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Mortgage Measures on ADUs, Remote Online Notarization and Servicing Transfers Advance

By Kevin Gould, President & CEO

The California Legislature is getting closer to adjourning for the year. After they return from their month-long summer recess on August 14, the Legislature will have until September 14 to conclude their business. Hundreds of measures will be up for a vote in the final weeks with many of them being sent to the governor for signature or veto. In this edition, I thought we would share a few mortgage-related measures that we expect will make it to the Governor’s Desk.

As a means to promote more affordable housing, a measure moving through the Legislature allows for the separate conveyance of accessory dwelling units (ADU) from a primary dwelling. The measure, Assembly Bill 1033, is part of a multi-year effort to remove barriers associated with the construction and sale of ADUs. CBA raised initial concerns with the measure because of the impact the separate conveyance of the ADU could have on existing lienholders who may be negatively impacted by a change in the nature of the collateral.

We successfully negotiated amendments that require that all lienholders consent to the separate conveyance and that the consent be recorded in the land title records where the real property is located. The language makes it clear that a lienholder may refuse to give consent and a lienholder may consent provided that any terms and conditions required by the lienholder are satisfied. In addition, CBA requested and secured amendments requiring that local agencies provide consumer disclosures so that individuals wishing to separately convey an ADU is aware that lienholder consent is required should the owner subsequently wish to separately convey the ADU.

Another measure authorizes the use of remote online notarization in California and requires the Secretary of State (SOS) to adopt rules implementing remote online notarizations by January 1, 2025. Senate Bill 696 updates state law by authorizing a notary public, or an applicant for appointment as a notary public, to apply for registration to be authorized to perform online notarizations. This measure also requires an entity to register with the SOS as an online notarization platform or depository and establishes requirements for online notarization platforms to ensure consumer personal information is protected. For purposes of this measure, a “depository” is an individual or entity capable of storing a journal entry or audio-video recording on behalf of a notary public.

While CBA supports the underlying public policy objective of allowing California notaries to join the vast majority of the nation in providing notarization services in a remote manner, we remain concerned with a private civil cause of action in the measure that could be imposed against an online notarization platform or depository for a violation of the law. We don’t expect the private right of action to be removed. While we remain supportive, we thought it was important to state our concerns about private rights of action, even if they are not directly impactful in this circumstance to banks.

Following a series of devastating wildfires in California, a measure nearing the final stages of the legislative process requires better communication between mortgage servicers when mortgage servicing rights are transferred. More specifically, Senate Bill 455 requires a transferor mortgage servicer servicing a mortgage that is within the geographic limits of a proclaimed state of emergency or local emergency to deliver to a transferee mortgage servicer any material written records between the borrower and the mortgage servicer relating to the borrower’s election to use insurance proceeds to repair or replace property damaged by a disaster for which the state of emergency or local emergency was proclaimed. The measure is applicable to mortgages secured by residential real property that is improved by four or fewer residential dwelling units.

A second provision in the bill prohibits a transferee mortgage servicer from dishonoring a previous written agreement to repair property made prior to the transfer between the transferor mortgage servicer and the borrower and approved by the owner of the promissory note. Earlier versions of this measure were problematic as they applied more broadly to all property and required mortgage servicers to forward borrower’s verbal intentions. The final version of the measure reflects CBA-requested amendments.

The governor will have an extended period of time to take action on measures that reach his desk given the high volume of bills passed at the end of the legislative session. This year, the governor will have until October 14 to sign, veto, or allow measures to become law without his signature. We look forward to sharing more updates on legislation and actions taken by the governor.