City of Los Angeles Foreclosure Registry Ordinance

July 9, 2010

City of Los Angeles Foreclosure Registry Ordinance

On May 21 the City of Los Angeles enacted Ordinance No. 181185, entitled “Foreclosure Registry Program.” The Ordinance, effective July 8, imposes registration and maintenance obligations on any “beneficiary” or “trustee” (as such terms are defined in the Ordinance) holding a deed of trust on any residential property in foreclosure situated in the City of Los Angeles.

Foreclosure Registry

The Ordinance extends to all residential (not commercial) real properties, including multifamily properties, situated in the City, regardless of condition, and requires that any such property in foreclosure be registered with either the City’s Housing Department or MERS (Mortgage Electronic Registration Systems) within 30 days of the issuance of a notice of default (or, if the notice of default was issued before the July 8 effective date of the Ordinance, within 30 days of such effective date). If the beneficiary or trustee elects to register with the City instead of MERS, registration can be accomplished in person at the City’s Housing Department counter or by mail for a fee of $155 per property at the time of registration. Thereafter an annual fee of $155 must be paid by January 1 of each subsequent year until the notice of default is rescinded or the property is sold or transferred to a party other than the beneficiary. No fee is due to the City if the beneficiary or trustee registers with MERS, but it must provide the same information within the same time periods. Use of the MERS “iRegistration” system (www.mersinc.org) is not subject to any additional membership fees for existing MERS members, but a charge of $0.97 does apply to each property registered.

For each property registered, contact information must be provided for the beneficiary or trustee and the person directly responsible for the property in foreclosure. If such responsible person is located more than 100 miles from the property, the registrant must identify a local property management company that is empowered to (1) comply with code enforcement orders, (2) provide a trespass authorization to law enforcement officials if the property is unlawfully occupied, (3) conduct weekly inspections of the property, and (4) accept rental payments from tenants of the property if no management company is otherwise employed.

If a beneficiary or trustee acquires the property by credit bid or by deed in lieu of foreclosure, the registration requirement continues for so long as the beneficiary holds title to the property. Failure to comply with the registration requirements within 30 days of notification by the City’s Housing Department can result in fines of $250 per day for each day of non-compliance subsequent to notification.

Recordation of Transfer of Loans

For loan purchasers or trustees of securitized loans, the Ordinance contains new requirements for the assignment of recorded security instruments. Within 10 days of the transfer of a loan and/or deed of trust secured by residential real property located in the City, the new beneficiary or trustee must record with the Los Angeles County Recorder’s Office assignment documentation containing the name of the new beneficiary and the mailing address and contact phone number of the party responsible for receiving loan payments. Although assignment documentation reflecting such a transfer would normally be recorded with the county in any event, loan purchasers and loan servicers in particular should be mindful of the new timing and disclosure requirements.

Maintenance and Security Requirements

The Ordinance seemingly extends existing building and safety code maintenance and security requirements imposed on owners of residential properties in the City to beneficiaries and trustees holding deeds of trust on vacant properties and properties in foreclosure, although drafting deficiencies may result in challenges to the enforcement of these provisions. In addition, the Ordinance amends existing legislation to increase fines on “responsible persons” (defined as the owners and/or persons in charge or control of residential properties) in charge of vacant structures in the City who do not comply with certain maintenance and disposition requirements for such structures. Any violation of these requirements is treated as a strict liability offense, subject to penalties of up to $100,000 per property.

In addition to the foregoing, any beneficiary or trustee subject to the Ordinance must:

Other cities in California that have enacted ordinances requiring registration of foreclosed properties include Fresno (Fresno Municipal Code Section 10-620), Oakland (Oakland Municipal Code Chapter 8.54), and San Bruno (San Bruno Municipal Code Chapter 5.26), and many other municipalities in California have adopted ordinances requiring registration and maintenance of vacant properties.

The extent to which certain provisions of the Ordinance, as written, are enforceable under state and federal law may be questionable, and it is therefore possible that such provisions will be susceptible to legal challenge. Nonetheless, beneficiaries, trustees and any others affected by the Ordinance may wish to consult with legal counsel to understand their obligations under the Ordinance and the best practices to achieve compliance.

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