House of Representatives

HB 2355

trustee's sales; excess proceeds

Sponsors: Representative Voss

DPA	Committee on Financial Institutions & Insurance
DP	Committee on Judiciary
DPA	Caucus and COW
X	Third Read
	As Passed the House

HB 2355 modifies the procedures relating to the disposition of excess proceeds from trustee's sales.

Current Status

HB 2355 was amended in the Financial Institutions and Insurance Committee to provide compensation for the trustee in carrying out the provisions of the bill. The bill passed the Judiciary Committee unamended. The Financial Institutions and Insurance committee amendment was adopted in Committee of the Whole.

History

The Deed of Trust Act, enacted in 1971 (Chapter 136, § 10), was intended as a means for lenders to recover the balance of a foreclosed loan in a more timely fashion than the traditional mortgage. Under the current system a trustee is entitled to sell the property and recover the balance of the loan. Any proceeds from the sale can either be disbursed to other lienholders by the trustee, or deposited with a county treasurer for disposition. For proceeds deposited with a county, interested parties must individually file suit to recover additional profits. Complications arise when corresponding suits result in conflicting court orders on the disposition of the proceeds. Additionally, the current system gives way to fraudulent activities by individuals who seek out potential claimants to the proceeds for a fee. The proposed legislation establishes a new system whereby a plaintiff shall file a single civil cause of action to recover excess proceeds. All other claimants shall be notified and given the opportunity to join the lawsuit. The revised system is intended to reduce the number of court proceedings as well as expedite foreclosures tied up in litigation.

Provisions

· Stipulates that the trustee, as plaintiff, shall file a civil action against the superior court in the county where the sale occurred for excess proceeds.

· Requires the trustee to notify all interested parties about the lawsuit. The notice shall include either the trustee sale guarantee, a title search used by the trustee relating to the sale, or a detailed description of all liens and encumbrances in connection with the sale of the property.

· Provides that individuals with legal interest in the property may apply to join the civil suit. This individual in turn must notify potential claimants and provide proof of notice upon filing suit with the court.

· Establishes a thirty-day period for interested parties to respond to any application submitted by a co-claimant.

· Allows the court to hold hearings for competing claims to determine entitlement of proceeds. The court may also suspend judgement for 180 days if the court deems other entities may be entitled to the proceeds. An applicant in turn can move for a hearing prior to 180 days and move towards a judgement.

HB 2355 was amended in the Financial Institutions and Insurance Committee as follows:

Provides that the trustee will be compensated for attorney's fees and associated costs in carrying out the class action suit. The trustee must supply a detailed list of all of the expenses. It also clarifies that once the trustee has fulfilled its statutory obligation in filing suit and notifying potential claimants, they are discharged without prejudice from the proceeding.

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45th Legislature

Second Regular Session 2 March 22, 2002

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