RESOLUTION

(1)

RESOLUTION 02-01-2012

DIGEST

Trust Deed Defined as Mortgage

Amends Civil Code section 2920, to include deeds of trust in the definition of a “mortgage.” RESOLUTIONS COMMITTEE RECOMMENDATION

APPROVE IN PRINCIPLE History:

No similar resolutions found. Reasons:

This resolution amends Civil Code section 2920, to include deeds of trust in the definition of a “mortgage.” This resolution should be approved in principle because it makes the statute consistent with both the interpretation courts have given to deeds of trusts and the common understanding of deeds of trust.

As an initial point of clarification, this resolution would only amend Civil Code section 2920(b), to strike out the words “other than a deed of trust.” The words “Section 2924,” “2924h” and “Section 2985”, which are underlined in the resolution, are currently part of the statute and therefore would not make any additional changes to existing law.

In 1969, the court in Domarad v. Fisher & Burke, Inc. (1969) 270 Cal.App.2d 543, 553, noted that “in California there is little practical difference between mortgages and deeds of trust, that they perform the same basic function, and that a deed of trust is ‘practically and substantially only a mortgage with power of sale (citations omitted).” Specifically citing Civil Code sections 2920 through 2953, that same court went on to note that “deeds of trust are analogized to mortgages and the same rules are generally applied to deeds of trust that are applied to mortgages.” (Ibid.) For all practical purposes, the courts have interpreted “deeds of trust” as “mortgages,” since a deed of trust is a mortgage; it just has a power of sale attached to it.

Further, Civil Code section 2924, includes deeds of trust (the transfer of an interest in property as security for the performance of another act) in the definition of a “mortgage.” Therefore,

because courts have interpreted deeds of trust as being interchangeable with the rules and procedures governing mortgages, there is now little reason to exclude “deeds of trust” from the definition of a mortgage.

TEXT OF RESOLUTION

RESOLVED, that the Conference of Delegates of California Bar Associations recommend that legislation be sponsored to amend Civil Code section 2920 to read as follows:

§ 2920 1

(a) A mortgage is a contract by which specific property, including an estate for years in 2

real property, is hypothecated for the performance of an act, without the necessity of a change of 3

possession. 4

(2)

(b) For purposes of Sections 2924 to 2924h, inclusive, “mortgage” also means any 5

security device or instrument, other than a deed of trust, that confers a power of sale affecting 6

real property or an estate for years therein, to be exercised after breach of the obligation so 7

secured, including a real property sales contract, as defined in Section 2985, which contains such 8

a provision. 9

(Proposed new language underlined; language to be deleted stricken.) PROPONENT: Bar Association of Northern San Diego County

STATEMENT OF REASONS

Existing Law: Civil Code section 2920, subdivision (b) appears to exclude Trust Deeds from the definition of Mortgage. This appears to be based on the old fiction (somewhat technically true) that someone who executes a Trust Deed actually “conveys” the property to the trustee who then owns legal title for the benefit of the beneficiary, subject to “reconveyance” to the trustor upon satisfaction of the obligation giving rise to the necessity for security to the beneficiary the Trust Deed represents. This distinction is based on the idea that if the encumbrance is a true

“mortgage,” a lawsuit must be filed to “foreclose” on the “equity of redemption.”

This Resolution: This Resolution would recognize that a Trust Deed is nothing more than a mortgage with a power of sale and without an equity of redemption.

The Problem: If one were to ask a lay homeowner whether she or he had a “mortgage,” chances are the response would be yes. This is because the definition of mortgage in Civil Code section 2920, subdivision (a) actually describes the Trust Deed transaction which is, as to a lay person, signing a document to secure repayment of a promissory note with the understanding that if the repayment terms are not met, the property will be lost. No one does the old-fashioned mortgage with requirement of foreclosure of equity of redemption any more. It only comes up after the fact in situations where, for example, someone gives a grant or quitclaim deed to someone to secure an obligation where the intention was never to convey fee title, and where there is no power of sale in such deed.

The point of this resolution is to clarify the fact that any document given to secure the repayment of a promissory note that is in the chain of title of the “mortgagor-trustor’s” real property is a mortgage. It would also clarify the fact that persons who broker Trust Deed loans are Mortgage Brokers as the term is defined in Civil Code section 2923.1.

IMPACT STATEMENT

This resolution might affect the interpretation of Civil Code section 2923.1.

AUTHOR AND/OR PERMANENT CONTACT: K. Martin White, P.O. Box 1826, Carlsbad, CA 92018-1826; Telephone (760) 930-9033; Fax (760) 930-9063; [email protected] RESPONSIBLE FLOOR DELEGATE: K. Martin White

(3)

DIGEST

Trust Deeds: Agent Status and Assignment of Beneficial Interest to be Recorded

Adds Civil Code section 2924.1 to require authorization of an agent to act on behalf of a trustee, mortgagee, or beneficiary, and any assignment of beneficial interest, be recorded.

RESOLUTIONS COMMITTEE RECOMMENDATION DISAPPROVE

History:

Similar to Resolution 02-02-2009, which was withdrawn, and Resolution 06-03-2011, which was approved as amended.

Reasons:

This resolution adds Civil Code section 2924.1 to require authorization of an agent to act on behalf of a trustee, mortgagee, or beneficiary, and any assignment of beneficial interest, be recorded. This resolution should be disapproved because it seeks to prevent an agency

relationship from existing unless an acknowledged document is recorded memorializing such. When a trustee records a Notice of Default and Election to Sell, the borrower has a ready target for any inquiry with respect to the propriety of the trustee’s sale process, which is the trustee. The real question is whether the actual beneficiary wants the actual trustee to proceed with the trustee’s sale process, and whether that process is legitimately implemented. If the purpose of the resolution is to assure that the trustee’s sale process is properly conducted for purposes of record title, then a provision somewhere the in the statutory scheme indicating that a Notice of Default cannot be recorded unless documentation identifying the current trustee and beneficiary are also of record would make sense. For example, amendment of Civil Code section 2932.5 to add deeds of trust to its ambit, thereby requiring acknowledgment and recording of assignments before the Notice of Default is recorded would appear to be a better approach.

However, this resolution would go much further, requiring recording of documentation of agency relationships. This would create more work and if the lack of such a recording were viewed a basis for attacking an otherwise legitimate trustee’s sale, would serve no legitimate purpose. The lack of such notice, standing alone, would not be a basis for a claim of prejudice, if in fact the borrower were in default under the terms of the promissory note and deed of trust and the sale was otherwise properly conducted. Moreover, there is already a large body of law governing agency (Civ. Code, §§ 2296 - 2357), and this resolution would unnecessarily carve out one species of agency to shoulder additional burdens.

Assembly Bill 2425 (Mitchell) and Senate Bill 1471 (DeSauinier) would both address the proponent’s concern through amendment of Civil Code section 2932.5 as described above. Assembly Bill 1602 (Eng) also addresses the assignment issue, by requiring direct contact with the borrower by the mortgagee, beneficiary, or authorized agent prior to recording of a Notice of Default.

(4)

RESOLVED, that the Conference of California Bar Associations recommends that legislation be sponsored to add Civil Code section 2924.1 to read as follows:

§ 2924.1 1

All references to authorized agents in § 2924 shall mean an agent whose authority to act 2

on behalf of the trustee, mortgagee, or beneficiary has been confirmed in a writing signed by the 3

trustee, mortgagee, or beneficiary, or an officer or authorized employee thereof, which writing 4

shall have been filed for record in the office of the recorder of each county wherein the 5

mortgaged or trust property or some part or parcel thereof is situated. If the trustee, mortgagee, 6

or beneficiary is an assignee for whom the agent is acting for an assignee of the original trustee, 7

mortgagee of beneficiary, a writing demonstrating such assignment shall also be filed for record 8

as described above. 9

(Proposed new language underlined; language to be deleted stricken.) PROPONENT: The Bar Association of San Francisco

Existing Law: Allows the holder of a deed of trust to record a notice of default acting through an authorized agent. In many cases that agent will be the Mortgage Electronic Recording System (MERS), an electronic data base of deeds of trusts and assignments of the same. However, only the original deed of trust naming MERS as the deed of trust holder’s agent will have been recorded with the county where the property is located. All assignments of the deed of trust are recorded only with MERS.

This Resolution: Requires that, in order for an authorized agent of the holder or assignee of a deed of trust to record a notice of default, there must be a recorded document authorizing the agent to act for the current beneficiary.

The Problem: MERS is a private company owned by banks and mortgage processors. Its main purpose was to be a private, electronic registry of repeated sales of mortgage loans as the number of new mortgages and refinancings boomed. MERS saved lenders and servicers billions of dollars in recording fees.

MERS is not the owner, holder or servicer of notes and deeds of trust, but it is usually designated as the agent of the original note holder and deed of trust beneficiary, when the deed of trust is recorded. Subsequent assignments are not recorded locally but are electronically

registered only with MERS.

In Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149, the California Court of Appeal upheld the authority of MERS to act as the agent in a foreclosure proceeding of an unrecorded assignee of the deed of trust, even though the court recognized that “a transfer of

(5)

an interest in a mortgage loan between two MERS members is unknown to those outside the … system.” (Id. at 1151.)

Other courts have not been as charitable to MERS. In Mortgage Electronic Registration System, Inc. vs. Southwest Homes of Arkansas, 2009 Ark. LEXIS 121 (2009), the court denied MERS standing:

[W]e note that Arkansas is a recording state. Notice of transactions in real property is provided by recording. In the present case, MERS was at best the agent of the lender. Yet no other lender recorded its interest as an assignee of Pulaski Mortgage. Permitting an agent such as MERS to step in and act without a recorded lender directing its action would wreak havoc on notice in this state.

(Id. at *11.)

A property owner being foreclosed upon should be able to determine from the recorded documents what entity purports to hold the deed of trust and to confirm that MERS is that

entity’s agent. The simple answer is to require that both the agent’s authority and any documents assigning a deed of trust to the agent’s current principal be recorded. While that would defeat the purpose of saving lenders the costs of recording, it would also increase the revenues of financially distressed counties in California. That appears to be a fair trade for openness in the process of assigning mortgages.

This resolution does not affect any other law, statute or rule.

AUTHOR AND/OR PERMANENT CONTACT: John T. Hansen, 101 Howard Street, Suite 310, San Francisco, CA 94105; Tel: 415-444-6684; [email protected].

(6)

DIGEST

Common Interest Developments: Right to Counsel at Internal Dispute Resolution Proceedings Amends Civil Code sections 1363.830 and 1363.840 to allow members of a planned community association to have counsel present at internal dispute resolutions proceedings.

RESOLUTIONS COMMITTEE RECOMMENDATION

APPROVE IN PRINCIPLE WITH RECOMMENDED AMENDMENTS History:

No similar resolutions found. Reasons:

This resolution amends Civil Code sections 1363.830 and 1363.840 to allow members of a planned community association to have counsel present at internal dispute resolution

proceedings. This resolution should be approved in principle with recommended amendments because the presence of a member’s counsel will facilitate a successful resolution of the dispute. Under the Davis-Sterling Act, the settlement of a dispute between a member or members and the Association Board is encouraged prior to any party filing a lawsuit to enforce the CC&R’s. The Civil Code sets out an internal dispute resolution procedure to be utilized by the parties in resolving the dispute. (Civ. Code, §§1363.810-1363.850.) If the dispute is resolved to the member’s satisfaction, the resolution proceedings are ended. However, if the dispute is not resolved to the member’s satisfaction, the member may appeal to the Association Board of Directors. (Civ. Code., §1363.830, subd. (d).)

There is no provision for counsel to attend the dispute resolution meeting for either party. Some associations will have its counsel attend without notification and others will have its counsel attend, but deny the member’s request to have counsel. Others will invite both parties to bring counsel. Association CC&R’s and other rules are often difficult for a lay person to comprehend. In any negotiation over a person’s home and/or living conditions, both that person and the

association should be allowed counsel, if desired. Counsel will assist the parties in understanding the technical application of the CC&R’s and other rules and present solutions that might not have occurred to the parties.

However, the resolution’s suggested amendment states that “the member and the association have the right to be represented by counsel . . . .” This implies that, if either party cannot afford counsel, the association will provide it. The intent of the proposed amendment would be more clear if it were changed to read “The parties have a right to be represented by counsel at their own expense when meeting and conferring” in both section1363.83, subdivision (f) and section 1363.840, subdivision (b)(4).

(7)

RESOLVED, that the Conference of California Bar Associations recommends that legislation be sponsored to amend Civil Code sections 1363.830 and 1363.840 to read as follows:

§ 1363.830 1

A fair, reasonable, and expeditious dispute resolution procedure shall at a minimum 2

satisfy all of the following requirements: 3

(a) The procedure may be invoked by either party to the dispute. A request invoking the 4

procedure shall be in writing. 5

(b) The procedure shall provide for prompt deadlines. The procedure shall state the 6

maximum time for the association to act on a request invoking the procedure. 7

(c) If the procedure is invoked by a member, the association shall participate in the 8

procedure. 9

(d) If the procedure is invoked by the association, the member may elect not to participate 10

in the procedure. If the member participates but the dispute is resolved other than by agreement 11

of the member, the member shall have a right of appeal to the association's board of directors. 12

(e) A resolution of a dispute pursuant to the procedure, that is not in conflict with the law 13

or the governing documents, binds the association and is judicially enforceable. An agreement 14

reached pursuant to the procedure, that is not in conflict with the law or the governing 15

documents, binds the parties and is judicially enforceable. 16

(f) The procedure shall provide a means by which the member and the association may 17

explain their positions. The member and association have the right to be represented by counsel 18

in so explaining their positions. 19

(g) A member of the association shall not be charged a fee to participate in the process. 20

21

§ 1363.840 22

(a) This section applies in an association that does not otherwise provide a fair, 23

reasonable, and expeditious dispute resolution procedure. The procedure provided in this section 24

is fair, reasonable, and expeditious, within the meaning of this article. 25

(b) Either party to a dispute within the scope of this article may invoke the following 26

procedure: 27

(1) The party may request the other party to meet and confer in an effort to resolve the 28

dispute. The request shall be in writing. 29

(2) A member of an association may refuse a request to meet and confer. The association 30

may not refuse a request to meet and confer. 31

(3) The association's board of directors shall designate a member of the board to meet and 32

confer. 33

(4) The parties shall meet promptly at a mutually convenient time and place, explain their 34

positions to each other, and confer in good faith in an effort to resolve the dispute. The parties 35

have the right to be represented by counsel when meeting and conferring. 36

(5) A resolution of the dispute agreed to by the parties shall be memorialized in writing 37

and signed by the parties, including the board designee on behalf of the association. 38

(c) An agreement reached under this section binds the parties and is judicially 39

enforceable if both of the following conditions are satisfied: 40

(8)

(1) The agreement is not in conflict with law or the governing documents of the common 41

interest development or association. 42

(2) The agreement is either consistent with the authority granted by the board of directors 43

to its designee or the agreement is ratified by the board of directors. 44

(d) A member of the association may not be charged a fee to participate in the process. 45

(Proposed new language underlined; language to be deleted stricken.) PROPONENT: Orange County Bar Association

Existing Law: Requires an Internal Dispute Resolution (“IDR”) procedure, including a meet & confer or other meeting at which the parties can explain their positions, in connection with a dispute between an Association designed to manage a common interest development and a member or members of that Association. However, the statutory scheme (known as the Davis-Stirling Common Interest Development Act, Civ. Code, §§ 1350, et seq.) does not make it clear that the parties, particularly the member/individual owner, have a right to have counsel present at an IDR meet and confer.

This Resolution: Would make it clear that the parties have the right to have counsel present at an IDR meet and confer.

The Problem: Because the law is not clear that a member may appear with counsel at an IDR meet and confer, some Associations are known to sometimes strategically insist that a member cannot appear with counsel at the meet and confer. As a result, the purpose of the dispute resolution processes (i.e., a productive meet and confer that staves off protracted and costly litigation, the greatest brunt of which the individual owner/member would ultimately bear) is negated. By their nature, these disputes and the meet & confers generally involve legal issues, for which the presence of counsel is particularly appropriate and productive.

Making it clear that the parties have the right to counsel’s presence and participation will promote and further the intent of the statutory scheme (to wit, early resolution of disputes). IMPACT STATEMENT

This resolution does not affect any other law, statute or rule.

AUTHOR AND/OR PERMANENT CONTACT: Daryl J. Miller, Russell & Miller, LLP, 4631 Teller Ave., Ste. 140, Newport Beach, CA 92660; 949 955 3570; fax: 949 851 2722; [email protected].

(9)

COUNTER-ARGUMENT(S) TO RESOLUTION 02-03-2012

SACRAMENTO COUNTY BAR ASSOCIATION

The “Meet & Confer” provisions of Sections 1368.830 & 1368.840 of the

Davis-Stirling Common Interest Development Act (the “Act”) were intended to be an

opportunity for the parties to a dispute within a homeowners association to informally meet and discuss their respective positions in the hopes that the dispute may be resolved at that stage without the expense of more formalized proceedings. While the intent of this resolution may be to ensure that a homeowner may have representation at informal “Meet & Confer” discussions regarding a dispute with his homeowner’s association, the use of the term “right” creates a guarantee of a constitutional level where no such right has existed, anywhere, for such property disputes. If an owner could argue that he has a right to counsel being present but cannot afford to pay for such, who is the guarantor of such right, and thus, will have to potentially pay to for it? And is it wise to extend the right to counsel to such proceedings when county and state court budgets are already thread bare?

Most often, such “Meet & Confer” discussions do result in a resolution of the matter between the parties. There is no guarantee or prohibition of having counsel present at such informal meetings under the Act, and thus, bespeaks of the effectiveness of the current statutory scheme. However, a small change to the proposed wording within this resolution, from “has the right to” to “may” would resolve the problem raised in this counter argument while maintaining the aims of the resolution. The author has accepted such suggestion, and should the amendment be adopted, then the SCBA Delegation would withdraw this counter argument.

(10)

DIGEST

Construction: Recording Notice of Commencement of Work

Adds Civil Code sections 3091.5 and 3117.5 to require recording of Notices of Commencement of Work for the purpose of establishing lien priorities and liability for construction defects. RESOLUTIONS COMMITTEE RECOMMENDATION

DISAPPROVE History:

Similar to Resolutions 02-03-2009 and 04-02-2010, which were disapproved. Reasons:

This resolution adds Civil Code sections 3091.5 and 3117.5 to require recording of Notices of Commencement of Work for the purpose of establishing lien priorities and liability for

construction defects. This resolution should be disapproved because it adds a requirement of an additional document as to each construction project, but provides no method for enforcement of the requirement and no articulation of its actual effect.

Under current law, materialmen provide 20 day notices and must retain proof of same to back up the validity of any Mechanic’s Lien they record. (Civ. Code, § 8200, et seq., effective July 1, 2012.) Also, an owner can record a Notice of Completion or Notice of Cessation. (Civ. Code, § 8180, et seq., effective July 1, 2012.) The purpose of these procedures is to give notice of potential claims, or to induce action to enforce such claims. Because they are subject to misuse, it remains the burden of the claimant to prove them up in the event of a dispute.

The notice procedure proposed by the proponent would do nothing more than articulate a position on the part of the owner and the signing contractor as to when work commenced as to that contractor. It would not create any sort of presumption, whether as to the commencement of work for mechanic’s lien purposes, or the responsibility for construction defects, that would have any actual legal effect, such matters remaining items of proof in the event of a dispute.

Although making the recording mandatory would promote uniformity, requiring such recordings as to every construction project in the state and/or every construction contract would create a financial burden on the construction process, without a concomitant benefit.

RESOLVED, that the Conference of California Bar Associations recommends that legislation be sponsored to add Civil Code sections 3091.5 and 3117.5 to read as follows:

§ 3091.5 1

“Notice of commencement” means a written notice, signed and verified by the owner or 2

his or her agent and his or her contractor, containing all of the following: 3

(a) The date of commencement. 4

(11)

(b) The name and address of the owner. 5

(c) The nature of the interest or estate of the owner. 6

(d) A description of the site sufficient for identification, containing the street address of 7

the site, if any. If a sufficient legal description of the site is given, the validity of the notice shall 8

not, however, be affected by the fact that the street address recited is erroneous or that such street 9

address is omitted. 10

(e) The name of the original contractor, if any, or if the notice is given only of 11

commencement of a contract for a particular portion of such work of improvement, as provided 12

in Section 3117.5, then the name of the original contractor under such contract, and a general 13

statement of the kind of work to be done or materials to be furnished pursuant to such contract. 14

(f) The expiration date of the notice of commencement. If the contract between the owner 15

and the original contractor named in the notice of commencement provides for a period of time 16

for completion of the construction of the work of improvement greater than 1 year, the notice of 17

commencement must state that it is effective for a period of 1 year plus any additional period of 18

time. 19

An owner or his or her agent and his or her contractor shall record a notice of 20

commencement in the office of the county recorder of the county in which the site is located, 21

within 10 days after commencement of any work of improvement, or recommencement of 22

completion of any work of improvement after default or abandonment. A notice of 23

commencement in otherwise proper form, verified and containing the information required by 24

this section together with notarized acknowledgment shall be accepted by the recorder for 25

recording. 26

If there is more than one owner, any notice of commencement signed by less than all of 27

such co-owners shall recite the names and addresses of all of such co-owners; and provided 28

further, that any notice of commencement signed by a successor in interest shall recite the names 29

and addresses of his or her transferor or transferors. 30

For the purpose of this section, owner is defined as set forth in subdivision (g) of Section 31 3092. 32 33 § 3117.5 34

Where the work of improvement is not to be made pursuant to one original contract for 35

the work of improvement but is to be made in whole or in part pursuant to two or more original 36

contracts, each covering a particular portion of the work of improvement, the owner and the 37

contractor shall, within 10 days after commencement of any such contract for a particular portion 38

of the work of improvement, record a notice of commencement. 39

(Proposed new language underlined; language to be deleted stricken.) PROPONENT: Los Angeles County Bar Association

Existing Law: There is no existing law that addresses notices of commencement.

This Resolution: The addition of proposed sections 3091.5 and 3117.5 of the Civil Code is intended to benefit contractors and lender-owners of real property. Should a lender foreclose on a

(12)

construction project before the work is completed, a recorded notice of commencement would evidence the contractor’s priority. If the new owner/lender or its contractors had the right to record a notice of commencement, this would give the court a starting point to focus on from the date of recording to determine if new owner/lender or its contractors were liable for the

construction defect. The recordation of the notice of commencement is mandatory. There will be no confusion of the recording of multiple notices of commencement and notices of completion as each notice of commencement requires a description of the work of improvement, or portion thereof, to be performed or materials to be furnished. The cost to record the notice is nominal. The Problem: There are two problems. First, a mechanic’s lien has priority on the date of commencement of work. However, there is no formal document that puts the world on record notice of such date. Second, a lender who forecloses on a construction loan before the project is completed takes the risk of subsequently being sued for construction defect if the lender takes over construction. A claimant may bring a construction defect lawsuit within ten years after substantial completion of the project. Accordingly, it is very difficult, expensive and time consuming to try to determine whether the prior owner/borrower or its contractors or the new owner/lender or its contractors is the cause of the construction defect. Permits are not a sufficient alternative because they don’t indicate a starting date of the work. They merely allow for certain work to be performed. Lenders could foreclose and let time pass before they get a permit and then let even more time pass before work re-commences. The date of foreclosure and the date a permit is obtained are not sufficient indicators of when a lender commences work. In addition, it is not likely that a new owner would be able to obtain an indemnity from a prior owner as to any potential construction defect claims.

The proposed resolution does not affect any other law, statute or rule.

AUTHOR AND/OR PERMANENT CONTACT: Eric A. Altoon, Gordon Kemper LLP, 300 South Grand Avenue, 24th Floor, Los Angeles, CA 90071, 213/452-8279, fax 213/452-8296, [email protected]

RESPONSIBLE FLOOR DELEGATE: Eric Altoon or Elizabeth Hanks

COUNTER-ARGUMENT(S) TO RESLOLUTION 02-04-2012

BAR ASSOCIATION OF NORTHERN SAN DIEGO COUNTY

Why should the owner solely determine when commencement of a work of improvement has occurred? The owner, contractor, lender and title insurance company may have different

opinions whether the work commenced upon demolition, site clearing or other acts. Currently, if there is a dispute, the court decides after all parties have presented facts and law supporting their position.

(13)

SAN DIEGO COUNTY BAR ASSOCIATION

This Resolution places an unfair burden on the owner/contractor to follow a confusing series of steps, to establish a start date for mechanics lien claimants and does not assure that it will solve the problem presented in the supporting arguments. Proponent claims two problems exist under current law, neither of which has substantive merit as will be explained.

The first proffered problem relates to mechanic lien priority and the assertion “there is no formal document that puts the world on record notice of such date.” However, a recording is not

necessary because current law requires the contractor, subcontractor or material supplier to serve the owner, reputed owner, lender and reputed lender with the mandatory 20-Day Preliminary Notice. That provides those parties with an interest in the real property with “notice” of the commencement of work and the potential for a mechanic’s lien if payment is not made for the work of improvement.

The second proffered problem relates to lender foreclosure, specifically the potential liability to a lender who takes over completion of the project for construction defects and an asserted

difficulty in determining liability as between the prior owner and its contractors versus the lender and its contractors. First, a lender is already able to avoid liability by remaining in the role of lender and not stepping into the role of developer in relation to construction and completion of the project. (See Civ. Code, §3434.) However, if the lender steps into the role of developer to complete the project, then accepts the potential liabilities along with the potential profits to be gained from completion and sale of a completed project. The proffered “Notice of

Commencement” does not provide any information that a construction lender will not already have via fund control mechanisms to identify contractors, subcontractors and others who might be liable in the event of a later construction defect suit.

The Resolution should also be disapproved on technical grounds. First, it requires filing of the notice upon commencement or “recommencement” without defining when a “recommencement” occurs. Also, by the time this Resolution comes up for debate at the Conference, Civil Code sections 3082 et seq. related to mechanic’s liens and stop notices will have been repealed (eff. July 1, 2012) and replaced by Civil Code sections 8000 et seq. (Stats. 2010, c. 697 (SB 189), §16).