Two new laws take effect in 2015 that impact common issues in financial services litigation. The first, AB 1770, attempts to address ambiguities in the process of paying off and closing a home equity line of credit account. The second, AB 1698, provides a criminal court with the power to void a fraudulently recorded instrument without the need for the lender to pursue relief in a separate quiet title action.
Termination of Equity Lines of Credit (AB 1770)
AB 1770 intends to reduce litigation that frequently occurs after a change in real property ownership when a home equity line of credit was not properly terminated with the sale transaction. Senate Rules Committee, 7/2/14 Senate Floor Analysis of Bill No. AB 1770, p. 5.
Under existing California law, the borrower, agent of the borrower, successor in interest of the borrower, escrow company, or agent of the escrow company may make a written request to the lender for a statement showing the amount needed to pay off a home equity line of credit account. Civ. Code § 2943(a), (c). The lender provides the payoff demand statement to an “entitled person” within 21 days of the written request. Civ. Code Code § 2943(c). Within 30 days of a loan payoff in accordance with the statement, the lender delivers the note, deed of trust, and request for full reconveyance to the trustee. Civ. Code § 2941(b)(1). Within 21 days after receiving these documents from the lender, the trustee records a reconveyance in the county recorder’s office. Civ. Code § 2941(b)(1)(A).
Prior law did not address whether a borrower could continue to draw on the account after making a request for a payoff demand statement. AB 1770, effective July 1, 2015, adds provisions to the Civil Code that will require a lender, upon receipt of a request, to suspend a borrower’s equity line of credit for a minimum of 30 days during the processing of a payoff attempt. Civ. Code § 2943.1(c). This new “suspension and close” request, while voluntary on the part of the borrower or other “entitled person,” may help reduce litigation that frequently arises after failed attempts to close home equity line of credit accounts. The new “suspension and close” request should help reduce account activity that previously might have taken place during the time of an attempted payoff and close.
After a lender receives a “suspension and close” request, and full payment pursuant to its demand statement, the lender is required to close the equity line of credit, and release or reconvey the property secured by the equity line. Civ. Code § 2943.1(d).
Void False or Forged Real Property Instruments (AB 1698)
AB 1698 attempts to streamline the process for a lender or other person to address a fraudulent instrument in an already-pending criminal proceeding. Under prior law, a criminal court could adjudicate the actions of a person involved in recording a fraudulent instrument, but a separate civil action was then required to remove the instrument from the county property records.
This new law, effective January 2015, provides that after a person is convicted of knowingly procuring or offering any false or forged instrument to be filed, registered, or recorded, the criminal court can issue an order to void the false instrument. Pen. Code § 115(a), (e).
The prosecutor is required to provide notice by certified mail to any interested parties (e.g. the lender) of the motion. Pen. Code § 115(f)(1), (5). The notice must state that the interested parties will have a right to be heard at the hearing and interested parties are permitted to “present information to the court” at the hearing. Pen. Code § 115(f)(3), (8). The Legislature did leave the criminal court with continuing discretion to require a separate civil action “in the interests of justice” or to “protect property rights,” if appropriate. Pen. Code § 115(f)(9).
What once required a separate civil action to quiet title, may now be accomplished much quicker by motion in an already-pending criminal action.
The foregoing article was prepared by Jeremy Shulman and Steve Telles. AFRCT, LLP is a full-service law firm, providing legal counsel to financial institutions and businesses throughout California.