Date of Hearing: August 31, 2020

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 3088 (

Author:Chiu) – As Amended Ver:August 28, 2020

SUBJECT: Tenancy: rental payment default: mortgage forbearance: state of emergency: COVID-19.

SUMMARY: Establishes a moratorium on evictions for non-payment of rent due to COVID-19 financial hardship, subject to numerous conditions, until January 31, 2021. Specifically, this bill:

1. Requires tenants to follow specified procedures to demonstrate COVID-19 related financial hardship, including providing documentation if they are a “high-income tenant,” as defined.
2. Prohibits tenants who so demonstrate from being evicted for failure to pay rent or other charges (“COVID-19 rental debt”), first, accrued between March 1, 2020 and August 31, 2020 and, second, accrued between September 1, 2020 and January 31, 2021, if they pay 25% of the amount owed for the latter period by January 31, 2021. Tenants who fail to pay this 25% can be evicted beginning on February 1, 2021.
3. Permits landlords to sue tenants for unpaid COVID-19 rental debt beginning March 1, 2021. Removes certain limits on small claims jurisdiction to facilitate collection of this debt.
4. Increases, until February 1, 2021, the time that tenants have to respond to a demand to pay rent or other charges from three business days to 15 business days.
5. Requires landlords to provide all tenants with a notice informing them of their rights under this bill within a specified time.
6. Prohibits landlords from retaliating against tenants prior to February 1, 2021 for incurring COVID-19 rental debt. Increases financial liability of landlords who illegally evict tenants.
7. Expands the Homeowners Bill of Rights until January 1, 2023 to cover small landlords, as defined.
8. Requires a mortgage servicer that denies a borrower’s request for forbearance on mortgage payments for a property consisting of no more than four residential units to provide the borrower with a written explanation of the denial.
9. Requires a mortgage servicer to review a borrower of a non-federally backed loan for at least one post-forbearance option consistent with specified federal agencies’ guidance.
10. Restricts public access to court files for eviction cases based on non-payment of rent filed between March 1, 2020 and January 31, 2021.
11. Clarifies the interaction between this bill and any related local ordinances.
12. Requires the executive branch to engage with stakeholders about how to spend any future federal stimulus funding on housing stabilization.
13. Sunsets the foregoing no later than February 1, 2025.
14. Makes the following clarifying and technical changes to the Tenant Protection Act of 2019 (AB 1482, Chiu, Chapter 597, Statutes of 2019):
    1. Revises the exemption applicable to duplexes to specify that it applies to a property containing two separate dwelling units within a single structure, neither of which is an accessory dwelling unit or a junior accessory dwelling unit;
    2. Specifies that the exemption for units built within the previous 15 years includes those that have received final inspection, final permit, or similar approval for initial residential occupancy of the unit during that time period;
    3. Aligns the definition of dormitories for the rent cap portion of the Act with the definition in the just cause portion of the Act;
    4. Corrects, in the rent cap portion of the Act, a reference in the notice required to be sent to all tenants in residential real property that is alienable separate from the title to any other dwelling unit whose owner is not a real estate investment trust, a corporation, or a limited liability company in which at least one member is a corporation;
    5. Revises the definition of the percentage change of the cost of living to mean the percentage change in the Consumer Price Index for All Urban Consumers for All Items, as follows:
       1. The applicable percentage change in the cost of living shall be the Consumer Price Index for All Urban Consumers for All Items for the metropolitan area where the residential real property is located, as published by the United States Bureau of Labor Statistics. If a metropolitan area index is not available, the California Consumer Price Index for All Urban Consumers for All Items, as published by the Department of Industrial Relations, shall apply; and
       2. The percentage change in the cost of living shall be the percentage change in the amount published for the previous April and the April before that. If there is no amount published in April for the applicable location, the percentage change in the cost of living shall be percentage change in the amount published for the previous March and the March before that.
    6. Clarifies that the owner of assisted housing development may establish the initial unassisted rental rate for units in the applicable housing development having demonstrated compliance with all applicable state or local law or regulation intended to promote the preservation of assisted housing.

EXISTING LAW:

1. Specifies that a tenant is guilty of an unlawful detainer and subject to a court-ordered eviction if, within three court days of a demand to vacate the premises or pay rent that lawfully accrued within the last 12 months, the tenant does neither. (Code of Civil Procedure Section(CCP) 1161(2).)
2. Provides that a tenant is guilty of an unlawful detainer and subject to court-ordered eviction if, within three court days of a demand to vacate the premises or comply with a material obligation under the lease other than the payment of rent, the tenant does neither. (CCP Section 1161(3).)
3. Allows five court days for a defendant to respond to a summons for an unlawful detainer complaint. (CCP Section 1167.)
4. Prohibits, until January 1, 2030, the owner of residential real property from terminating a tenancy without just cause for tenants that have continuously and lawfully occupied the unit, as specified (Civil Code Section 1946.2).
5. Specifies that an “at-fault just cause” reason for terminating a residential rental tenancy includes any of the following:
   1. Default in the payment of rent;
   2. A breach of a material term of the lease;
   3. Maintaining, committing, or permitting the maintenance or commission of a nuisance as described in CCP 1161(4);
   4. Committing waste as described in CCP 1161(4);
   5. The tenant had a written lease that terminated on or after January 1, 2020, and after a written request or demand from the owner, the tenant has refused as extension;
   6. Specified criminal activity by the tenant on the residential real property;
   7. Assigning or subletting the premises in violation of the tenant’s lease pursuant to CCP 1161(4);
   8. The tenant’s refusal to allow the owner to enter the residential real property;
   9. Using the premises for an unlawful purpose as specified in CCP 1161(4);
   10. The employee, agent, or licensee’s failure to vacate after their termination as an employee, agent, or a licensee as described in CCP 1161(1); and
   11. When the tenant fails to deliver possession of the residential real property after providing the owner written notice as provided in Civil Code Section 1946 of the tenant’s intention to terminate the hiring of the real property, or makes a written offer to surrender that is accepted in writing by the landlord, but fails to deliver possession at the time specified in that written notice as described in paragraph (5) of Section 1161 of the Code of Civil Procedure. (Civil Code Section 1946.2(b)(1) et seq.)
6. Specifies that a “no-fault just cause” reason for terminating a residential tenancy includes any of the following:
   1. Intent to occupy the residential real property by the owner or certain family members. For leases entered into on or after July 1, 2020, this only applies if the tenant agrees to the termination, or if a provision of the lease allows the owner to terminate on such a basis;
   2. Withdrawal of the residential real property from the rental market;
   3. The owner is complying with any of the following: a government or court order regarding habitability that necessitates vacating the residential real property; a government or court order to vacate the residential real property; a local ordinance that necessitates vacating the residential real property; and
   4. Intent to demolish or to substantially remodel, as defined, the residential real property. (Civil Code Section 1946.2(b)(2) et seq.)
7. Prohibits, until January 1, 2030, an owner of a residential real property from increasing the rental rate on a property that has been in effect for the preceding 12 months in an amount that is greater than the Consumer Price Index (CPI) plus 5%, not to exceed 10% (Civil Code Section 1947.12).
8. Provides definitions, exemptions, rules, and procedures for implementing Civil Code Sections 1946.2 and 1947.12 of the Tenant Protection Act of 2019, including:
   1. Exempting duplexes from the provision of these sections if one o­f the units was the owner’s principal place of residence at the beginning of the tenancy, so long as the owner continues in occupancy.
   2. Exempting a housing unit that has received a certificate of occupancy within the previous 15 years.
   3. Defines, in Section 1947.12, dormitories as qualifying for exemption from the rent cap as those that have been constructed and maintained in connection with any higher education institution within the state for use and occupancy by students in attendance at the institution.
   4. Requires, for an exemption to apply, a notice to be sent to all tenants in residential real property that is alienable separate from the title to any other dwelling unit whose owner meets specified criteria.
   5. Defines the percentage change in the cost of living to mean the percentage change from April 1 of the prior year to April 1 of the current year in the regional Consumer Price Index for the region where the residential real property is located, as published by the United States Bureau of Labor Statistics. If a regional index is not available, the California Consumer Price Index for All Urban Consumers for all items, as determined by the Department of Industrial Relations, shall apply.
   6. Specifies that the owner of assisted housing development may establish the initial unassisted rental rate for units in the applicable housing development having demonstrated compliance with all applicable law or regulation intended to promote the preservation of assisted housing.
9. Authorizes a mobilehome park to terminate the tenancy of a mobilehome owner in the mobilehome park for non-payment of rent, utility charges, or reasonable incidental service charges only when:
   1. the amount has been due for five days;
   2. the park thereafter serves the mobilehome owner with a demand to pay the amount due or vacate the premises within three days, unless the mobilehome park owner has already been served with three or more three-day notices of this type in the last 12 months;
   3. the mobilehome owner neither vacates nor pays within the three days given; and
   4. the park also gives the mobilehome owner a 60-day notice terminating the tenancy. (Civil Code Section 798.56(e).)
10. Provides, pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, that, as to properties subject to a federally-backed mortgage, the landlord may not seek to evict a tenant for non-payment of rent or other fees or charges for 120 days after March 27, 2020 and, thereafter, can only require the tenant to vacate upon 30 days’ notice. (15 U.S.C. Section 9058.)
11. Provides, pursuant to the CARES Act, that as to multi-family properties subject to a federally-backed mortgage, the landlord may not seek to evict a tenant for non-payment of rent or other fees or charges while the landlord is in forbearance and for 30 days afterward. (15 U.S.C. Section 9057(d).)
12. Provides, pursuant to the CARES Act, that, as to federally backed mortgages securing one-to-four unit properties, a lender must provide up to 360 days forbearance to a borrower who requests such forbearance during the period beginning March 13, 2020 and ending at an undefined time (but likely December 31, 2020), subject only to an affirmation from the borrower that the borrower has a financial hardship due to the COVID-19 pandemic. (15 U.S.C. Section 9056.)
13. Requires that a lender who foreclosed on 175 or more homes in the last year must undertake a series of steps to explore loan modification and loss mitigation with a residential owner-occupant borrower who is delinquent on their home loan, prior to foreclosing on the home. (Civil Code Sections 2923.6, 2923.7, 2923.55, 2924.9, 2924.10, 2924.11, and 2924.17)

FISCAL EFFECT: Unknown

COMMENTS:

Author’s Statement: According to the author, “AB 3088 provides renters a chance to get back on their feet without the fear of losing their home, while also giving landlords a path to be made whole without having to resort to immediate evictions.”

Background: Governor Newsom declared a State of Emergency related to COVID-19 on March 4, 2020. As of August 31, 2020, California has seen over 12,900 deaths related to COVID-19 and the measures necessary to slow the spread of the virus have resulted in widespread job and income losses. In recognition of the need to limit physical interaction to curb COVID-19 transmission, on April 6, 2020, the California Judicial Council adopted Emergency Rule 1 to effectively halt evictions. This policy has stopped evictions for over four months with narrow exceptions for those evictions that are necessary to protect public health and safety. However, the Judicial Council recently voted to rescind Emergency Rule 1 on September 1, 2020 and, without legislative action, millions of tenants could face evictions in the weeks and months ahead.

Though many cities and counties have enacted ordinances to stop evictions or give renters extra time to repay rent due to COVID-19 income losses, a number of these only give temporary protections from eviction. Additionally, not all jurisdictions have adopted COVID-19 eviction ordinances and, with the upcoming repeal of the Judicial Council’s Emergency Rule 1, there will be no statewide policy in place to protect renters who have seen lost income or increased expenses due to the pandemic.

Sociologist Matthew Desmond recently warned that, given the nature of the COVID-19 crisis, “eviction will help spread the virus, as displaced families crowd into shelters, double up with relatives and friends, or risk their health in unsafe jobs to make rent or pay for moving expense.” (Desmond, Matthew. 29, August 2020. “The Rent Eats First, Even During a Pandemic” The New York Times. URL: https://www.nytimes.com/2020/08/29/opinion/sunday/coronavirus-evictions-superspreader.html). Desmond further argues that eviction does not lead to better financial outcomes for landlords overall either, noting: “[E]viction solves nothing. Landlords don’t need to resort to the threat of eviction to get paid. If they did, we would expect to see higher rent collection rates in states where eviction moratoriums have expired and lower rates where landlords are still barred from evicting families. But that’s not what industry data show. There is no discernible difference in rent collection rates between states with eviction moratoriums still in place and those whose moratoriums have expired. Eviction is not a solution to landlords’ fundamental problem of maintaining rental income. Rent relief is.”

Given that rent relief efforts have largely stalled out in Congress, California is faced with the question of how to address a potential wave of evictions that could lead to widespread displacement of COVID-impacted tenants over the next several months. Without action to prevent evictions, tenants who are unable to repay all the unpaid rent could immediately face eviction. Of several proposals considered by the Legislature to address the question of evictions during the COVID-19 emergency, AB 3088 is the only one remaining.

Bill Summary: AB 3088 provides a method for tenants enduring financial hardship due to the COVID-19 pandemic to remain in their homes through the end of January 2021. It does not relieve tenants of any financial obligations under their rental agreements. Instead, it delays the recovery of rent by landlords until March of 2021. The bill operates in different phases.

Beginning on September 2, 2020, after the Judicial Council’s Emergency Rule 1 expires, landlords will be able to proceed with eviction cases for most lawful causes—meaning a basis for eviction that is permissible under federal, state law, or local law—other than non-payment of rent or other charges under the rental agreement.

Beginning on October 5, 2020, landlords will be able to proceed with eviction cases if the grounds for the eviction is nonpayment of rent or other charges. But to do so, the landlord must serve a notice giving the tenant a 15 business-day window in which to make one of the following choices: pay the demanded amount, vacate the premises, or return a declaration to the landlord, signed under penalty of perjury, indicating that the tenant cannot pay the demanded amount because of a COVID-19 related financial hardship. What constitutes a COVID-19 related financial hardship is both stated in the bill and included in the text of the 15-day “pay or quit” notice. If the tenant returns the signed declaration of COVID-19 related financial hardship to the landlord within 15 business days, then the tenant receives protection against eviction.

How long that protection lasts depends on when the unpaid rent and other charges (“COVID-19 rental debt”) accrued. The tenant can then never be evicted for COVID-19 rental debt accrued between March 1, 2020 and August 31, 2020. The tenant also can never be evicted for COVID-19 rental debt accrued between September 1, 2020 and January 31, 2021—if the tenant pays 25% of the rent and other charges due during this period before this period ends.

Beginning on February 1, 2021, landlords will be able to proceed with eviction cases under pre-COVID laws against those tenants who had a COVID-19 related financial hardship but failed to pay 25% of their rent between September 1, 2020 and January 31, 2021, as well as any tenant who fails to timely pay their rent going forwards. As such, this bill provides temporary protections against eviction for the next five months, but will not help tenants who are still unable to resume making regular rent payments on February 1, 2021. Additionally, for any COVID-19 rental debt, renters receive only a one-month grace period before their landlord can take them to small claims court to sue for the debt on March 1, 2021.

Expanded small claims court jurisdiction. Bringing a collection action in Superior Court usually requires hiring an attorney. To facilitate lawsuits against tenants for unpaid rent, this bill temporarily opens small claims courts for such cases, even if the landlord is seeking an amount beyond the usual small claims court limits or has brought multiple cases for more than $2500.

Documentation requirement for high-income tenants. This bill defines a “high-income tenant” as a household making more than $100,000 annually or more than 130 percent of the median income for the county, whichever is higher. If a landlord already has proof that the tenant is a high-income tenant, and the tenant proceeds to claim a COVID-19 related financial hardship, then the landlord can demand that the tenant provide specified documentation of hardship.

Increased penalties for illegal lockouts and intimidation of tenants. Under California law, landlords must obtain a court order to evict a tenant; the county sheriff’s department is then charged with executing that order. Landlords themselves are prohibited from resorting to “self-help” to evict a tenant (Civil Code Section 789.3). Yet, even in ordinary times, unscrupulous landlords perform illegal evictions by shutting off utilities, changing locks, throwing tenants’ belongings out into the street, or using threats and violence. There have been reports that landlords, frustrated by their inability to evict under COVID-19 restrictions, are increasingly resorting to such illegal evictions. For example, Nevada Legal Services handled only 12 lockout cases in 2019; between February and June 2020, they handled more than 800. As a deterrent, the bill includes a temporary tenfold increase in a landlord’s potential liability for carrying out illegal evictions.

Protections against pretextual evictions. Landlords could skirt this bill’s protections by seeking to evict tenants who have fallen behind on rent because of COVID-19 based on some other pretext. A landlord who wishes to evict a tenant with a COVID-19 related financial hardship might choose to enforce previously-ignored terms in the lease or claim that noisy children unable to attend school are a “nuisance.” To try to prevent this sort of pretextual eviction, the bill temporarily expands the anti-retaliation statute (Civil Code Section 1942.5) to include claiming COVID-19 rental debt. Note that this provision is a bit redundant, as the statute already prohibits adverse action against a tenant for “lawfully and peacefully exercising any rights under the law.”

Record masking. AB 3088 contains a provision directing the courts to permanently seal any unlawful detainer case based on nonpayment of rent filed between March 1, 2020 and January 31, 2021. Sealing prevents credit reporting of these eviction lawsuits and should make it easier for tenants who fell behind on rent during this period to obtain new housing. Staff notes that the dates for this record masking are unlikely to protect all COVID-impacted tenants since most unlawful detainer cases for non-payment of rent will be unable to proceed until February 1, 2021.

Interaction with local ordinances. The bill includes provisions directed at the many local ordinances that also address nonpayment of rent and regulate evictions in light of COVID-19. The bill would essentially prevent any renewal, modification, or adoption, between August 19, 2020 and January 31, 2021, of local ordinances meant to prevent evictions in response to COVID-19. Existing ordinances will apply until they expire. If a local ordinance gives tenants a period in which to pay off an unpaid rental balance, that period must begin at least by March 1, 2021 and has to end no later than March 31, 2022.

Mortgage forbearance. If an owner of property containing up to four residential units requests forbearance on their monthly mortgage from their loan servicer, and the servicer denies the request, this bill would require the servicer to provide the borrower with a notice stating a specific reason for the denial. The bill is largely silent as to what that reason can be, but does provide that if the denial is due to an incomplete application or missing information from the borrower, then the servicer is required to give the borrower 21 days to correct the omission. Even if the application is fully and correctly completed, however, the bill does not appear to require a servicer to grant forbearance.

Post-forbearance. If a mortgage servicer does elect to provide a borrower with forbearance, the bill requires the servicer to review a customer for a post-forbearance “solution” that is consistent with guidance provided by the federal agencies that oversee federally-backed loans. Since these agencies’ guidance regarding post-forbearance options varies, the intent of this provision appears to be that the servicer evaluate the borrower for the possible “solutions” that any of the various agencies permit.

Extension of the Homeowners Bill of Rights (HBOR) to small landlords. HBOR provides procedural protections and rights to homeowners prior to a foreclosure sale, including requiring mortgage servicers to contact borrowers to explore foreclosure prevention alternatives, and halting the foreclosure process to consider any loan modification application that a borrower submits. Under this bill, HBOR protections would be expanded to a fully tenant-occupied property with one to four units, if the following conditions are met:

1. The landlord owns no more than three such residential real properties, each of which contains no more than four dwelling units.

2. The property for which the landlord is seeking protection is occupied by at least one tenant who has been unable to pay rent due to COVID-19 reduction in income.

3. The property for which the landlord is seeking protection is occupied by at least one tenant who entered into a market-rate lease that was in effect on March 4, 2020. The property must continue to be the principal residence of such a tenant throughout the time the landlord is seeking HBOR protections.

These conditions are meant to ensure that the temporary HBOR expansion applies only to small landlords who are facing a loss of income due to COVID-19 and who continue to house at least one bona fide tenant.

This bill also includes a provision that clarifies already-enacted provisions of AB 1482 (Chiu, 2019) to: (1) lay out how inflation should be calculated when determining permissible rent increases; (2) clarify application of the law to properties containing two housing units; (3) align definitions; (4) correct erroneous cross-references; and (5) clarify the scope of laws with which a housing provider must demonstrate compliance before establishing new rental rates after the expiration of affordability covenants.

Staff Comments: While this bill provides protections against evictions based on non-payment of rent, evictions based on other causes of action may resume as early as September 2, 2020. Unless a local ordinance prevents other “at fault” or “no fault” evictions from going forward beyond September 2, some renters with COVID-19 impacts are likely to experience evictions due to lease expirations, owner move-ins, or other causes.

Additionally, the Legislature, the administration, and other stakeholders may wish to consider public education and outreach efforts to ensure that tenants and landlords are aware of their rights and responsibilities under this bill. For example, tenants may be surprised to learn that they could be asked to respond to a new 15-day “pay or quit” notice for every missed rent payment between September 1, 2020 and January 31, 2021. If a tenant fails to respond to such a notice, they could face eviction even if their economic circumstances still prevent them from making full rent payments on time. Likewise, the requirements on tenants to pay 25% of their rent from September 1, 2020 through January 31, 2021 may lead to confusion and informational resources should be developed to help renters and property owners navigate the new legal framework created by this bill.

Finally, staff notes that AB 3088 includes provisions from a number of different jurisdictions including this committee as well as Judiciary Committee and the Committee on Banking and Finance. Staff from those committees provided input and content for this analysis as well.

Related Legislation:

SB 915 (Leyva, 2020) temporarily prohibits mobilehome parks from evicting residents who timely notify park management that they have been impacted, as defined, by COVID 19. The bill further mandates that mobilehome parks give COVID 19-impacted residents at least a year to comply with demands to repay outstanding rent, utilities or other charges, and up to a year to cure violations of park rules and regulations. SB 915 is currently pending consideration on the Assembly Floor.

SB 1410 (Caballero, 2020) establishes a program under which landlords and tenants impacted economically by COVID-19 could enter into a specified agreement in lieu of rent payments. On the basis of this agreement, the landlord could apply to the Franchise Tax Board for tax credits equal in value to the rent not paid by the tenant. The tenant would be obligated to pay the amount of the unpaid rent to the Franchise Tax Board in yearly installments over ten years beginning in 2024, with specified discounts and forgiveness for low-income individuals. SB 1410 was held in the Assembly Appropriations Committee.

AB 828 (Ting, 2020) establishes a moratorium on foreclosures for the duration of the COVID-19 state of emergency plus 90 days and prohibits evictions during a similar period except in cases addressing issues of damage to the property, nuisance, or health and safety. The bill also gives tenants who can document COVID-19 related financial hardship a one-year deferral on rent accrued during the state of emergency. AB 828 is currently pending consideration before the Senate Judiciary Committee.

AB 1436 (Chiu, 2020) enables small landlords, homeowners, and tenants in financial distress because of the COVID-19 pandemic, to temporarily defer their mortgage or rental payments until, it is hoped, the worst of the public health emergency passes and its financial consequences begin to ease. The bill also establishes timelines and a framework for full repayment of any amounts deferred. AB 1436 is currently in the Senate Rules Committee.

Prior Legislation:

SB 939 (Wiener, 2020) would have established, for specified commercial tenants, a temporary moratorium on evictions for the duration of the COVID-19 related state of emergency, and a yearlong period afterward in which to make up rental payments missed during that state of emergency. In addition, for specified businesses that have been especially impacted by the public health protocols resulting from the COVID-19 pandemic, including restaurants and bars, the bill would have created procedures for renegotiating or terminating existing leases that were based on pre-COVID-19 expectations. SB 939 was held in the Senate Appropriations Committee.

AB 1482 (Chiu, Chapter 597, Statutes 2019) limited rent-gouging in California by placing an upper limit on annual rent increases: five percent plus inflation up to a hard cap of 10 percent. To prevent landlords from engaging in rent-gouging by evicting tenants, this bill also requires that a landlord have and state a just cause, as specified, in order to evict tenants who have occupied the premises for a year. AB 1482 sunsets after ten years and does not preempt any local rent control ordinances.

AB 56 (Moore, Ch. 53, Stats. 1992) provided relief to tenants who were unable to respond to unlawful detainer actions because of court closures due to the Rodney King riots in Los Angeles.

Arguments in Support:

In support of AB 3088, California YIMBY applauds the bill’s balanced nature, noting, “[AB 3088] will protect many tenants affected by the COVID-19 pandemic from eviction for some nonpayment of rent until February 1st, 2021. It also contains important provisions for preventing foreclosure on homeowners and landlords unable to pay mortgages due to COVID-19.”

Arguments in Opposition:

Writing in a joint opposition letter, several regional apartment associations including the East Bay Rental Housing Association and the Apartment Association of Orange County write, “AB 3088 would permit residential tenants that declare they are unable to pay rent due to a COVID-19 related financial distress to remain in possession for defined periods of time and ultimately pay the rental property owner past due rent on or before March 31, 2022. This is an extraordinary period of time which may cause owners to undergo extreme financial hardship. Our owners are NOT being given any financial assistance in AB 3088 or any other measure before the legislature.”

REGISTERED SUPPORT / OPPOSITION:

Support

California Alliance for Retired Americans
California Coalition for Rural Housing
California Credit Union League
California State Council of Service Employees International Union
California YIMBY
Non-profit Housing Association of Northern California
Southern California Association of Nonprofit Housing

Support If Amended

South California Rental Housing Association

Opposition

Affordable Housing Management Association -Pacific Southwest
Affordable Housing Management Association-Northern CA Hawaii
Apartment Association of Orange County
Apartment Association, California Southern Cities
East Bay Rental Housing Association

Oppose Unless Amended

Apartment Association of Greater Los Angeles

Analysis Prepared by: Steve Wertheim / H. & C.D. / (916) 319-2085

 THIRD READING  

Bill No: AB 3088

Author: Chiu (D), Bradford (D), Caballero (D) and Limón (D), et al.

Amended: 8/28/20 in Senate

Vote: 27 - Urgency

PRIOR VOTES NOT RELELVANT

SENATE JUDICIARY COMMITTEE: 7-0, 8/29/20 (Pursuant to Senate Rule 29.10)

AYES: Jackson, Borgeas, Durazo, Lena Gonzalez, Monning, Umberg, Wieckowski

NO VOTE RECORDED: Melendez, Stern

SUBJECT: Tenancy: rental payment default: mortgage forbearance: state of emergency: COVID-19

SOURCE: Author

DIGEST:

This bill proposes a set of temporary measures designed to prevent widespread loss of housing through evictions and foreclosures resulting from the economic impacts of the COVID-19 pandemic. Specifically, this bill: (1) establishes a legal framework limiting, until January 31, 2021, evictions in circumstances in which a residential tenant has fallen behind on rent or other payment obligations under their lease due to financial hardship caused by the pandemic; and (2) establishes procedural protections for small landlords who become delinquent on their mortgage payments and a right to a written explanation for borrowers with mortgages on properties with one-to-four residential units when they are denied forbearance. Separately, this bill makes technical and clarifying modifications to the statewide just cause for eviction and anti-rent gouging laws enacted last year pursuant to AB 1482 (Chiu, Chapter 597, Statutes of 2019).

ANALYSIS:

Existing law:

1. Provides, pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, that, as to federally backed mortgages securing one-to-four unit properties, a lender must provide up to 360 days forbearance to a borrower who requests such forbearance during the period beginning March 13, 2020, and ending at an undefined time (but likely December 31, 2020), subject only to an affirmation from the borrower that the borrower has a financial hardship due to the COVID-19 pandemic. (15 U.S.C. § 9056.)
2. Provides, pursuant to the CARES Act, that, as to federally backed mortgages securing multifamily (five or more units) properties, a lender must provide up to 90 days forbearance to a borrower who requests such forbearance during the period beginning March 13, 2020, and ending when the nationwide COVID-19 state of emergency ends or December 31, 2020, whichever is earlier, subject only to an affirmation from the borrower that the borrower has a financial hardship due to the COVID-19 pandemic and a requirement that the lender document the hardship. (15 U.S.C. § 9057.)
3. Requires, pursuant to the Homeowner Bill of Rights, that a lender who foreclosed on 175 or more homes in the last year must undertake a series of steps to explore loan modification and loss mitigation with a residential owner-occupant borrower who is delinquent on their home loan, prior to foreclosing on the home. (Civ. Code §§ 2923.6, 2923.7, 2923.55, 2924.9, 2924.10, 2924.11, and 2924.17.)
4. Specifies that a tenant is guilty of an unlawful detainer and subject to court-ordered eviction if, within three days of a demand to vacate the premises or pay rent that lawfully accrued within the last 12 months, the tenant does neither. (Code of Civ. Proc. § 1161(2).)
5. Specifies that a tenant is guilty of an unlawful detainer and subject to court-ordered eviction if, within three days of a demand to vacate the premises or comply with a material obligation under the lease other than the payment of rent, the tenant does neither. (Code of Civ. Proc. § 1161(3).)
6. Authorizes a mobilehome park to terminate the tenancy of a mobilehome owner in the mobilehome park for non-payment of rent, utility charges, or reasonable incidental service charges only when:
   1. The amount has been due for five days;
   2. The park thereafter serves the mobilehome owner with a demand to pay the amount due or vacate the premises within three days, unless the mobilehome park owner has already been served with three or more three-day notices of this type in the last 12 months;
   3. The mobilehome owner neither vacates nor pays within the three days given; and
   4. The park also gives the mobilehome owner a 60-day notice terminating the tenancy. (Civ. Code § 798.56(e).)
7. Provides, pursuant to the CARES Act, that, as to properties subject to a federally-backed mortgage, the landlord may not seek to evict a tenant for non-payment of rent or other fees or charges for 120 days after March 27, 2020, and, thereafter, can only require the tenant to vacate upon 30 days’ notice. (15 U.S.C. § 9058.)
8. Provides, pursuant to the CARES Act, that as to multi-family properties subject to a federally-backed mortgage, the landlord may not seek to evict a tenant for non-payment of rent or other fees or charges while the landlord is in forbearance and for 30 days afterward. (15 U.S.C. § 9057(d).)

This bill:

1. Makes a series of findings and declarations regarding the economic consequences of the COVID-19 pandemic and the resulting threat of widespread residential evictions and foreclosures.
2. Increases by tenfold the potential liability of a landlord who attempts or succeeds in evicting a tenant against the tenant’s will and outside the court process before February 1, 2021.
3. Prohibits a landlord from retaliating against a tenant prior to February 1, 2021, for having fallen behind on rent or other payment obligations under the lease due to financial impact from COVID-19.
4. Extends the procedural anti-foreclosure protections of the Homeowners Bill of Rights to small landlords, as specified, until 2023.
5. Requires a mortgage servicer to provide the borrower with a written explanation if the servicer denies a borrower’s request for forbearance on mortgage payments for a property consisting of no more than four residential units. Establishes an aggrieved borrower’s ability to enforce these rights in court if necessary.
6. Requires a mortgage servicer to provide a borrower to whom forbearance is given with post-forbearance options that are consistent with the CARES Act and the guidance of a number of different specified federal agencies. Establishes an aggrieved borrower’s ability to enforce these rights in court if necessary.
7. Expands small claims court jurisdiction to allow landlords to sue in that forum, regardless of the total amount claimed, for any rent or other payment obligations under the lease for the period March 1, 2020, to January 31, 2021.
8. Restricts public access to court files for eviction cases based on non-payment of rent filed between March 1, 2020, and January 31, 2021.
9. Prohibits a court from issuing a summons on a complaint for eviction based on nonpayment of rent or other payment obligations under the lease until October 5, 2020. Requires landlords to file a case cover sheet indicating whether this prohibition applies.
10. Establishes a legal framework to address circumstances where a tenant has fallen behind on rent or other payment obligations under the lease due to financial hardship caused by the COVID-19 pandemic as follows:
    1. Provided the tenant follows specified procedures, including providing specified documentation of the hardship if the tenant is a high-income tenant, as defined, then:
       1. Unpaid rent and other payment obligations under the lease accrued between March 1, 2020, and August 31, 2020 are converted to consumer debts and cannot form the basis for an eviction ever;
       2. Unpaid rent and other payment obligations under the lease accrued between September 1, 2020, and January 31, 2021, cannot form the basis for an eviction until after January 31, 2021. In addition, if the tenant pays at least 25 percent of any amount that the landlord demands after it comes due, the remaining unpaid balance is converted to consumer debt and cannot form the basis for an eviction ever;
    2. The usual three-day window that a tenant has to respond to a demand to meet rent or other payment obligations under the lease is expanded to 15 days until February 1, 2021.
11. Requires landlords to provide all tenants with a notice informing them of their rights under this bill by September 30, 2020, or before or contemporaneously with the services of any notice demanding rent or other payment obligations under the lease corresponding to the period March 1, 2020, to January 21, 2021.
12. Specifies that any ordinance, resolution, regulation, or administrative action adopted by a city, county, or city and county in response to the COVID-19 pandemic to protect tenants from eviction is subject to all of the following:
    1. Any extension, expansion, renewal, reenactment, or new adoption of a measure, however delineated, that occurs between August 19, 2020, and January 31, 2021, shall have no effect before February 1, 2021;
    2. Any provision which allows a tenant a specified period of time in which to repay COVID-19 rental debt shall be subject to all of the following:
       1. If the provision in effect on August 19, 2020, required the repayment period to commence on a specific date on or before March 1, 2021, any extension of that date made after August 19, 2020, shall have no effect;
       2. If the provision in effect on August 19, 2020, required the repayment period to commence on a specific date after March 1, 2021, or conditioned commencement of the repayment period on the termination of a proclamation of state of emergency or local emergency, the repayment period is deemed to begin on March 1, 2021; and
       3. The specified period of time during which a tenant is permitted to repay COVID-19 rental debt may not extend beyond the period that was in effect on August 19, 2020. In addition, a provision may not permit a tenant a period of time that extends beyond March 31, 2022, to repay COVID-19 rental debt.
13. Clarifies that local jurisdiction may extend, expand, renew, reenact, or newly adopt an ordinance that requires just cause for termination of a residential tenancy or amend existing ordinances that require just cause for termination of a residential tenancy and that provide greater protection than state law, but any provision enacted or amended after August 19, 2020, cannot apply to rental payments that came due between March 1, 2020, and January 31, 2021.
14. Specifies that the one-year limitation provided in subdivision (2) of Section 1161 is tolled during any time period that a landlord is or was prohibited by any ordinance, resolution, regulation, or administrative action adopted by a city, county, or city and county in response to the COVID-19 pandemic to protect tenants from eviction based on nonpayment of rental payments from serving a notice that demands payment of COVID-19 rental debt pursuant to subdivision (e) of Section 798.56 of the Civil Code or paragraph (2) of Section 1161.
15. Requires the Business, Consumer Services and Housing Agency and the Department of Finance to engage with stakeholders about how to spend any future federal stimulus funding on housing stabilization.
16. Sunsets as of February 1, 2025, where it does not explicitly sunset earlier.
17. Contains a severability clause.
18. Contains an urgency clause.
19. Separate from all of the above, makes technical fixes to statewide just cause for eviction and anti-rent gouging laws.

Comments

(NOTE: For a detailed analysis of this bill, the context behind it, and how it would work, please see the Senate Judiciary Committee analysis of August 28, 2020.)

By far the most significant substantive element of this bill is the part that addresses residential evictions. That part may be briefly summarized as follows.

At its most basic, this bill provides a pathway for tenants enduring financial hardship due to the COVID-19 pandemic to remain in their homes through the end of January 2021. However, this bill does not “forgive” or “cancel” any payment obligations that a tenant has under the lease. Instead, depending on the circumstances, some or all of any unpaid amount essentially turns into consumer debt, meaning that the landlord can sue the tenant for failing to pay the money and can use any of the standard legal methods (bank levy, wage garnishment, etc.) to collect it, but the unpaid amount cannot serve as a basis for throwing the tenant out of the home.

To achieve that basic outcome, this bill operates in different phases.

1. Phase One – September 2, 2020 to October 4, 2020

Beginning on September 2, 2020, after the Judicial Council’s Emergency Rule 1 expires, landlords will once again be able to proceed with eviction cases in court for any lawful cause – meaning a grounds for eviction that is permissible under federal law, state law, and any applicable local ordinance -- other than non-payment of rent or nonpayment of any other financial obligation under the lease. The only exception is that, whereas state law ordinarily allows landlords to evict a tenant in order to demolish a unit or substantially remodel it (subject to payment of a month’s rent to compensate the tenant for relocating), under this bill, landlords can only evict for this purpose if the demolition or substantial remodel is necessary to address serious problems with the basic conditions of the unit.

Until October 5, 2020, landlords will not be able to proceed with eviction cases if the grounds for the eviction is nonpayment of rent or nonpayment of other payment obligations under the lease. This delay is intended to allow time for the courts, the Judicial Council, landlords, tenants, and the attorneys who represent them to prepare for the new rules governing nonpayment cases that will take effect in Phase Two.

1. Phase Two – October 5, 2020, to January 31, 2021

Beginning on October 5, 2020, in addition to proceeding with evictions for any other lawful cause as set forth in the description of Phase One, above, landlords will be able to seek to have their tenants evicted for nonpayment of rent or other charges due under the lease. However, up until the end of January 2021, such cases will be subject to the following rules designed to protect tenants with COVID-19 related financial hardships from losing their homes, at least until February of 2021.

If a landlord intends to try to evict a tenant for nonpayment of rent or other charges due under the lease, the landlord must first serve a notice giving the tenant a fifteen business day window in which to make one of the following choices: pay the demanded amount, vacate the premises, or return a declaration to the landlord, signed under penalty of perjury, indicating that the tenant cannot pay the rent in full and on time because of a COVID-19 related financial hardship. What constitutes a COVID-19 related financial hardship is both stated in this bill and included in the text of the fifteen-day notice that the landlord must provide to the tenant.

If the tenant returns the signed declaration of COVID-19 related financial hardship to the landlord within the fifteen days given, then the tenant receives protection against eviction. How long that protection lasts depends on when the unpaid rent accrued. For unpaid rent and other charges that accrued between March 1, 2020, and August 31, 2020, returning a signed declaration of COVID-19 related financial hardship permanently protects the tenant against eviction. The tenant still owes that money to the landlord, but it becomes consumer debt: something the landlord can sue the tenant for if the tenant does not pay it back voluntarily, but not the basis for an eviction. For unpaid rent and other charges that accrue between September 1, 2020, and January 31, 2021, returning a signed declaration of COVID-19 related financial hardship only protects the tenant against eviction until February 1, 2021. However, if the tenant returns the signed declaration of COVID-19 related financial hardship and also manages, before February 1, 2021, to pay the landlord at least 25 percent of the rent still due for the September 1, 2020, to January 31, 2021 period, then the tenant is permanently protected against eviction for failure to pay the balance. That balance is not forgiven or cancelled, though. It, too, becomes consumer debt that the tenant can be sued for if the tenant does not eventually pay it voluntarily.

1. Phase Three – February 1, 2021 - Forward

Going forward from February 2021, tenants will once again be bound by the pre-COVID rules relating to payment of rent and other charges due under the lease, except as modified by any applicable federal law, local ordinance, and such further state legislative action as may be enacted in the meantime. Those pre-COVID rules are as follows. Tenants who do not pay their monthly rent and other charges on time as they come due must first be given at least a three-day window in which to either pay the required amount or vacate. If the tenant does not comply within the three days given, the tenant is thereafter subject to eviction. (Code of Civ. Proc. § 1161(2) and (3).) Mobilehome owners are subject to similarly strict rules, though their three-day window to pay or vacate cannot start until five days after the rent is due, and they are also entitled to 60-day notice giving them the opportunity to try to remove the mobilehome from the park or sell it. (Civ. Code § 798.56(e).)

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee:

• Business, Consumer Services and Housing Agency (BCSHA): Unknown one-time workload costs likely in the thousands of dollars for the agency to engage with specified stakeholders about strategies and approaches to direct potential future federal stimulus funding. The agency would perform this duty regardless of if the national government provides the state with funds that could be used to provide relief to distressed tenants, landlords, and property owners. (General Fund)
• Courts: Unknown, potentially-significant workload cost pressures to the courts to adjudicate alleged violations of this measure by landlords and mortgage servicers. While the superior courts are not funded on a workload basis, an increase in workload could result in delayed court services and would put pressure on the General Fund to fund additional staff and other resources. For example, the Budget Act of 2020 appropriated $273.8 million from the General Fund to backfill continued reduction in fine and fee revenue for trial court operations. (General Fund*)

By allowing rental debt recovery cases to be heard in small claims court regardless of the amount being sought, the courts would experience a reduction in fee revenue for cases that, absent AB 3088, would have been filed as a limited civil case (i.e., where the value at issue is between $10,000 and $25,000) or an unlimited civil case (i.e., where the value at issue is over $25,000). Actual revenue reduction would depend on the number of cases filed in small claims court where the amount being sought is over $10,000.

Moreover, this measure may lead to an increase in filings of small claims cases that may result in the courts diverting resources from other trial court operations to meet the higher demand and/or increasing potential delays in hearing other types of small claims cases. Alternatively, this measure may result in a reduced demand on some court resources to the extent that COVID-19 rental debt recovery cases are adjudicated more quickly in small claims court.

*Trial Court Trust Fund

SUPPORT: (Verified 8/30/20)

California Credit Union League

California YIMBY

Service Employees International Union California

OPPOSITION: (Verified 8/30/20)

Affordable Housing Management Associations

Apartment Association of Greater Los Angeles

Apartment Association of Orange County

Apartment Association, California Southern Cities

East Bay Rental Housing Association

ARGUMENTS IN SUPPORT: In support of this bill, the Service Employees International Union of California writes:

While temporary protections have been put in place to prevent evictions, they are set to expire. Without additional action to prevent evictions, hundreds of thousands if not millions of renters and their families are at risk of losing eviction and homelessness. The dire and long-standing economic effects of mass evictions will not only be borne by those evicted, but also by our economy as a whole; the physical and psychological implications of being evicted during a global pandemic, especially amongst California’s children who are already struggling with fear and uncertainty is almost unthinkable. This bill provides a much-needed state-wide solution for landlords and tenants, to prevent a wave of evictions and homelessness that will only worsen the ability for California to address and control the spread of COVID-19. AB 3088 provides a path for transitioning out of the COVID-19 emergency in a way that balances renter protections with the ability of landlords to recover what is owed to them.

ARGUMENTS IN OPPOSITION: In opposition to this bill, a group of regional associations representing rental property owners writes:

The California legislature rightfully and understandably prioritized legislation to try its best to address this issue by “balancing” the interests of tenants and owners. We do not believe we have achieved the balance necessary for everyone concerned. […] AB 3088 would permit residential tenants that declare they are unable to pay rent due to a COVID-19 related financial distress to remain in possession for defined periods of time and ultimately pay the rental property owner past due rent on or before March 31, 2022. This is an extraordinary period of time which may cause owners to undergo extreme financial hardship. Our owners are NOT being given any financial assistance in AB 3088 or any other measure before the legislature.

Prepared by: Timothy Griffiths / JUD. / (916) 651-4113

8/31/20 0:28:08

**** END ****

(Without Reference to File)

CONCURRENCE IN SENATE AMENDMENTS

CSA2 Bill Id:AB 3088

Author:(Chiu, et al.)

As Amended Ver:August 28, 2020

2/3 vote. Urgency

SUMMARY:

Establishes a moratorium on evictions for non-payment of rent due to COVID-19 financial hardship, subject to numerous conditions, until January 31, 2021. Makes small landlords eligible for protections under the Homeowner Bill of Rights until 2023. Places minimal requirements on mortgage servicers and lenders in addressing mortgage forbearance. Makes technical and clarifying amendments to AB 1482 (Chiu) of the current legislative session, the Tenant Protection Act of 2019

The Senate Amendments:

Amend the Assembly version of this bill to include provisions which:

1. Require tenants to follow specified procedures to demonstrate COVID-19 related financial hardship, including providing documentation if they are a "high-income tenant," as defined.
2. Prohibit tenants who so demonstrate from being evicted for failure to pay rent or other charges ("COVID-19 rental debt"), first, accrued between March 1, 2020 and August 31, 2020 and, second, accrued between September 1, 2020 and January 31, 2021, if they pay 25% of the amount owed for the latter period. Tenants who fail to pay this 25% can be evicted beginning on February 1, 2021.
3. Permit landlords to sue tenants for unpaid COVID-19 rental debt beginning March 1, 2021. Removes certain limits on small claims jurisdiction to facilitate collection of this debt.
4. Increase, until February 1, 2021, the time that tenants have to respond to a demand to pay rent or other charges from three business days to 15 business days.
5. Require landlords to provide all tenants with a notice informing them of their rights under this bill within a specified time.
6. Prohibit landlords from retaliating against tenants prior to February 1, 2021 for incurring COVID-19 rental debt. Increases financial liability of landlords who illegally evict tenants.
7. Expand the Homeowners Bill of Rights until January 1, 2023 to cover small landlords.
8. Require a mortgage servicer that denies a borrower's request for forbearance on mortgage payments for a property consisting of no more than four residential units to provide the borrower with a written explanation of the denial.
9. Require a mortgage servicer to review a borrower of a non-federally backed loan for at least one post-forbearance option consistent with specified federal agencies' guidance.
10. Restrict public access to court files for eviction cases based on non-payment of rent filed between March 1, 2020 and January 31, 2021.
11. Clarify the interaction between this bill and any related local ordinances.
12. Require the executive branch to engage with stakeholders about how to spend any future federal stimulus funding on housing stabilization.
13. Sunset the foregoing no later than February 1, 2025.

14) Contain an urgency clause.

COMMENTS:

This bill provides a method for tenants enduring financial hardship due to the COVID-19 pandemic to remain in their homes through the end of January 2021. It does not relieve tenants of any financial obligations under their rental agreements, instead permitting landlords to sue for any unpaid amounts beginning no later than March 2021. The bill operates in different phases.

Beginning on September 2, 2020, when the Judicial Council's Emergency Rule 1 expires, landlords will be able to proceed with eviction cases for most lawful causes—meaning a basis for eviction that is permissible under federal, state law, or local law—other than non-payment of rent or other charges under the rental agreement.

Beginning on October 5, 2020, landlords will be able to proceed with eviction cases if the grounds for the eviction is nonpayment of rent or other charges. But to do so, the landlord must serve a notice giving the tenant a 15 business day window in which to make one of the following choices: pay the demanded amount, vacate the premises, or return a declaration to the landlord, signed under penalty of perjury, indicating that the tenant cannot pay the demanded amount because of a COVID-19 related financial hardship. What constitutes a COVID-19 related financial hardship is both stated in the bill and included in the text of the 15-day notice. If the tenant returns the signed declaration of COVID-19 related financial hardship to the landlord within 15 days, then the tenant receives protection against eviction. How long that protection lasts depends on when the unpaid rent and other charges ("COVID-19 rental debt") accrued. The tenant can then never be evicted for COVID-19 rental debt accrued between March 1, 2020 and August 31, 2020. The tenant also can never be evicted for COVID-19 rental debt accrued between September 1, 2020 and January 31, 2021—if the tenant pays 25% of the rent and other charges due during this period.

Beginning on February 1, 2021, landlords will be able to proceed with eviction cases under pre-COVID laws against those tenants who had a COVID-19 related financial hardship but failed to pay 25% of their rent between September 1, 2020 and January 31, 2021, as well as any tenant who fails to timely pay their rent going forwards.

Beginning on March 1, 2021, landlords may sue tenants for COVID-19 rental debt.

Expanded small claims court jurisdiction. Bringing a collection action in Superior Court usually requires hiring an attorney. To facilitate lawsuits against tenants for unpaid rent, this bill temporarily opens small claims courts for such cases, even if the landlord is seeking an amount beyond the usual small claims court limits or has brought multiple cases for more than $2500.

Documentation requirement for high-income tenants. This bill defines a "high-income tenant" as a household making more than $100,000 annually or more than 130 percent of the median income for the county, whichever is higher. If a landlord already has proof that the tenant is a high-income tenant, and the tenant proceeds to claim a COVID-19 related financial hardship, then the landlord can demand that the tenant provide specified documentation of hardship.

Increased liability for vigilantism. Under California law, landlords must obtain a court order to evict a tenant; the county sheriff's department is then charged with executing that order. Landlords themselves are prohibited from resorting to "self-help" to evict a tenant. (Civil Code Section 789.3.) Yet, even in ordinary times, unscrupulous landlords perform illegal evictions by shutting off utilities, changing locks, throwing tenants' belongings out into the street, or using threats and violence. There have been reports that landlords, frustrated by their inability to evict under COVID-19 restrictions, are increasingly resorting to such illegal "self-help" evictions. For example, Nevada Legal Services handled only 12 lockout cases in 2019; between February and June 2020, they handled more than 800. As a deterrent, the bill includes a temporary tenfold increase in a landlord's potential liability for carrying out illegal evictions.

Protections against pretextual evictions. Landlords could skirt this bill's protections by seeking to evict tenants who have fallen behind on rent because of COVID-19 based on some other pretext. A landlord who wishes to evict a tenant with a COVID-19 related financial hardship might choose to enforce previously-ignored terms in the lease or claim that noisy children unable to attend school are a "nuisance." To try to prevent this sort of pretextual eviction, the bill temporarily expands the anti-retaliation statute (Civil Code Section 1942.5) to include claiming COVID-19 rental debt. Note that this provision is a bit redundant, as the statute already prohibits adverse action against a tenant for "lawfully and peacefully exercising any rights under the law."

Record masking. This bill contains a provision directing the courts to permanently seal any unlawful detainer case based on nonpayment of rent filed between March 1, 2020 and January 31, 2021. Sealing prevents credit reporting of these eviction lawsuits and should make it easier for tenants who fell behind on rent during this period to obtain new housing.

Interaction with local ordinances. The bill includes provisions directed at the many local ordinances that also address nonpayment of rent and regulate evictions in light of COVID-19. The bill would essentially prevent any renewal, modification, or adoption, between August 19, 2020 and January 31, 2021, of local ordinances meant to prevent evictions in response to COVID-19. Existing ordinances will apply until they expire. If a local ordinance gives tenants a period in which to pay off an unpaid rental balance, that period must begin at least by March 1, 2021 and has to end no later than March 31, 2022.

Mortgage forbearance. If an owner of property containing up to four residential units requests forbearance on their monthly mortgage from their loan servicer, and the servicer denies the request, this bill would require the servicer to provide the borrower with a notice stating a specific reason for the denial. The bill is largely silent as to what that reason can be, but does provide that if the denial is due to an incomplete application or missing information from the borrower, then the servicer is required to give the borrower 21 days to correct the omission. Even if the application is fully and correctly completed, however, the bill does not appear to require a servicer to grant forbearance.

Post-forbearance. If a mortgage servicer does elect to provide a borrower with forbearance, the bill requires the servicer to review a customer for a post-forbearance "solution" that is consistent with guidance provided by the federal agencies that oversee federally-backed loans. Since these agencies' guidance regarding post-forbearance options varies, the intent of this provision is that the servicer evaluate the borrower for at least one possible "solution" that any of the various agencies permit.

Extension of the Homeowners Bill of Rights (HBOR) to small landlords. HBOR provides procedural protections and rights to homeowners prior to a foreclosure sale, including requiring mortgage servicers to contact borrowers to explore foreclosure prevention alternatives, and halting the foreclosure process to consider any loan modification application that a borrower submits. Under this bill, HBOR protections would be expanded to a fully tenant-occupied property with one to four units, if the following conditions are met:

1. The landlord owns no more than three such residential real properties, each of which contains no more than four dwelling units.
2. The property for which the landlord is seeking protection is occupied by at least one tenant who has been unable to pay rent due to COVID-19 reduction in income.
3. The property for which the landlord is seeking protection is occupied by at least one tenant who entered into a market-rate lease that was in effect on March 4, 2020. The property must continue to be the principal residence of such a tenant throughout the time the landlord is seeking HBOR protections.

These conditions are meant to ensure that the temporary HBOR expansion applies only to small landlords who are facing a loss of income due to COVID-19 and who continue to house at least one bona fide tenant.

This bill also includes a provision that clarifies already-enacted provisions of AB 1482 (Chiu), Chapter 597, Statutes of 2019 to: 1) lay out how inflation should be calculated when determining permissible rent increases; 2) clarify application of the law to properties containing two housing units; 3) align definitions; 4) correct erroneous cross-references; and 5) clarify the scope of laws with which a housing provider must demonstrate compliance before establishing new rental rates after the expiration of affordability covenants.

According to the Author:

"AB 3088 provides renters a chance to get back on their feet without the fear of losing their home, while also giving landlords a path to be made whole without having to resort to immediate evictions."

Arguments in Support:

California YIMBY applauds the bill's balanced nature:

[AB 3088] will protect many tenants affected by the COVID-19 pandemic from eviction for some nonpayment of rent until February 1st, 2021. It also contains important provisions for preventing foreclosure on homeowners and landlords unable to pay mortgages due to COVID-19

Arguments in Opposition:

A coalition of five rental housing associations, including the East Bay Rental Housing Association and the Affordable Housing Management Association-PSW&NCH, disagree, noting "The California legislature rightfully and understandably prioritized legislation to try its best to address this issue by 'balancing' the interests of tenants and owners. We do not believe we have achieved the balance necessary for everyone concerned."

FISCAL COMMENTS:

According to the Senate Appropriations Committee:

1. Business, Consumer Services and Housing Agency (BCSHA): Unknown one-time workload costs likely in the thousands of dollars for the agency to engage with specified stakeholders about strategies and approaches to direct potential future federal stimulus funding. The agency would perform this duty regardless of if the national government provides the state with funds that could be used to provide relief to distressed tenants, landlords, and property owners. (General Fund)
2. Courts: Unknown, potentially-significant workload cost pressures to the courts to adjudicate alleged violations of this measure by landlords and mortgage servicers. While the superior courts are not funded on a workload basis, an increase in workload could result in delayed court services and would put pressure on the General Fund to fund additional staff and other resources. For example, the Budget Act of 2020 appropriated $273.8 million from the General Fund to backfill continued reduction in fine and fee revenue for trial court operations. (General Fund*)

By allowing rental debt recovery cases to be heard in small claims court regardless of the amount being sought, the courts would experience a reduction in fee revenue for cases that, absent AB 3088, would have been filed as a limited civil case (i.e., where the value at issue is between $10,000 and $25,000) or an unlimited civil case (i.e., where the value at issue is over $25,000). Actual revenue reduction would depend on the number of cases filed in small claims court where the amount being sought is over $10,000.

Moreover, this measure may lead to an increase in filings of small claims cases that may result in the courts diverting resources from other trial court operations to meet the higher demand and/or increasing potential delays in hearing other types of small claims cases. Alternatively, this measure may result in a reduced demand on some court resources to the extent that COVID-19 rental debt recovery cases are adjudicated more quickly in small claims court.

*Trial Court Trust Fund

VOTES:

ASM HOUSING AND COMMUNITY DEVELOPMENT: 7-0-1

YES: Chiu, Diep, Gabriel, Gloria, Limón, Maienschein, Quirk-Silva

ABS, ABST OR NV: Kiley

ASSEMBLY FLOOR: 70-0-9

YES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Chu, Cooley, Cooper, Cunningham, Megan Dahle, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Mullin, Nazarian, O'Donnell, Obernolte, Patterson, Quirk-Silva, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Arambula, Choi, Daly, Gray, Kiley, Muratsuchi, Petrie-Norris, Quirk, Ramos

ASM HOUSING AND COMMUNITY DEVELOPMENT: 6-0-2

YES: Chiu, Gabriel, Gloria, Limón, Maienschein, Quirk-Silva

ABS, ABST OR NV: Diep, Kiley

UPDATED:

VERSION: August 28, 2020

CONSULTANT: Sandra Nakagawa / H. & C.D. / (916) 319-2085 FN: 0003689

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 3088 (Chiu) - Tenancy: rental payment default: mortgage forbearance: state of emergency: COVID-19

Bill Summary:

AB 3088, an urgency measure, would, among other things, temporarily limit evictions of residential tenants who are experiencing COVID-19-related financial distress, as specified, and would require mortgage servicers to provide a written notice to a borrower upon the denial of a forbearance and to follow other procedures related to forbearances, as specified.

Fiscal Impact:

• Business, Consumer Services and Housing Agency (BCSHA): Unknown one-time workload costs likely in the thousands of dollars for the agency to engage with specified stakeholders about strategies and approaches to direct potential future federal stimulus funding. The agency would perform this duty regardless of if the national government provides the state with funds that could be used to provide relief to distressed tenants, landlords, and property owners. (General Fund)
• Courts: Unknown, potentially-significant workload cost pressures to the courts to adjudicate alleged violations of this measure by landlords and mortgage servicers. While the superior courts are not funded on a workload basis, an increase in workload could result in delayed court services and would put pressure on the General Fund to fund additional staff and other resources. For example, the Budget Act of 2020 appropriated $273.8 million from the General Fund to backfill continued reduction in fine and fee revenue for trial court operations. (General Fund*)

By allowing rental debt recovery cases to be heard in small claims court regardless of the amount being sought, the courts would experience a reduction in fee revenue for cases that, absent AB 3088, would have been filed as a limited civil case (i.e., where the value at issue is between $10,000 and $25,000) or an unlimited civil case (i.e., where the value at issue is over $25,000). Actual revenue reduction would depend on the number of cases filed in small claims court where the amount being sought is over $10,000.

Moreover, this measure may lead to an increase in filings of small claims cases that may result in the courts diverting resources from other trial court operations to meet the higher demand and/or increasing potential delays in hearing other types of small claims cases. Alternatively, this measure may result in a reduced demand on some court resources to the extent that COVID-19 rental debt recovery cases are adjudicated more quickly in small claims court.

*Trial Court Trust Fund

Background:

Existing law allows a landlord to demand security at the beginning of a tenancy for residential property and specifies the purposes for which the security may be used, including for compensating the landlord for the tenant’s default in payment of rent. Existing statutory law provides that a tenant is guilty of an unlawful detainer when the tenant remains in possession of leased property after the service and expiration of a three-day notice demanding that the tenant pay past-due rent or that the tenant correct the violation of a material lease term and absent performance by the tenant. On March 4, 2020, the Governor proclaimed a statewide state of emergency related to the COVID-19 pandemic and, on March 16, 2020, issued Executive Order No. N-28-20 that suspended any state law preempting or restricting the authority of local governments to exercise their police powers to impose substantive protections against the eviction of tenants.

Relatedly, on April 6, 2020, the Judicial Council of California adopted a set of emergency rules related to the COVID-19 pandemic. Emergency Rule 1 originally provided, until 90 days after the Governor lifts the state of emergency related to COVID-19 or until repealed or amended by the council, that a court may not:

• Issue a summons on a complaint for unlawful detainer unless it finds, in its discretion and on the record, that the action is necessary to protect public health and safety.
• Enter a default or a default judgment for restitution in an unlawful detainer action for failure of the defendant to appear unless the court finds that the action is necessary to protect public health and safety and the defendant has not appeared in the action within the time provided by law, including by any applicable executive order.
• Set a trial date, if a defendant has appeared in a pending unlawful detainer action, earlier than 60 days after a request for trial is made unless the court finds that an earlier trial date is necessary to protect public health and safety. Any trial set in an unlawful detainer proceeding as of April 6, 2020 must be continued at least 60 days from the initial date of trial.

On August 13, 2020, the Judicial Council voted to sunset Emergency Rule 1 on September 1, 2020.

In California, there are two avenues by which a mortgagee (i.e., the lender) may seek to foreclose on a mortgage (i.e., a loan that is secured by real property): a judicial foreclosure, in which the action is filed in court, and a non-judicial foreclosure, in which the mortgagee or beneficiary exercises the power-of-sale clause in a deed of trust or mortgage. Broadly speaking, each option differs in process and the remedies that are available. For example, a non-judicial foreclosure is quicker (and therefore more common), but the lender is prohibited from obtaining a deficiency judgement against the borrower if the sale of the property is insufficient to satisfy the debt owed. Under both circumstances, if the foreclosure proceeds to completion, the property is sold at a trustee sale (i.e., a public auction) to the highest bidder. Any person or entity may make a bid to purchase property at a trustee sale. If there is no successful bid, the lender assumes ownership and, generally, attempts to sell the property on the open market. Once a mortgage has been foreclosed upon, the occupant of the residence, whether the former property owner or a renter, may vacate the property voluntarily, continue to reside there through an agreement with the new owner, or be subject to removal through the unlawful detainer process.

Proposed Law:

This bill would enact the COVID-19 Tenant Relief Act of 2020, which would:

• Establish a legal framework to address circumstances where a tenant has fallen behind on rent or other payment obligations under the lease due to financial hardship caused by the COVID-19 pandemic as follows:
  • Provided the tenant follows specified procedures, including providing a COVID-19-related financial distress declaration that is signed under penalty of perjury, and providing specified documentation of the hardship if the tenant is a high-income tenant, as defined, then:
    • Unpaid rent and other payment obligations under the lease accrued between March 1, 2020, and August 31, 2020, are converted to consumer debts and cannot form the basis for an eviction ever.
    • Unpaid rent and other payment obligations under the lease accrued between September 1, 2020, and January 31, 2021, cannot form the basis for an eviction until after January 31, 2021. In addition, if the tenant pays at least 25 percent of any amount that the landlord demands after it comes due, the remaining unpaid balance is converted to consumer debt and cannot form the basis for an eviction ever.
  • The usual three-day window that a tenant has to respond to a demand to meet rent or other payment obligations under the lease is expanded to 15 days until February 1, 2021.
• Require any three-day notice that demands payment of COVID-19 rental debt that is served on a tenant between March 1, 2020, and January 1, 2021, meet specified criteria, including that the notice include an unsigned copy of a declaration of COVID-19-related financial distress and that the notice advise the tenant that the tenant will not be evicted for failure to comply with the notice if the tenant delivers a declaration, signed under penalty of perjury, of COVID-19-related financial distress to the landlord, as specified.
• Deem a three-day notice that fails to comply with the criteria in the act void and insufficient to support a judgement for unlawful detainer or to terminate a tenancy under the Mobilehome Residency Law.
• Prohibit a court from finding a tenant guilty of unlawful detainer before February 1, 2021, subject to certain exceptions, including if the tenant was guilty of the unlawful detainer before March 1, 2020.
• Prohibit a court, until October 5, 2020, from taking specified actions with respect to unlawful detainer actions, including issuing a summons on a complaint for unlawful detainer in any action that seeks possession of residential real property and that is based, in whole or in part, on nonpayment of rent or other charges.
• Allow a landlord to require a high-income tenant (i.e., a tenant with an annual household income of 130 percent of the median income in the county) to submit additional documentation supporting the claim that the tenant has suffered COVID-19-related financial distress if the landlord has proof of income showing the tenant is a high-income tenant.
• Preempt an ordinance, resolution, regulation, or administrative action adopted by a city or county in response to the COVID-19 pandemic to protect tenants from eviction based on nonpayment of rental payments, as specified.

AB 3088 also would enact the COVID-19 Small Landlord and Homeowner Relief Act of 2020, which would require a mortgage servicer to provide a specified written notice to a borrower if the servicer denies forbearance between the operational date of this measure and April 1, 2021. The notice must state the reasons for denying the forbearance if the borrower, both, (i) was current on payments as of February 1, 2020, and (ii) is experiencing a financial hardship that prevents the borrower from making timely payments on the mortgage obligation due, directly or indirectly, to the COVID-19 emergency. Additionally, it would require a mortgage servicer to comply with applicable federal guidance regarding borrower options following a COVID-19-related forbearance. The act would require a mortgage servicer to communicate about forbearance and post-forbearance options with a borrower in the borrower’s preferred language when the servicer regularly communicates with any borrower in that language. A borrower who is harmed by a material violation of the act would be able to bring legal action to obtain injunctive relief, damages, restitution, and any other remedy to redress the violation; the borrower would be entitled to reasonable attorney’s fees and costs, as specified.

Other provisions of AB 3088 would:

• Extend specified procedures and requirements related to the foreclosure of a first-lien residential mortgage of an owner-occupied property to the foreclosure of a first-lien residential mortgage of a tenant-occupied property, so long as specified criteria are met, including that a tenant occupying the property is unable to pay rent due to a reduction in income resulting from COVID-19.
• Require BCSHA to, in consultation with the Department of Finance, engage with residential tenants, landlords, property owners, deed-restricted affordable housing providers, and financial sector stakeholders about strategies and approaches to direct potential future federal stimulus funding to most effectively and efficiently to provide relief to distressed tenants, landlords, and property owners, as specified.
• Subject a landlord to statutory damages of between $1,000 and $2,500 for taking specified actions, through February 1, 2021, with the intent to terminate the occupancy of a residential tenant who has provided the landlord with a COVID-19-related financial distress declaration.
• Specify that a small claims court has jurisdiction, until February 1, 2025, in any action for the recovery of COVID-19 rental debt regardless of the amount demanded.
• Exempt a claim for the recovery of COVID-19 rental debt from the prohibition on filing more than two small claims actions.
• Exempt dormitories owned and operated by an educational institution, as specified, from the Tenant Protection Act of 2019.
• Make legislative findings and declarations regarding the economic consequences of the COVID-19 pandemic and the resulting impacts of residential evictions and foreclosures.

This measure contains an urgency clause, meaning it would take effect immediately upon becoming law, and a severability clause.

Related Legislation:

AB 828 (Ting, 2019-2020 Reg. Sess.) would have, among other things, prohibited a person from taking any action to foreclose on a residential real property while a state- or locally-declared state of emergency related to the COVID-19 virus is in effect and until 91 days after the state of emergency has ended. AB 828 was never heard in the Senate Committee on Judiciary.

AB 1436 (Chiu, 2019-2020 Reg. Sess.) would provide temporary eviction relief to residential tenants who are experiencing COVID-19-related financial distress, as specified, and would allow certain mortgage borrowers who are experiencing financial hardship due to the COVID-19 emergency to request forbearance, as specified. AB 1436 is pending in the Senate Committee on Rules.

AB 2501 (Limón, 2019-2020 Reg. Sess.) would have provided for temporary forbearance and post-forbearance repayment options for borrowers experiencing a financial hardship due to the COVID-19 pandemic, related to mortgages, motor vehicle financing, and deferred deposit transactions, as specified. AB 2501 failed passage on the Assembly floor.

SB 915 (Leyva, 2019-2020 Reg. Sess.) would prohibits mobilehome parks from evicting residents who notify park management of COVID-19 impacts to their ability to pay rent and would require parks to provide those residents with extra time to repay outstanding rent, utilities, or other charges or to cure violations of park rules. SB 915 is pending on the Assembly floor.

SB 939 (Wiener, 2019-2020 Reg. Sess.) would have established a temporary eviction moratorium and a 12-month rent repayment period, as specified, and procedures for the renegotiating or terminating of certain commercial tenancy leases, as specified, where a commercial tenant is impacted by COVID-19. SB 939 was held on the Suspense File of this Committee.

SB 1410 (Caballero, 2019-2020 Reg. Sess.) would have created a tenant-owner COVID-19 eviction relief agreement, restricted rental property owners from evicting tenants for unpaid rent accrued during the current state of emergency, and allowed a tax credit to owners that defer rent for tenants in connection with the COVID-19 pandemic. SB 1410 was held on the Suspense File of the Assembly Committee on Appropriations.

-- END --

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: AB 3088 (Author:Chiu)

Version: August 28, 2020

Hearing Date: August 29, 2020

Fiscal: No

Urgency: No

Consultant: TSG

SUBJECT

Tenancy: termination: rent caps

DIGEST

This bill proposes a set of temporary measures designed to prevent widespread loss of housing through evictions and foreclosures resulting from the economic impacts of the COVID-19 pandemic. Specifically, the bill: (1) establishes a legal framework limiting, until January 31, 2021, evictions in circumstances in which a residential tenant has fallen behind on rent or other payment obligations under their lease due to financial hardship caused by the pandemic; and (2) establishes procedural protections for small landlords who become delinquent on their mortgage payments and a right to a written explanation for borrowers with mortgages on properties with one-to-four residential units when they are denied forbearance. Separately, the bill makes technical and clarifying modifications to the statewide just cause for eviction and anti-rent gouging laws enacted last year pursuant to AB 1482 (Chiu, Ch. 597, Stats. 2019).

EXECUTIVE SUMMARY

The COVID-19 pandemic has caused widespread unemployment, business closures, and an economic contraction that threatens to metastasize into a potentially catastrophic wave of evictions and foreclosures. To date, the combination of a judicially-imposed freeze on most evictions and federal financial assistance have combined to forestall such a calamity. However, the judicial moratorium is scheduled to end on September 1, 2020, much of the federal assistance has expired, and it is uncertain whether more federal help will materialize. Where they have not done so already, it is highly likely that many tenants and homeowners will soon default on their mortgage or rent payments. If tenants cannot pay their rents, many landlords will be unable to keep up on their mortgage payments also. Evictions and foreclosures would ensue, leading to residential overcrowding and a dramatic increase in homelessness, two things that, on top of everything else, would likely undermine efforts to contain further COVID-19 spread.

This bill offers a temporary, stop-gap solution intended to stave off the worst levels of eviction and foreclosure. In effect, it creates a path for tenants who are in financial distress, as a result of the COVID-19 pandemic, to stay in their homes until at least the end of January 2021. At the same time, the bill provides some procedural protections through which it may sometimes be possible for small landlords to avoid foreclosure, and a new notice requirement when a mortgage servicer denies a homeowner or small landlord’s request for forbearance.

The bill is author-sponsored. As the primary content of the bill was only recently added, there is no support or opposition on file with the Committee.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Provides, pursuant to the Coronavirus Aid, Relief, and Economic Security (CARES) Act, that, as to federally backed mortgages securing one-to-four unit properties, a lender must provide up to 360 days forbearance to a borrower who requests such forbearance during the period beginning March 13, 2020 and ending at an undefined time (but likely December 31, 2020), subject only to an affirmation from the borrower that the borrower has a financial hardship due to the COVID-19 pandemic. (15 U.S.C. § 9056.)
2. Provides, pursuant to the CARES Act, that, as to federally backed mortgages securing multifamily (five or more units) properties, a lender must provide up to 90 days forbearance to a borrower who requests such forbearance during the period beginning March 13, 2020 and ending when the nationwide COVID-19 state of emergency ends or December 31, 2020, whichever is earlier, subject only to an affirmation from the borrower that the borrower has a financial hardship due to the COVID-19 pandemic and a requirement that the lender document the hardship. (15 U.S.C. § 9057.)
3. Requires, pursuant to the Homeowner Bill of Rights, that a lender who foreclosed on 175 or more homes in the last year must undertake a series of steps to explore loan modification and loss mitigation with a residential owner-occupant borrower who is delinquent on their home loan, prior to foreclosing on the home. (Civ. Code §§ 2923.6, 2923.7, 2923.55, 2924.9, 2924.10, 2924.11, and 2924.17.)
4. Specifies that a tenant is guilty of an unlawful detainer and subject to court-ordered eviction if, within three days of a demand to vacate the premises or pay rent that lawfully accrued within the last 12 months, the tenant does neither. (Code of Civ. Proc. § 1161(2).)
5. Specifies that a tenant is guilty of an unlawful detainer and subject to court-ordered eviction if, within three days of a demand to vacate the premises or comply with a material obligation under the lease other than the payment of rent, the tenant does neither. (Code of Civ. Proc. § 1161(3).)
6. Authorizes a mobilehome park to terminate the tenancy of a mobilehome owner in the mobilehome park for non-payment of rent, utility charges, or reasonable incidental service charges only when:

a) the amount has been due for five days;

b) the park thereafter serves the mobilehome owner with a demand to pay the amount due or vacate the premises within three days, unless the mobilehome park owner has already been served with three or more three-day notices of this type in the last 12 months;

c) the mobilehome owner neither vacates nor pays within the three days given; and

d) the park also gives the mobilehome owner a 60-day notice terminating the tenancy. (Civ. Code § 798.56(e).)

1. Provides, pursuant to the CARES Act, that, as to properties subject to a federally-backed mortgage, the landlord may not seek to evict a tenant for non-payment of rent or other fees or charges for 120 days after March 27, 2020 and, thereafter, can only require the tenant to vacate upon 30 days’ notice. (15 U.S.C. § 9058.)
2. Provides, pursuant to the CARES Act, that as to multi-family properties subject to a federally-backed mortgage, the landlord may not seek to evict a tenant for non-payment of rent or other fees or charges while the landlord is in forbearance and for 30 days afterward. (15 U.S.C. § 9057(d).)

This bill:

1. Makes a series of findings and declarations regarding the economic consequences of the COVID-19 pandemic and the resulting threat of widespread residential evictions and foreclosures.
2. Increases by tenfold the potential liability of a landlord who attempts or succeeds in evicting a tenant against the tenant’s will and outside the court process before February 1, 2021.
3. Prohibits a landlord from retaliating against a tenant prior to February 1, 2021 for having fallen behind on rent or other payment obligations under the lease due to financial impact from COVID-19.
4. Extends the procedural anti-foreclosure protections of the Homeowners Bill of Rights to small landlords, as specified, until 2023.
5. Requires a mortgage servicer to provide the borrower with a written explanation if the servicer denies a borrower’s request for forbearance on mortgage payments for a property consisting of no more than four residential units. Establishes an aggrieved borrower’s ability to enforce these rights in court if necessary.
6. Requires a mortgage servicer to provide a borrower to whom forbearance is given with post-forbearance options that are consistent with the CARES Act and the guidance of a number of different specified federal agencies. Establishes an aggrieved borrower’s ability to enforce these rights in court if necessary.
7. Expands small claims court jurisdiction to allow landlords to sue in that forum, regardless of the total amount claimed, for any rent or other payment obligations under the lease for the period March 1, 2020 to January 31, 2021.
8. Restricts public access to court files for eviction cases based on non-payment of rent filed between March 1, 2020 and January 31, 2021.
9. Prohibits a court from issuing a summons on a complaint for eviction based on nonpayment of rent or other payment obligations under the lease until October 5, 2020. Requires landlords to file a case cover sheet indicating whether this prohibition applies.
10. Establishes a legal framework to address circumstances where a tenant has fallen behind on rent or other payment obligations under the lease due to financial hardship caused by the COVID-19 pandemic as follows:

a) provided the tenant follows specified procedures, including providing specified documentation of the hardship if the tenant is a high-income tenant, as defined, then:

i) unpaid rent and other payment obligations under the lease accrued between March 1, 2020 and August 31, 2020 are converted to consumer debts and cannot form the basis for an eviction ever;

ii) unpaid rent and other payment obligations under the lease accrued between September 1, 2020 and January 31, 2021 cannot form the basis for an eviction until after January 31, 2021. In addition, if the tenant pays at least 25 percent of any amount that the landlord demands after it comes due, the remaining unpaid balance is converted to consumer debt and cannot form the basis for an eviction ever;

b) the usual three-day window that a tenant has to respond to a demand to meet rent or other payment obligations under the lease is expanded to 15 days until February 1, 2021.

1. Requires landlords to provide all tenants with a notice informing them of their rights under this bill by September 30, 2020 or before or contemporaneously with the services of any notice demanding rent or other payment obligations under the lease corresponding to the period March 1, 2020 to January 21, 2021.
2. Specifies that any ordinance, resolution, regulation, or administrative action adopted by a city, county, or city and county in response to the COVID-19 pandemic to protect tenants from eviction is subject to all of the following:

a) any extension, expansion, renewal, reenactment, or new adoption of a measure, however delineated, that occurs between August 19, 2020, and January 31, 2021, shall have no effect before February 1, 2021;

b) any provision which allows a tenant a specified period of time in which to repay COVID-19 rental debt shall be subject to all of the following:

i) if the provision in effect on August 19, 2020, required the repayment period to commence on a specific date on or before March 1, 2021, any extension of that date made after August 19, 2020, shall have no effect;

ii) if the provision in effect on August 19, 2020, required the repayment period to commence on a specific date after March 1, 2021, or conditioned commencement of the repayment period on the termination of a proclamation of state of emergency or local emergency, the repayment period is deemed to begin on March 1, 2021; and

iii) the specified period of time during which a tenant is permitted to repay COVID-19 rental debt may not extend beyond the period that was in effect on August 19, 2020. In addition, a provision may not permit a tenant a period of time that extends beyond March 31, 2022, to repay COVID-19 rental debt.

1. Clarifies that local jurisdiction may extend, expand, renew, reenact, or newly adopt an ordinance that requires just cause for termination of a residential tenancy or amend existing ordinances that require just cause for termination of a residential tenancy and that provide greater protection than state law, but any provision enacted or amended after August 19, 2020, cannot apply to rental payments that came due between March 1, 2020, and January 31, 2021.
2. Specifies that the one-year limitation provided in subdivision (2) of Section 1161 is tolled during any time period that a landlord is or was prohibited by any ordinance, resolution, regulation, or administrative action adopted by a city, county, or city and county in response to the COVID-19 pandemic to protect tenants from eviction based on nonpayment of rental payments from serving a notice that demands payment of COVID-19 rental debt pursuant to subdivision (e) of Section 798.56 of the Civil Code or paragraph (2) of Section 1161.
3. Requires the Business, Consumer Services and Housing Agency and the Department of Finance to engage with stakeholders about how to spend any future federal stimulus funding on housing stabilization.
4. Sunsets as of February 1, 2025, where it does not explicitly sunset earlier.
5. Contains a severability clause.
6. Contains an urgency clause.

COMMENTS

1. Antecedents and framework of the bill

AB 1436 (Chiu, 2020) was composed of two primary components. One provided rent deferral and eviction protections for tenants impacted by the COVID-19 pandemic. The other gave COVID-19 impacted small landlords and homeowners access to mortgage forbearance for their homes and rental properties. This Committee passed AB 1436 by a vote of six to zero on August 18, 2020.

After AB 1436 passed out of this Committee, proposals for how to handle both the rent deferral and eviction protections as well as the mortgage forbearance components evolved. The results of that evolution have now been added to this bill, AB 3088, whose earlier content was limited to the more modest project of cleaning up technical issues leftover from the passage of the landmark statewide just cause and anti-rent gouging measure, AB 1482 (Chiu, Ch. 597, Stats. 2019), last year. That earlier version of AB 3088 passed out of this Committee by a vote of nine to zero on July 30, 2020.

According to the author, this new version of AB 3088 “provides renters a chance to get back on their feet without the fear of losing their home, while also giving landlords a path to be made whole without having to resort to immediate evictions.”

2. Analysis of this bill’s rent deferral and eviction protection provisions

a. The context: where we stand today on rent payment and eviction

The Senate Judiciary Committee analysis of AB 1436 goes into detail about the current state of the law in California as it relates to tenants’ obligations to stay current on the rent and tenants’ protections against eviction in light of the current COVID-19 related economic crisis. In summary, there are many local ordinances that provide some degree of protection against eviction and frequently also create some pathway for tenants to make up any unpaid balance they accumulate. The only significant statewide protections will come to an end on September 1, 2020, however, with the expiration of the Judicial Council’s Emergency Rule 1, while the limited federal protections have either expired or have little practical effect. There is, as a result, a strong and urgent need for state legislation in this area.

b. What this bill would do, phase by phase

At its most basic, this bill provides a pathway for tenants enduring financial hardship due to the COVID-19 pandemic to remain in their homes through the end of January 2021. However, the bill does not “forgive” or “cancel” any payment obligations that a tenant has under the lease. Instead, depending on the circumstances, some or all of any unpaid amount essentially turns into consumer debt, meaning that the landlord can sue the tenant for failing to pay the money and can use any of the standard legal methods (bank levy, wage garnishment, etc.) to collect it, but the unpaid amount cannot serve as a basis for throwing the tenant out of the home.

To achieve that basic outcome, the bill operates in different phases.

(i) Phase One – September 2, 2020 to October 4, 2020

Beginning on September 2, 2020, when the Judicial Council’s Emergency Rule 1 expires, landlords will once again be able to proceed with eviction cases in court for any lawful cause – meaning a grounds for eviction that is permissible under federal law, state law, and any applicable local ordinance -- other than non-payment of rent or any other financial obligation under the lease. The only exception is that, whereas state law ordinarily allows landlords to evict a tenant in order to demolish a unit or substantially remodel it (subject to payment of a month’s rent to compensate the tenant for relocating), under this bill landlords can only evict for this purpose if the demolition or substantial remodel is necessary to address serious problems with the basic conditions of the unit.

Until October 5, 2020, landlords will not be able to proceed with eviction cases if the grounds for the eviction is nonpayment of rent or other payment obligations under the lease. This delay is intended to allow time for the courts, the Judicial Council, landlords, tenants, and the attorneys who represent them to prepare for the new rules governing nonpayment cases that will take effect in Phase Two.

(ii) Phase Two – October 5, 2020 to January 31, 2021

Beginning on October 5, 2020, in addition to proceeding with evictions for any other lawful cause as set forth in the description of Phase One, above, landlords will now be able to seek to have their tenants evicted for nonpayment of rent or other charges due under the lease. However, up until the end of January 2021, such cases will be subject to the following rules designed to protect tenants with COVID-19 related financial hardships from losing their homes, at least until February of 2021.

If a landlord intends to try to evict a tenant for nonpayment of rent or other charges due under the lease, the landlord must serve a notice giving the tenant a fifteen business day window in which to make one of the following choices: pay the demanded amount, vacate the premises, or return a declaration to the landlord, signed under penalty of perjury, indicating that the tenant cannot pay the rent in full and on time because of a COVID-19 related financial hardship. What constitutes a COVID-19 related financial hardship is both stated in the bill and included in the text of the fifteen-day notice that the landlord must provide to the tenant.

If the tenant returns the signed declaration of COVID-19 related financial hardship to the landlord within the fifteen days given, then the tenant receives protection against eviction. How long that protection lasts depends on when the unpaid rent accrued. For unpaid rent and other charges that accrued between March 1, 2020 and August 31, 2020, returning a signed declaration of COVID-19 related financial hardship permanently protects the tenant against eviction. The tenant still owes that money to the landlord, but it becomes consumer debt: something the landlord can sue the tenant for if the tenant does not pay it back voluntarily, but not the basis for an eviction. For unpaid rent and other charges that accrue between September 1, 2020 and January 31, 2021, returning a signed declaration of COVID-19 related financial hardship only protects the tenant against eviction until February 1, 2021. However, if the tenant returns the signed declaration of COVID-19 related financial hardship and also manages, before February 1, 2021, to pay the landlord at least 25 percent of the rent still due for September 1, 2020 to January 31, 2021 period, then the tenant is permanently protected against eviction for failure to pay the balance. That balance is not forgiven or cancelled, though. It, too, becomes consumer debt that the tenant can be sued for if the tenant does not eventually pay it voluntarily.

(iii) Phase Three – February 1, 2021 - Forward

Going forward from February 2021, tenants will once again be bound by the pre-COVID rules relating to payment of rent and other charges due under the lease. Specifically, tenants who do not pay their monthly rent and other charges on time as they come due must be given at least a three-day window in which to either pay the required amount or vacate. If the tenant does not comply within the three days given, the tenant is thereafter subject to eviction. (Code of Civ. Proc. § 1161(2) and (3).) Mobilehome owners are subject to similarly strict rules, though their three-day window to pay or vacate cannot start until five days after the rent is due, and they are also entitled to 60-day notice giving them the opportunity to try to remove the mobilehome from the park or sell it. (Civ. Code § 798.56(e).)

c. Additional aspects of the rent deferral and eviction protection component of the bill

In addition to the phases of the bill described above, there are several other aspects of the rent deferral and eviction protection components of the bill that warrant attention.

i. Expanded small claims court jurisdiction

As explained in the preceding discussion about the phases of the bill, the bill achieves the goal of trying to keep people from losing their homes while still obligating tenants to pay their landlords in full by converting some unpaid rent into what are, in effect, consumer debts. This means that, though tenants cannot be evicted for not paying these amounts to their landlord, the landlord can sue the tenant for the unpaid money and then use any of the usual legal means to force the tenant to pay up. Ordinarily, however, bringing a lawsuit for a consumer debt is time-consuming and usually requires hiring an attorney. To make it easier for landlords to go after tenants who cannot or do not repay what they owe their landlord voluntarily, this bill temporary opens California’s small claims courts for such cases, even if the amount demanded is beyond the usual small claims court limits.

ii. Documentation requirement for high-income tenants

A significant point of contention in relation to this bill’s predecessor, AB 1436 (Chiu, 2020), was whether tenants should be required to provide documentation to their landlords to back up a declaration of COVID-19 related financial hardship. Some landlords worried that without a documentation requirement, unscrupulous tenants would lie and claim a hardship even when they could actually perfectly well pay the rent. Others pointed out that, especially given the economic and social upheaval brought about by the pandemic, there are legitimate reasons why tenants – low-income and otherwise vulnerable tenants in particular – might not be able to document their hardship. (See Sen. Judic. Com. Analysis of AB 1436 (2019-2020 Reg. Sess.) pp. 23-24 for a detailed discussion of these issues.)

This bill strikes a compromise. It defines a high-income tenant as a household making more than $100,000 annually or more than 130 percent of the median income for the county, whichever is higher. Under the bill, if, before serving a fifteen-day notice pursuant to this bill, a landlord already has proof that the tenant is a high-income tenant, and the tenant proceeds to claim a COVID-19 related financial hardship, then the landlord can demand specified documentation from that high-income tenant. All other tenants cannot be subjected to such documentation requests; their declaration under penalty of perjury is alone sufficient to establish the COVID-19 related financial hardship.

This compromise should achieve the dual aims of preventing well-to-do tenants from gaming the system without inviting landlords to go on fishing expeditions through their tenants’ personal finances, burdening lower-income tenants with having to track down documents that may be difficult or impossible to obtain, and clogging the courts with disputes over whether or not the provided documentation is sufficient.

iii. Increased liability for carrying out extrajudicial evictions

Under California law, landlords must obtain a judicial order in order to evict a tenant and the county sheriff’s department is charged with executing that order. Landlords themselves are prohibited from carrying out evictions on their own. (Civ. Code § 789.3.) Despite these rules, even in ordinary times, unscrupulous landlords undertake an unknown number of extrajudicial evictions by shutting off utilities, changing locks, throwing tenants’ belongings out into the street, or using threats and violence.

Pursuant to the Judicial Council’s Emergency Rule 1, the courts have not been processing evictions since April of this year, except in cases involving threats to the public health and safety. There have been media reports that landlords, frustrated by their inability to use the legal system to kick out tenants who are behind on rent, have increasingly resorting to extrajudicial evictions. This trend is likely to continue and might grow if this bill is enacted. To combat that possibility, the bill includes a temporary, tenfold increase in a landlord’s potential liability for carrying out an illegal, extrajudicial eviction.

This provision – and the existing law on which it is based – would be stronger if it were not accompanied by a two-way fee-shifting provision. Even those displaced tenants who can muster the wherewithal to try to sue the landlord that unlawfully kicked them out may easily be dissuaded from proceeding by the risk that, in addition to simply losing if something goes wrong with the case, they could end up having to pay the landlord’s attorney’s fees as well. If extrajudicial evictions continue to be a problem in California, this could be an issue that future Legislatures may wish to revisit.

iv. Protections against retaliatory or pretextual evictions

Aside from resorting to extrajudicial evictions, another obvious way that landlords could skirt the intended protections offered by this bill is by seeking to evict tenants who have fallen behind on rent because of COVID-19 based on some other pretext. As explained in the discussion about the various phases of the bill, above, landlords will be able to begin filing cases to evict tenants for any lawful reason other than non-payment of rent beginning on September 2, 2020. Knowing this, a landlord who wishes to get rid of a tenant who has a COVID-19 related financial hardship might, for example, suddenly decide to get picky about compliance with previously unenforced terms in the lease or try to upgrade children playing loudly into a “nuisance.” In situations where it remains permissible – meaning, largely, single-family residences in places where no local just cause ordinance applies – a landlord could even terminate the tenancy of someone with a COVID-19 related financial hardship without providing any justification at all.

To try to prevent this sort of pretextual eviction, the bill includes a provision that temporarily includes having COVID-19 rental debt as one of the things for which a landlord cannot retaliate against a tenant. Though useful as a way to highlight the issue, it should be noted that the inclusion of this provision is redundant. This bill gives COVID-19 impacted tenants the right to carry certain unpaid rental and other balances under the lease. Existing law already prohibits a landlord from taking adverse action against a tenant for “lawfully and peacefully exercising any rights under the law.” (Civ. Code § 1942.5(d).) Therefore, a tenant lawfully and peacefully having a COVID-19 related rental debt would be protected against pretextual or retaliatory adverse action under the existing law even absent the explicit inclusion provided by this bill.

v. Record masking

Under existing law, eviction cases are automatically masked from the general public during the first 60 days after they are filed, though journalists and other interested parties can petition to get access to the case files. These masking laws were enacted to prevent unscrupulous “eviction defense” operations from charging distressed tenants fees to drag out unlawful detainer cases when in fact there was little or no hope that the tenant would be able to prevail in the case and remain in the home. Masking can serve to preserve a tenant’s ability to obtain new rental housing as well. With that in mind, this bill contains a provision directing the courts to permanently mask any unlawful detainer case based on nonpayment of rent that was filed between March 1, 2020 and January 31, 2021. This should generally make it easier for tenants who fell behind on rent during this period to obtain alternative housing in the event they get evicted.

iv. Interaction with local ordinances

The bill contains a lengthy and complex section governing how it interacts with the many local ordinances that also address the deferral of rent payments and protections against eviction in light of the COVID-19 pandemic. This section appears to set forth a compromise intended to freeze the local ordinance status quo until February 1, 2021. It declares that existing local ordinances apply until they expire, but if locals enact anything new, including through modification of existing ordinances, it has no effect until after February 1, 2021. The section also specifies that if a local ordinance gives tenants a period in which to pay off an unpaid rental balance, that period must begin at least by March 1, 2021 and has to end no later than March 31, 2022.

3. Analysis of the bill’s foreclosure avoidance and mortgage forbearance provisions

This bill’s foreclosure avoidance and mortgage forbearance provisions both build off of existing law. In terms of foreclosure avoidance, the bill proposes to take the existing Homeowners Bill of Rights (HBOR), which currently covers homeowners only, and apply it to small landlords as well. In the case of mortgage forbearance, the bill proposes to require mortgage services to provide post-forbearance options that are consistent with the federal CARES Act and associated federal agency guidance, at least where a mortgage servicer elects to provide forbearance at all.

Compared with the more robust protections for small landlords and homeowners proposed in AB 1436 (Chiu, 2020), the precursor to this bill that passed out of this Committee on August 18, 2020, by a vote of six to zero, these proposals represent a significant step back. Nonetheless, they do offer some additional procedural protections that, particularly with regard to the extension of HBOR protections to small landlords, could in some cases help to slow or stave off some of the most dire predictions of widespread foreclosures.

a. Mortgage forbearance proposal

Since the bill’s mortgage forbearance provisions build around existing federally-mandated forbearance requirements pursuant to the CARES Act, it may be useful to begin with a refresher regarding those requirements. By way of background, there are essentially two general categories of loans for residential housing: those that are owned, insured, or guaranteed by an agency within the federal government (“federally-backed” mortgages or loans), and those that are not (“non-federally-backed” or “privately-backed” mortgages or loans). Since the federal agencies have a financial stake in federally-backed loans, the federal government maintains authority to regulate much about how those loans are handled. According to the Senate Banking and Financial Institutions Committee, roughly 70 to 80 percent of California mortgages are federally-backed. (See Sen. Banking and Financial Institutions Com. contribution to Sen. Judiciary Com. Analysis of AB 1436 (2019-2020 Reg. Sess.) at p. 17.) The remainder are not.

Pursuant to the CARES Act and agency guidance emanating from it, the federal government has exercised its authority over federally-backed loans to establish the following temporary forbearance regime. Starting March 13, 2020, when the federal government declared a nationwide state of emergency in response to COVID-19, and presumably continuing until December 31, 2020,^[1] owners of property with one to four residential units on it and a federally-backed mortgage may request forbearance on their loan payments by calling or writing to their mortgage servicer. (CARES Act § 4022(b).) So long as the borrower “affirms” that they are “experiencing a financial hardship during the COVID–19 emergency,” the mortgage servicer must “with no additional documentation required other than the borrower’s attestation,” provide the borrower with up to 180 days of forbearance, with an option to extend that forbearance for up to an additional 180 days. (Ibid.) During the forbearance, the mortgage servicer is forbidden from charging the borrower any fees, penalties, or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract. (CARES Act § 4022(c).)

The CARES Act does not specify the terms on which the borrower must make up the amount unpaid once the forbearance ends. Instead, the various federal agencies that oversee these loans – Fannie Mae, Freddie Mac, the Federal Housing Administration of the Department of Housing and Urban Development, the Department of Veterans Affairs, and the Rural Development division of the Department of Agriculture – have all promulgated their own guidance to mortgage servicers about what the mortgage servicers can and cannot offer to borrowers.

In sum, the CARES Act creates a simple framework that generally allows distressed borrowers to obtain forbearance from their mortgage servicer quickly and easily upon request. Critically, however, the CARES Act does not cover privately-backed loans. This means that, while financially distressed California borrowers – be they landlords or homeowners – with federally-backed loans on one-to-four unit properties can rest assured that they can currently obtain forbearance upon request and will probably be able to do so for the remainder of the calendar year, their counterparts with privately backed mortgages have no such guarantee. For the time being, it appears that most servicers have been willing to work voluntarily with their borrowers who have privately-backed mortgages, but as things stand, such borrowers have no guarantee this will continue.

This bill does not directly address the problem. It does not create any additional rights to forbearance that do not already exist, nor does it provide borrowers with any additional time, either before the foreclosure process begins or once the borrower is in the foreclosure process, in which improving financial circumstances might permit the borrower to get caught up.

What the bill does require is that, if a mortgage servicer denies a borrower’s request for forbearance, the mortgage service must provide the borrower with a notice that gives the borrower a specific reason for the denial. Other than requiring that a specific reason be given, the bill is largely silent as to what that reason can be. The bill does indicate that if the denial is due to an incomplete application or missing information from the borrower, then the mortgage servicer is required to give the borrower 21 days to correct the omission. Even if the application is fully and correctly completed, however, the bill does not appear to require a servicer to grant forbearance.

In contrast, once a mortgage servicer does elect to provide a borrower with forbearance, the bill does appear to require the mortgage servicer to review a customer for a post-forbearance “solution” that is consistent with guidance provided by the federal agencies that oversee federally-backed loans. Since there are several of these federal agencies and their guidance regarding options following forbearance varies widely, the meaning of this provision is unclear. Presumably, however, since the solution must be “consistent” with the guidance produced by the various agencies, the mortgage servicer must review the borrower for each and every possible “solution” that any of the various agencies permit.

To enable borrowers to enforce their rights under the forbearance provisions of the bill, the bill authorizes a borrower who has been materially impacted by a violation of the bill to enforce the borrower’s rights in court. As a practical matter, however, it is highly unlikely that many of these cases will arise, even if violations of the bill’s provisions are rampant. This is because, in contrast to HBOR and the version of AB 1436 that passed out of this Committee, this bill does not provide for an award of attorney’s fees to a borrower who prevails in an action seeking injunctive relief to save their home from being sold at a foreclosure auction.

These are complex cases for which legal representation is essential, but absent a guarantee of obtaining attorney’s fees if the borrower prevails, no economically rational attorney would ever take such a case. The borrower is highly unlikely to be able to pay, since if the borrower had sufficient money to pay an attorney, the borrower would have paid the mortgage. As a result, the attorney faces the strong possibility that the attorney will never get paid, even if it crystal clear that the mortgage servicer violated the law to the detriment of the borrower.

b. Extension of the Homeowners Bill of Rights to small landlords

This bill extends the procedural protections of the Homeowners Bill of Rights (HBOR) to small landlords, meaning one or more individuals who collectively own no more than three residential properties, each of which contains no more than four units. HBOR provides protections to borrowers once they have missed a few mortgage payments and are therefore delinquent on their loans. It is at this point that lenders may initiate foreclosure. HBOR requires that mortgage servicers contact borrowers before starting the foreclosure process to discuss foreclosure prevention options. Under HBOR, if a borrower asks to be evaluated for a loan modification, then the mortgage servicer must follow specified standards while working through the application process. Perhaps most significantly, HBOR prohibits “dual-tracking,” meaning that the mortgage servicer must refrain from continuing the foreclosure process while it is evaluating a borrower’s application for a loan modification.

Under this bill, HBOR protections would be expanded to a fully tenant-occupied property with one to four units, if the following conditions were met: (1) the landlord owns no more than three such residential real properties, each of which contains no more than four dwelling units; (2) the property for which the landlord is seeking protection is occupied by at least one tenant who has been unable to pay rent due to COVID-19 reduction in income; and (3) the property for which the landlord is seeking protection is occupied by at least one tenant who entered into a market-rate lease that was in effect on March 4, 2020. The property must continue to be the principal residence of such a tenant throughout the time the landlord is seeking HBOR protections. These conditions are meant to ensure that the temporary HBOR expansion applies only to small landlords who are facing a loss of income due to COVID and who continue to house at least one bona fide tenant.

The HBOR expansion will sunset on January 1, 2023. Regardless of whether that sunset date is extended in the future, the existence of any sunset may create problems for landlords who are in the midst of being considered for a foreclosure alternative when the bill’s provisions expire. In the coming session, therefore, the Legislature may therefore wish to consider adding a saving clause extending these protections for landlords who are already in-process for a loan modification at the time the bill sunsets.

Extending HBOR’s procedural protections against foreclosure to small landlords would have the benefit of establishing for those small landlords a legally enforceable right to engage in a conversation with the mortgage servicer about ways that the small landlord might be able to avoid foreclosure. The prohibition on dual-tracking also assures that a small landlord is not careening toward foreclosure at the same time the small landlord is undergoing evaluation for possible loan modifications. At the same time, it may be worth noting what HBOR does not provide. Extending HBOR to small landlords does not provide them with forbearance and, ultimately, HBOR offers no guarantee at all that foreclosure can be delayed or avoided. HBOR provides procedural remedies. It requires mortgage servicers to evaluate borrowers to see if they are eligible for loan modifications but it does not require mortgage servicers to provide borrowers with any particular substantive outcome.

4. Analysis of the bill’s technical clean-up of AB 1482 (Chiu

AB 1482 (Chiu, Ch. 597, Stats. 2019), California’s landmark legislation requiring just cause for eviction statewide and prohibiting residential rent-gouging, was the product of lengthy, complex, and shifting negotiations between stakeholders, both houses of the Legislature, and, eventually, the Governor’s Office. Though the principal components of the bill are clear, hindsight has shown a handful of provisions at the margins that require further refinement in order to eliminate possible confusion. AB 1482’s author therefore reconvened the principal stakeholders to the original bill and asked them to seek consensus language that could iron out these policy wrinkles. This component of this bill is the result of that effort. Each source of potential confusion from AB 1482 is described below, accompanied by a brief explanation of the solution proposed in this bill.

a. Determining the applicable rate of inflation

AB 1482 sought to cut down on rent-gouging by prohibiting annual rent increases in excess of five percent plus inflation up to a maximum cap of 10 percent. AB 1482 specified that the rate of inflation for any particular property is the percentage change in the regional Consumer Price Index for the region where the residential real property is located from April 1 of the prior year to April 1 of the current year, as published by the United States Bureau of Labor Statistics. If no regional index is available for the property in question, then inflation is to be calculated using the California Consumer Price Index for All Urban Consumers for all items, as determined by the Department of Industrial Relations.

While conceptually simple, hindsight has revealed some ambiguities in this formulation. For example, if a landlord seeks to raise the rent in February, how does the landlord know what the regional CPI for April 1 of the current year will be?

This bill revises the formula for calculating inflation, eliminating points of potential confusion in the process. The new formulation is intended to cover as many contingencies as possible while making it relatively simple to follow.

b. Clarification of how housing structures with two units are to be treated under the bill

AB 1482 exempted from its provisions duplexes in which the owner occupies one of the two units. In practice, however, the term duplex has no standard legal definition. As a result, there was some confusion about exactly what rental property is, and is not, exempt. To clarify the matter, this bill specifies that the exemption applies to property containing two separate dwelling units within a single structure, where neither unit is an accessory dwelling unit or a junior accessory dwelling unit, and the property owner occupies one of the units as a principal residence.

c. Correction of erroneous cross-reference in notice of exemption to tenant

AB 1482 requires that, in order to be exempt from the rent cap and just cause provisions, a property owner must both qualify for the exemption and provide notice of that exemption to the tenants. The bill specifies the exact language that must be contained in these notices. In the legislative swirl accompanying negotiation and passage of AB 1482, two erroneous cross-references within the text for one of the required notices went undetected. As a result, landlords wishing to claim an exemption face a dilemma: they can use the exact text as it appears in the bill, but they will then be providing inaccurate information to their tenants; or alter the text of the notice to provide accurate information, but violate the statute – at least in a very technical sense – in the process. This bill corrects the cross-reference, thus eliminating this problem.

d. Aligning definitions of school dormitories

AB 1482 contained exemptions for school dormitories from both the just cause provisions and the anti-rent gouging provisions. At some point in the legislative process, however, the language describing one of the exemptions was changed, but the other did not. This mismatch was unintentional. Accordingly, this bill brings the two exemptions into alignment.

e. Clarifying the scope of laws with which housing providers must comply before establishing initial rates after the expiration of affordability covenants

In order to qualify for special financing, many housing providers must agree to keep the rent affordable for a specified period of time. AB 1482 provided that, upon the expiration of that period, housing providers could initially establish new rental rates without necessarily staying within the rent increase caps imposed by AB 1482. Before establishing these new initial rental rates, however, the housing provider had to demonstrate compliance with other laws designed to preserve affordable housing. As drafted, however, AB 1482 was not completely consistent about exactly what laws housing providers had to follow. This bill clarifies that the housing provider must demonstrate compliance with all applicable federal, state, and local laws. The bill further specifies that AB 1482 does not preempt any local laws that may also apply.

SUPPORT

None known

OPPOSITION

None known

RELATED LEGISLATION

Pending Legislation:

SB 915 (Leyva, 2020) temporarily prohibits mobilehome parks from evicting residents who timely notify park management that they have been impacted, as defined, by COVID 19. The bill further mandates that mobilehome parks give COVID 19-impacted residents at least a year to comply with demands to repay outstanding rent, utilities or other charges, and up to a year to cure violations of park rules and regulations. The bill also prohibits parks from increasing rent or other charges during the period of repayment or cure. SB 915 is currently pending consideration on the Assembly Floor.

SB 1410 (Caballero, 2020) establishes a program under which landlords and tenants impacted economically by COVID-19 could enter into a specified agreement in lieu of rent payments. On the basis of this agreement, the landlord could apply to the Franchise Tax Board for tax credits equal in value to the rent not paid by the tenant. The tenant would be obligated to pay the amount of the unpaid rent to the Franchise Tax Board in yearly installments over ten years beginning in 2024, with specified discounts and forgiveness for low-income individuals. SB 1410 was held in the Assembly Appropriations Committee.

SB 1447 (Bradford, 2020), prior to being gutted and amended to address unrelated matters on August 27, 2020, would have allowed specified small landlords facing foreclosure to avail themselves of the procedural protections set forth in the Homeowner Bill of Rights, including the ability to halt a non-judicial foreclosure temporarily through the filing of a completed application for a first lien loan modification, and permanently halt such foreclosure proceedings if a loan modification is granted. SB 1447, with unrelated content, is currently pending consideration on the Assembly Floor.

AB 828 (Ting, 2020) establishes a moratorium on foreclosures for the duration of the COVID-19 state of emergency plus 90 days and prohibits evictions during a similar period except in cases addressing issues of damage to the property, nuisance, or health and safety. The bill also gives tenants who can document COVID-19 related financial hardship a one-year deferral on rent accrued during the state of emergency. AB 828 is currently pending consideration before the Senate Judiciary Committee.

AB 1436 (Chiu, 2020) enables small landlords, homeowners, and tenants in financial distress because of the COVID-19 pandemic, to temporarily defer their mortgage or rental payments until, it is hoped, the worst of the public health emergency passes and its financial consequences begin to ease. The bill also establishes timelines and a framework for full repayment of any amounts deferred. AB 1436 is currently pending further referral in the Senate Rules Committee.

Prior Legislation:

SB 939 (Wiener, 2020) would have established, for specified commercial tenants, a temporary moratorium on evictions for the duration of the COVID-19 related state of emergency, and a yearlong period afterward in which to make up rental payments missed during that state of emergency. In addition, for specified businesses that have been especially impacted by the public health protocols resulting from the COVID-19 pandemic, including restaurants and bars, the bill would have created procedures for renegotiating or terminating existing leases that were based on pre-COVID-19 expectations. SB 939 was held in the Senate Appropriations Committee.

AB 1482 (Chiu, Ch. 597, Stats. 2019) limited rent-gouging in California by placing an upper limit on annual rent increases: five percent plus inflation up to a hard cap of 10 percent. To prevent landlords from engaging in rent-gouging by evicting tenants, this bill also requires that a landlord have and state a just cause, as specified, in order to evict tenants who have occupied the premises for a year. Both the rent cap and the just cause provisions are subject to exemptions including, among others: housing built in the past 15 years and single family residences unless owned by a real estate trust or a corporation. AB 1482 sunsets after ten years and does not preempt any local rent control ordinances.

AB 56 (Moore, Ch. 53, Stats. 1992) provided relief to tenants who were unable to respond to unlawful detainer actions because of court closures due to the Rodney King riots in Los Angeles.

PRIOR VOTES:

NOTE: Significant new content was added to this bill on August 28, 2020. All prior votes on the bill relate only to the part of this bill that provides technical cleanup to AB 1482 (Chiu, Ch. 597, Stats. 2019), the just cause for eviction and anti-rent gouging bill passed by the Legislature last year.

Senate Judiciary Committee (Ayes 9, Noes 0)

Assembly Floor (Ayes 70, Noes 0)

Assembly Housing and Community Development Committee (Ayes 7, Noes 0)

**************

1. Due to what may have been a drafting oversight, Section 4022 of the CARES Act does not actually define the “covered period” during which its provisions apply, but the related Section 4023 of the bill defines “covered period” to mean March 13, 2020 until the nationwide state of emergency ends or December 31, 2020, whichever comes earlier. (CARES Act § 4023(f)(5).) ↑

 THIRD READING 

Bill No: AB 3088

Author: Chiu (D)

Amended: 8/1/20 in Senate

Vote: 21

SENATE JUDICIARY COMMITTEE: 9-0, 7/30/20

AYES: Jackson, Borgeas, Durazo, Lena Gonzalez, Melendez, Monning, Stern, Umberg, Wieckowski

ASSEMBLY FLOOR: 70-0, 6/8/20 - See last page for vote

SUBJECT: Tenancy: termination: rent caps

SOURCE: Author

DIGEST:

This bill makes technical and clarifying modifications to the statewide just cause for eviction and anti-rent gouging laws enacted last year pursuant to the Tenant Protection Act of 2019 (AB 1482, Chiu, Chapter 597, Statutes of 2019). Specifically, this bill: (1) lays out how inflation should be calculated when determining permissible rent increases; (2) clarifies application of the law to properties containing two housing units; (3) aligns definitions; (4) corrects erroneous cross-references; and (5) clarifies the scope of laws with which a housing provider must demonstrate compliance before establishing new rental rates after the expiration of affordability covenants.

ANALYSIS:

Existing law:

1. Prohibits, until January 1, 2030, an owner of residential real property from terminating a tenancy without just cause for tenants that have continuously and lawfully occupied the unit for a year or more, with specified exceptions. (Civ. Code § 1946.2.)
2. Prohibits, until January 1, 2030, an owner of a residential real property from increasing the rental rate on a property that has been in effect for the preceding 12 months in an amount that is greater than the Consumer Price Index (CPI) plus five percent, not to exceed 10 percent, with specified exceptions. (Civ. Code § 1947.12.)
3. Provides definitions, exemptions, rules, and procedures for implementing Civil Code Sections 1946.2 and 1947.12, including the following provisions that are of particular relevance to this bill:
   1. Exempts duplexes from the provision of these sections if the owner occupied one of the units as the owner’s principal place of residence at the beginning of the tenancy, so long as the owner continues in occupancy.
   2. Defines, in Section 1947.12, dormitories as qualifying for exemption from the rent cap as those that have been constructed and maintained in connection with any higher education institution within the state for use and occupancy by students in attendance at the institution.
   3. Requires, for an exemption to apply, a notice with specific text to be sent to all tenants in residential real property that is alienable separate from the title to any other dwelling unit whose owner is not a real estate investment trust, a corporation, or a limited liability company in which at least one member is a corporation. The required text for the notice associated with the rent cap portion of the Act includes an erroneous cross-reference.
   4. Defines the percentage change in the cost of living to mean the percentage change from April 1 of the prior year to April 1 of the current year in the regional CPI for the region where the residential real property is located, as published by the United States Bureau of Labor Statistics. If a regional index is not available, the California Consumer Price Index for All Urban Consumers for all items, as determined by the Department of Industrial Relations applies.
   5. Specifies that the owner of an assisted housing development may establish the initial unassisted rental rate for units in the applicable housing development having demonstrated compliance with all applicable law or regulation intended to promote the preservation of assisted housing.

This bill:

1. Revises the exemption applicable to duplexes to specify that it applies to a property containing two separate dwelling units within a single structure, neither of which is an accessory dwelling unit or a junior accessory dwelling unit.
2. Aligns the definition of dormitories for the rent cap portion of the Act with definition in the just cause portion of the Act, such that dormitories qualifying for exemption from the rent cap are those owned and operated by an institution of higher education or a kindergarten and grades 1 to 12, inclusive, school.
3. Corrects, in the rent cap portion of the Act, an erroneous cross-reference in the notice required to be sent to all tenants in residential real property qualifies for exemption from the Act because it is alienable separate from the title to any other dwelling unit whose owner is not a real estate investment trust, a corporation, or a limited liability company in which at least one member is a corporation.
4. Revises the definition of the percentage change of the cost of living to mean the percentage change in the Consumer Price Index for All Urban Consumers for All Items, as follows:
   1. The applicable percentage change in the cost of living shall be the Consumer Price Index for All Urban Consumers for All Items for the metropolitan area where the residential real property is located, as published by the United States Bureau of Labor Statistics. If a metropolitan area index is not available, the California Consumer Price Index for All Urban Consumers for All Items, as published by the Department of Industrial Relations, shall apply; and
   2. The percentage change in the cost of living shall be the percentage change in the amount published for the previous April and the April before that. If there is no amount published in April for the applicable geography, the percentage change in the cost of living shall be percentage change in the amount published for the previous March and the March before that.
5. Clarifies that the owner of assisted housing development may establish the initial unassisted rental rate for units in the applicable housing development having demonstrated compliance with all applicable federal, state, or local laws or regulations intended to promote the preservation of assisted housing.

Background

AB 1482 (Chiu, Chapter 597, Statutes of 2019), California’s landmark legislation requiring just cause for eviction statewide and prohibiting residential rent-gouging, was the product of lengthy, complex, and shifting negotiations between stakeholders, both houses of the Legislature, and, eventually, the Governor’s Office. Though the principal components of the bill are clear, hindsight has shown a handful of provisions at the margins that require further refinement in order to eliminate possible confusion. AB 1482’s author therefore reconvened the principal stakeholders to the original bill and asked them to seek consensus language that could iron out these policy wrinkles. This bill is the result of that effort. Each source of potential confusion from AB 1482 is described below, accompanied by a brief explanation of the solution proposed in this bill.

1. Determining the applicable rate of inflation.

AB 1482 sought to cut down on rent-gouging by prohibiting annual rent increases in excess of five percent plus inflation up to a maximum cap of 10 percent. AB 1482 specified that the rate of inflation for any particular property is the percentage change in the regional CPI for the region where the residential real property is located from April 1 of the prior year to April 1 of the current year, as published by the United States Bureau of Labor Statistics. If no regional index is available for the property in question, then inflation was to be calculated using the California Consumer Price Index for All Urban Consumers for all items, as determined by the Department of Industrial Relations.

While conceptually simple, hindsight has revealed some ambiguities in this formulation. For example, if a landlord seeks to raise the rent in February, how does the landlord know what the regional CPI for April 1 of the current year will be?

This bill revises the formula for calculating inflation, eliminating points of potential confusion in the process. The new formulation is intended to cover as many contingencies as possible while making it relatively simple to follow.

1. Clarification of how housing structures with two units are to be treated under the bill.

AB 1482 exempted from its provisions duplexes in which the owner occupies one of the two units. In practice, however, the term duplex has no standard legal definition. As a result, there was some confusion about exactly what rental property is, and is not, exempt. To clarify the matter, this bill specifies that the exemption applies to property containing two separate dwelling units within a single structure, where neither unit is an accessory dwelling unit or a junior accessory dwelling unit, and the property owner occupies one of the units as a principal residence.

1. Correction of erroneous cross-reference in notice of exemption to tenant.

AB 1482 required that, in order to be exempt from the rent cap and just cause provisions, a property owner must both qualify for the exemption and provide notice of that exemption to the tenants. The bill specified the exact language that must be contained in these notices. In the legislative swirl accompanying negotiation and passage of AB 1482, two erroneous cross-references within the text for one of the required notices went undetected. As a result, landlords wishing to claim an exemption face a dilemma: they can use the exact text as it appears in the bill, but they will then be providing inaccurate information to their tenants; or alter the text of the notice to provide accurate information, but violate the statute – at least in a very technical sense – in the process. This bill corrects the cross-reference, thus eliminating this problem.

1. Aligning definitions of school dormitories.

AB 1482 contained exemptions for school dormitories from both the just cause provisions and the anti-rent gouging provisions. At some point in the legislative process, however, the language describing one of the exemptions got changed, but the other did not. This mismatch was unintentional. Accordingly, this bill brings the two exemptions into alignment.

1. Clarifying the scope of laws with which housing providers must comply before establishing initial rates after the expiration of affordability covenants.

In order to qualify for special financing, many housing providers must agree to keep the rent affordable for a specified period of time. AB 1482 provided that, upon the expiration of that period, housing providers could initially establish new rental rates without necessarily staying within the rent increase caps imposed by AB 1482. Before establishing these new initial rental rates, however, the housing provider had to demonstrate compliance with other laws designed to preserve affordable housing. As drafted, however, AB 1482 was not completely consistent about exactly what laws housing providers had to follow. This bill clarifies that the housing provider must demonstrate compliance with all applicable federal, state, and local laws. This bill further specifies that AB 1482 does not preempt any local laws that may also apply.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 7/31/20)

California Rural Legal Assistance Foundation, Inc.

Child Care Law Center

Western Center on Law & Poverty

OPPOSITION: (Verified 7/31/20)

None received

ARGUMENTS IN SUPPORT: According to the author:

The Tenant Protection Act of 2019 provided protections against unjust evictions and rent gouging to millions of Californians. AB 3088 includes technical cleanups necessary to provide all parties the clarity they need to properly uphold this landmark law.

In support of this bill, California Rural Legal Assistance Foundation, Inc., and Western Center on Law & Poverty write:

Assembly Bill 3088 […] will clarify provisions of last year’s AB 1482, the Tenant Protection Act, to ensure the important tenant protections it contains can be administered and enforced correctly and uniformly.

ASSEMBLY FLOOR: 70-0, 6/8/20

AYES: Aguiar-Curry, Bauer-Kahan, Berman, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Chiu, Chu, Cooley, Cooper, Cunningham, Megan Dahle, Diep, Eggman, Flora, Fong, Frazier, Friedman, Gabriel, Gallagher, Cristina Garcia, Eduardo Garcia, Gipson, Gloria, Gonzalez, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager, Lackey, Levine, Limón, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Mullin, Nazarian, Obernolte, O'Donnell, Patterson, Quirk-Silva, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Choi, Daly, Gray, Kiley, Muratsuchi, Petrie-Norris, Quirk, Ramos

Prepared by: Timothy Griffiths / JUD. / (916) 651-4113

8/24/20 20:03:43

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: AB 3088 (Author:Chiu)

Version: May 12, 2020

Hearing Date: July 30, 2020

Fiscal: No

Urgency: No

Consultant: TSG

SUBJECT

Tenancy: termination: rent caps

NOTE: This analysis reflects the bill as proposed to be amended in Committee.

DIGEST

This bill makes technical and clarifying modifications to the statewide just cause for eviction and anti-rent gouging laws enacted last year pursuant to AB 1482 (Chiu, Ch. 597, Stats. 2019). Specifically, the bill: (1) lays out how inflation should be calculated when determining permissible rent increases; (2) clarifies application of the law to properties containing two housing units; (3) aligns definitions; (4) corrects erroneous cross-references; and (5) clarifies the scope of laws with which a housing provider must demonstrate compliance before establishing new rental rates after the expiration of affordability covenants.

EXECUTIVE SUMMARY

Last year, California enacted AB 1482, a landmark piece of legislation establishing, for the next decade, statewide just cause for eviction and caps on annual rent increases for many residential tenancies. That bill was the product of intense negotiations between the various stakeholders and went through multiple iterations. In hindsight, that bill contains a few provisions that, absent clarification, could lead to confusion. There is also an erroneous cross-reference in the text. This bill cleans up those issues. It is the product of careful deliberation among those who were involved in the negotiation of AB 1482.

The bill is author sponsored. Support is from tenant advocacy groups. There is no opposition on file.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Prohibits, until January 1, 2030, an owner of residential real property from terminating a tenancy without just cause for tenants that have continuously and lawfully occupied the unit for a year or more, with specified exceptions. (Civ. Code § 1946.2.)
2. Prohibits, until January 1, 2030, an owner of a residential real property from increasing the rental rate on a property that has been in effect for the preceding 12 months in an amount that is greater than the Consumer Price Index (CPI) plus five percent, not to exceed 10 percent, with specified exceptions. (Civ. Code § 1947.12.)
3. Provides definitions, exemptions, rules, and procedures for implementing Civil Code Sections 1946.2 and 1947.12, including the following provisions that are of particular relevance to this bill:
   1. Exempts duplexes from the provision of these sections if the owner occupied one of the units as the owner’s principal place of residence at the beginning of the tenancy, so long as the owner continues in occupancy.
   2. Defines, in Section 1947.12, dormitories as qualifying for exemption from the rent cap as those that have been constructed and maintained in connection with any higher education institution within the state for use and occupancy by students in attendance at the institution.
   3. Requires, for an exemption to apply, a notice with specific text to be sent to all tenants in residential real property that is alienable separate from the title to any other dwelling unit whose owner is not a real estate investment trust, a corporation, or a limited liability company in which at least one member is a corporation. The required text for the notice associated with the rent cap portion of the Act includes an erroneous cross-reference.
   4. Defines the percentage change in the cost of living to mean the percentage change from April 1 of the prior year to April 1 of the current year in the regional Consumer Price Index for the region where the residential real property is located, as published by the United States Bureau of Labor Statistics. If a regional index is not available, the California Consumer Price Index for All Urban Consumers for all items, as determined by the Department of Industrial Relations applies.
   5. Specifies that the owner of an assisted housing development may establish the initial unassisted rental rate for units in the applicable housing development having demonstrated compliance with all applicable law or regulation intended to promote the preservation of assisted housing.

This bill:

1. Revises the exemption applicable to duplexes to specify that it applies to a property containing two separate dwelling units within a single structure, neither of which is an accessory dwelling unit or a junior accessory dwelling unit.
2. Aligns the definition of dormitories for the rent cap portion of the Act with definition in the just cause portion of the Act, such that dormitories qualifying for exemption from the rent cap are those owned and operated by an institution of higher education or a kindergarten and grades 1 to 12, inclusive, school.
3. Corrects, in the rent cap portion of the Act, a reference in the notice required to be sent to all tenants in residential real property that is alienable separate from the title to any other dwelling unit whose owner is not a real estate investment trust, a corporation, or a limited liability company in which at least one member is a corporation.
4. Revises the definition of the percentage change of the cost of living to mean the percentage change in the Consumer Price Index for All Urban Consumers for All Items, as follows:

a) the applicable percentage change in the cost of living shall be the Consumer Price Index for All Urban Consumers for All Items for the metropolitan area where the residential real property is located, as published by the United States Bureau of Labor Statistics. If a metropolitan area index is not available, the California Consumer Price Index for All Urban Consumers for All Items, as published by the Department of Industrial Relations, shall apply; and

b) the percentage change in the cost of living shall be the percentage change in the amount published for the previous April and the April before that. If there is no amount published in April for the applicable geography, the percentage change in the cost of living shall be percentage change in the amount published for the previous March and the March before that.

1. Clarifies that the owner of assisted housing development may establish the initial unassisted rental rate for units in the applicable housing development having demonstrated compliance with all applicable federal, state, or local laws or regulations intended to promote the preservation of assisted housing.

COMMENTS

1. Background

AB 1482 (Chiu, Ch. 597, Stats. 2019), California’s landmark legislation requiring just cause for eviction statewide and prohibiting residential rent-gouging, was the product of lengthy, complex, and shifting negotiations between stakeholders, both houses of the Legislature, and, eventually, the Governor’s Office. Though the principal components of the bill are clear, hindsight has shown a handful of provisions at the margins that require further refinement in order to eliminate possible confusion. AB 1482’s author therefore reconvened the principal stakeholders to the original bill and asked them to seek consensus language that could iron out these policy wrinkles. This bill is the result of that effort. Each source of potential confusion from AB 1482 is described below, accompanied by a brief explanation of the solution proposed in this bill.

a. Determining the applicable rate of inflation

AB 1482 sought to cut down on rent-gouging by prohibiting annual rent increases in excess of five percent plus inflation up to a maximum cap of 10 percent. AB 1482 specified that the rate of inflation for any particular property is the percentage change in the regional Consumer Price Index for the region where the residential real property is located from April 1 of the prior year to April 1 of the current year, as published by the United States Bureau of Labor Statistics. If no regional index is available for the property in question, then inflation is to be calculated using the California Consumer Price Index for All Urban Consumers for all items, as determined by the Department of Industrial Relations.

While conceptually simple, hindsight has revealed some ambiguities in this formulation. For example, if a landlord seeks to raise the rent in February, how does the landlord know what the regional CPI for April 1 of the current year will be?

This bill revises the formula for calculating inflation, eliminating points of potential confusion in the process. The new formulation is intended to cover as many contingencies as possible while making it relatively simple to follow.

b. Clarification of how housing structures with two units are to be treated under the bill

AB 1482 exempted from its provisions duplexes in which the owner occupies one of the two units. In practice, however, the term duplex has no standard legal definition. As a result, there was some confusion about exactly what rental property is, and is not, exempt. To clarify the matter, this bill specifies that the exemption applies to property containing two separate dwelling units within a single structure, where neither unit is an accessory dwelling unit or a junior accessory dwelling unit, and the property owner occupies one of the units as a principal residence.

c. Correction of erroneous cross-reference in notice of exemption to tenant

AB 1482 requires that, in order to be exempt from the rent cap and just cause provisions, a property owner must both qualify for the exemption and provide notice of that exemption to the tenants. The bill specifies the exact language that must be contained in these notices. In the legislative swirl accompanying negotiation and passage of AB 1482, two erroneous cross-references within the text for one of the required notices went undetected. As a result, landlords wishing to claim an exemption face a dilemma: they can use the exact text as it appears in the bill, but they will then be providing inaccurate information to their tenants; or alter the text of the notice to provide accurate information, but violate the statute – at least in a very technical sense – in the process. This bill corrects the cross-reference, thus eliminating this problem.

d. Aligning definitions of school dormitories

AB 1482 contained exemptions for school dormitories from both the just cause provisions and the anti-rent gouging provisions. At some point in the legislative process, however, the language describing one of the exemptions got changed, but the other did not. This mismatch was unintentional. Accordingly, this bill brings the two exemptions into alignment.

e. Clarifying the scope of laws with which housing providers must comply before establishing initial rates after the expiration of affordability covenants

In order to qualify for special financing, many housing providers must agree to keep the rent affordable for a specified period of time. AB 1482 provided that, upon the expiration of that period, housing providers could initially establish new rental rates without necessarily staying within the rent increase caps imposed by AB 1482. Before establishing these new initial rental rates, however, the housing provider had to demonstrate compliance with other laws designed to preserve affordable housing. As drafted, however, AB 1482 was not completely consistent about exactly what laws housing providers had to follow. This bill clarifies that the housing provider must demonstrate compliance with all applicable federal, state, and local laws. The bill further specifies that AB 1482 does not preempt any local laws that may also apply.

2. Arguments in support of the bill

According to the author:

The Tenant Protection Act of 2019 provided protections against unjust evictions and rent gouging to millions of Californians. AB 3088 includes technical cleanups necessary to provide all parties the clarity they need to properly uphold this landmark law.

In support of the bill, California Rural Legal Assistance Foundation, Inc., and Western Center on Law & Poverty write:

Assembly Bill 3088 […] will clarify provisions of last year’s AB 1482, the Tenant Protection Act, to ensure the important tenant protections it contains can be administered and enforced correctly

and uniformly.

SUPPORT

California Rural Legal Assistance Foundation, Inc.

Western Center on Law & Poverty

OPPOSITION

None known

RELATED LEGISLATION

Pending Legislation: AB 2895 (Quirk-Silva, 2020) extends the anti-rent gouging provisions of AB 1482 (annual rent increases capped at five percent plus inflation up to a maximum of 10 percent) to mobilehome homeowners and tenants. It is currently pending consideration before the Senate Judiciary Committee.

Prior Legislation: AB 1482 (Chiu, Ch. 597, Stats. 2019) limited rent-gouging in California by placing an upper limit on annual rent increases: five percent plus inflation up to a hard cap of 10 percent. To prevent landlords from engaging in rent-gouging by evicting tenants, this bill also requires that a landlord have and state a just cause, as specified, in order to evict tenants who have occupied the premises for a year. Both the rent cap and the just cause provisions are subject to exemptions including, among others: housing built in the past 15 years and single family residences unless owned by a real estate trust or a corporation. AB 1482 sunsets after ten years and does not preempt any local rent control ordinances.

PRIOR VOTES:

Assembly Floor (Ayes 70, Noes 0)

Assembly Housing and Community Development Committee (Ayes 7, Noes 0)

**************

ASSEMBLY THIRD READING

ATR Bill Id:AB 3088

Author:(Chiu)

As Amended Ver:May 12, 2020

Majority vote

SUMMARY:

Corrects technical errors in the Tenant Protection Act of 2019 (the Act).

Major Provisions

1. Revises the exemption applicable to duplexes to specify that it applies to a property containing two separate dwelling units within a single structure, neither of which is an accessory dwelling unit or a junior accessory dwelling unit. 
2. Specifies that the exemption for units built within the previous 15 years includes those that have received final inspection, final permit, or similar approval for initial residential occupancy of the unit during that time period.
3. Aligns the definition of dormitories for the rent cap portion of the Act with definition in the just cause portion of the Act, such that dormitories qualifying for exemption from the rent cap are those owned and operated by an institution of higher education or a kindergarten and grades 1 to 12, inclusive, school.
4. Corrects, in the rent cap portion of the Act, a reference in the notice required to be sent to all tenants in residential real property that is alienable separate from the title to any other dwelling unit whose owner is not a real estate investment trust, a corporation, or a limited liability company in which at least one member is a corporation.
5. Revises the definition of the percentage change of the cost of living to mean the percentage change in the Consumer Price Index for All Urban Consumers for All Items, as follows:
   1. The applicable percentage change in the cost of living shall be the Consumer Price Index for All Urban Consumers for All Items for the metropolitan area where the residential real property is located, as published by the United States Bureau of Labor Statistics. If a metropolitan area index is not available, the California Consumer Price Index for All Urban Consumers for All Items, as published by the Department of Industrial Relations, shall apply; and
   2. The percentage change in the cost of living shall be the percentage change in the amount published for the previous April and the April before that. If there is no amount published in April for the applicable geography, the percentage change in the cost of living shall be percentage change in the amount published for the previous March and the March before that.
6. Clarifies that the owner of assisted housing development may establish the initial unassisted rental rate for units in the applicable housing development having demonstrated compliance with all applicable state or local law or regulation intended to promote the preservation of assisted housing.

COMMENTS:

The Tenant Protection of 2019 AB 1482 (Chiu), Chapter 597, Statutes of 2019 established, for approximately 8 million renters, substantial protections against unjustified eviction and rent gouging. Because of its breadth, it has been closely scrutinized by parties involved in all aspects of the rental housing industry, including landlords and their affiliated organizations, tenants and their affiliated organizations, and local governments. Such scrutiny has revealed several instances where the involved parties have taken differing interpretations of the law's meaning. This bill will remove subjectivity and provide clarity to improve implementability of the law.

According to the Author:

"The Tenant Protection Act of 2019 provided protections against unjust evictions and rent gouging to millions of Californians. AB 3088 includes technical cleanups necessary to provide all parties the clarity they need to properly uphold this landmark law"

Arguments in Support:

Arguments in support focus on how this bill will make it easier to implement the Tenant Protection Act of 2019. According to the Western Center on Law & Poverty, "Assembly Bill 3088 … will clarify provisions of last year's AB 1482, the Tenant Protection Act, to ensure the important tenant protections it contains can be administered and enforced correctly and uniformly."

Arguments in Opposition:

None on file

FISCAL COMMENTS:

This bill is keyed non fiscal by the Legislative Counsel.

VOTES:

ASM HOUSING AND COMMUNITY DEVELOPMENT: 7-0-1

YES: Chiu, Diep, Gabriel, Gloria, Limón, Maienschein, Quirk-Silva

ABS, ABST OR NV: Kiley

UPDATED:

VERSION: May 12, 2020

CONSULTANT: Steve Wertheim / H. & C.D. / (916) 319-2085 FN: 0002777

Date of Hearing: May 20, 2020

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 3088 (

Author:Chiu) – As Amended Ver:May 12, 2020

SUBJECT: Tenancy: termination: rent caps

SUMMARY: Corrects technical errors in the Tenant Protection Act of 2019 (the Act). Specifically, this bill:

1. Revises the exemption applicable to duplexes to specify that it applies to a property containing two separate dwelling units within a single structure, neither of which is an accessory dwelling unit or a junior accessory dwelling unit. 
2. Specifies that the exemption for units built within the previous 15 years includes those that have received final inspection, final permit, or similar approval for initial residential occupancy of the unit during that time period.
3. Aligns the definition of dormitories for the rent cap portion of the Act with definition in the just cause portion of the Act, such that dormitories qualifying for exemption from the rent cap are those owned and operated by an institution of higher education or a kindergarten and grades 1 to 12, inclusive, school.
4. Corrects, in the rent cap portion of the Act, a reference in the notice required to be sent to all tenants in residential real property that is alienable separate from the title to any other dwelling unit whose owner is not a real estate investment trust, a corporation, or a limited liability company in which at least one member is a corporation.
5. Revises the definition of the percentage change of the cost of living to mean the percentage change in the Consumer Price Index for All Urban Consumers for All Items, as follows:
   1. The applicable percentage change in the cost of living shall be the Consumer Price Index for All Urban Consumers for All Items for the metropolitan area where the residential real property is located, as published by the United States Bureau of Labor Statistics. If a metropolitan area index is not available, the California Consumer Price Index for All Urban Consumers for All Items, as published by the Department of Industrial Relations, shall apply; and
   2. The percentage change in the cost of living shall be the percentage change in the amount published for the previous April and the April before that. If there is no amount published in April for the applicable geography, the percentage change in the cost of living shall be percentage change in the amount published for the previous March and the March before that.
6. Clarifies that the owner of assisted housing development may establish the initial unassisted rental rate for units in the applicable housing development having demonstrated compliance with all applicable state or local law or regulation intended to promote the preservation of assisted housing.

EXISTING LAW:

1. Prohibits, until January 1, 2030, the owner of residential real property from terminating a tenancy without just cause for tenants that have continuously and lawfully occupied the unit, as specified (Civil Code Section 1946.2).
2. Prohibits, until January 1, 2030, an owner of a residential real property from increasing the rental rate on a property that has been in effect for the preceding 12 months in an amount that is greater than the Consumer Price Index (CPI) plus 5%, not to exceed 10% (Civil Code Section 1947.12).
3. Provides definitions, exemptions, rules, and procedures for implementing Civil Code Sections 1946.2 and 1947.12, including:
   1. Exempting duplexes from the provision of these sections if the owner occupied one o­f the units as the owner’s principal place of residence at the beginning of the tenancy, so long as the owner continues in occupancy.
   2. Exempting a housing unit that has received a certificate of occupancy within the previous 15 years.
   3. Defines, in Section 1947.12, dormitories as qualifying for exemption from the rent cap as those that have been constructed and maintained in connection with any higher education institution within the state for use and occupancy by students in attendance at the institution.
   4. Requires, for an exemption to apply, a to be sent to all tenants in residential real property that is alienable separate from the title to any other dwelling unit whose owner is not a real estate investment trust, a corporation, or a limited liability company in which at least one member is a corporation. The rent cap portion of the Act includes an incorrect reference.
   5. Defines the percentage change in the cost of living to mean the percentage change from April 1 of the prior year to April 1 of the current year in the regional Consumer Price Index for the region where the residential real property is located, as published by the United States Bureau of Labor Statistics. If a regional index is not available, the California Consumer Price Index for All Urban Consumers for all items, as determined by the Department of Industrial Relations, shall apply.
   6. Specifies that the owner of assisted housing development may establish the initial unassisted rental rate for units in the applicable housing development having demonstrated compliance with all applicable law or regulation intended to promote the preservation of assisted housing.

FISCAL EFFECT: None.

COMMENTS:

Author’s Statement: According to the author, “The Tenant Protection Act of 2019 provided protections against unjust evictions and rent gouging to millions of Californians. AB 3088 includes technical cleanups necessary to provide all parties the clarity they need to properly uphold this landmark law”

Background: California has approximately 19 million renters. The state’s housing crisis has is particularly impactful to this population. Over 50 percent of renters – and 80 percent of low-income renters – are “rent burdened,” in that paying the rent requires them to sacrifice in other essential areas, such as food, transportation, and health care.

The Tenant Protection of 2019 (AB 1482 (Chiu), Chapter 597, Statutes of 2019) established, for approximately eight million renters, substantial protections against unjustified eviction and rent gouging. Because of its breadth, it has been closely scrutinized by parties involved in all aspects of the rental housing industry, including landlords and their affiliated organizations, tenants and their affiliated organizations, and local governments. Such scrutiny has revealed several instances where the involved parties have taken differing interpretations of the law’s meaning.

Committee Comments: The bill provides technical corrections to the Tenant Protection Act of 2019, so as to improve the bill’s clarity and remove areas of subjectivity, through the following changes:

• Providing more clarity to the types of two unit properties exempt from the provisions of the Act, in recognition that “duplex,” while generally understood to mean a building with two primary units, is not a term defined in the law.
• Specifying that the exemption for units built within the previous 15 years includes those that have received a certificate of occupancy, final inspection, final permit, or similar approval for initial residential occupancy of the unit during that time period. This change is necessary because some jurisdictions do not use the term “certificate of occupancy.” Also, this clarifies that, although a rehabilitated unit may in some instances get a new certificate of occupancy, the 15 year period is meant to be measured from the original construction of the unit.
• Aligning the definition of dormitories for the rent cap portion of the Act with definition in the just cause portion of the Act, for purpose of clarity.
• Correcting the incorrect reference in the rent cap portion of the Act. This change is important to align the noticing requirements with the just cause portion of the Act, enabling landlords to whom this noticing requirement applies to only send one notice;
• Revises the definition of the percentage change of the cost of living to provide necessary clarity on a number of fronts including:
  • That the applicable Consumer Price Index (CPI) is specifically the “Consumer Price Index for All Urban Consumers for All Items,” as opposed to other types of CPI utilized by the U.S. Bureau of Labor Statistics;
  • That the applicable geography is specifically “metropolitan areas” within California; and
  • That the percentage change in the CPI should be measured in a manner that comports with the way data is assessed and published by the by the U.S. Bureau of Labor Statistics and California Department of Industrial Relations, which is by the month (not day), and in some areas not available every month.
• Clarifies that the owner of affordable housing projects that wish to establish the initial unassisted rental rate for units must have demonstrated compliance with all applicable state or local law or regulations intended to promote the preservation of assisted housing, and not just state laws.

Arguments in Support: Arguments in support focus on how this bill will make it easier to implement the Tenant Protection Act of 2019. According to the Western Center on Law & Poverty, “Assembly Bill 3088 … will clarify provisions of last year’s AB 1482, the Tenant Protection Act, to ensure the important tenant protections it contains can be administered and enforced correctly and uniformly.”

Related Legislation:

AB 1482 (Chiu), Chapter 597, Statutes of 2019: This bill limits rent-gouging in California by placing an upper limit on annual rent increases: 5 percent plus inflation. To prevent landlords from engaging in rent-gouging by evicting tenants, this bill also requires that a landlord have and state a just cause, as specified, in order to evict tenants who have occupied the premises for a year. Both the rent cap and the just cause provisions are subject to exemptions including, among others: housing built in the past 15 years, single family residences unless owned by a real estate trust or a corporation. This bill sunsets after ten years and does not preempt any local rent control or just cause ordinances.

REGISTERED SUPPORT / OPPOSITION:

Support

California Rural Legal Assistance Foundation
Western Center on Law & Poverty

Opposition

None on file

Analysis Prepared by: Steve Wertheim / H. & C.D. / (916) 319-2085