyance with the title company handling the escrow rather than the trustee of record, in which instance the title company assumes the obligations of the trustee and may collect the authorized fees.

Exceptions removed. Under existing law, a mortgagee or trustee may not record the certificate of discharge or full reconveyance if the obligor gives instructions not to do so, or if the documents are delivered personally to the obligor or through an escrow. The new law eliminates these exceptions. According to the legislature's analysis, the purpose of this change is to clarify that the trustee retains the responsibility to record the certificate of discharge or the reconveyance under all circumstances. The legislature does not explain why a trustee should disregard the specific instructions of a trustor not to record.

Increased penalty/reduced fees. The penalty for failing to effect a timely recordation is increased from $300 to $500. A fee of not more than $45 to effect a recordation, compared with $65 under the existing law, is deemed to be reasonable, and the fee must be included in the payoff demand statement. If a beneficiary collects a fee and later has knowledge that no reconveyance is recorded, the beneficiary must either effect a recordation or, if a release of obligation is earlier and timely recorded, the beneficiary must refund the fee. A fee of no more than $30 ($60 under the existing law) may be charged for a beneficiary statement or payoff demand statement.

Importantly, the bill contains legislative declarations that purport to clarify the prior intent of Civil Code Section 2941, which accomplishes what is normally not permitted by legislation--ex post facto application of a new law. In essence, the Legislature found that existing Section 2941 required recordation of a reconveyance within 60 calendar days of satisfaction of the underlying debt and that the time allowed for the beneficiary to deliver the deed of trust and other documents to the trustee was 39 calendar days.

Thus, pending cases on this issue could properly be subject to the "interpretations" contained in the new law. Indeed, in a case pending in a California appellate court involving the same issues as Bartold (and same plaintiffs attorneys), the judge requested briefing on how AB1090 affects the case. The coalition that sponsored the bill has provided a "friend of the court" brief to the court.

If you have any questions about AB1090, please call CBA's lead lobbyist on the bill, Brian Maas, at 916-441-7377 ext. 210.