Mike Belote is president of California Advocates, Inc., one of Sacramento’s oldest contract lobbying firms. His 35-year lobbying career began with association lobbying jobs with CPAs, Realtors, and title companies, and he has been a contract lobbyist since 1990. Specialties include issues relating to the judicial branch, real estate, and financial services, including judges, civil defense lawyers, employment law, and more. Mike has represented the United Trustees Association for nearly 30 years. He also represents a diverse range of other clients including new car dealers and Apple. A division of Belote’s firm also is one of Sacramento’s biggest association management providers. He is known for philanthropic work relating to domestic violence and veteran’s services, and he sponsors a lecture series every year discussing a key issue of California policy.
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- 00:00 The Data Driven Real Estate Podcast welcomes Mike Belote with California Advocates
- 06:54 What is SB 1079 and how does it change the California trustee sale buying and foreclosure process?
- 08:16 The important role that institutional Wall Street real estate buyers played during the Great Recession
- 10:43 How the legislative process works in California in a supermajority state
- 13:01 How many homes did Wall Street buy during the Great Recession and how many do they still have?
- 18:43 Who really pays for the city fines on foreclosed homes? It’s not the banks or lenders like some might think.
- 23:25 Why California SB 1079 and the 45-day redemption will create less competition and potentially create more foreclosures
- 28:35 The new 45-day redemption rules after trustee sale and eligible bidders
- 33:46 How less competition at trustee sale steals millions from homeowners
- 39:49 How large institutional buyers and nonprofits might work together at trustee sale squeezing out local investors
- 47:48 The issue with squatters after the trustee sale
- 52:40 How real estate investors can better protect themselves from over-regulation or at least be aware of what’s coming
Aaron Norris 00:01
Welcome back to the Data Driven Real Estate Podcast. This is Episode 15. Today we have Mike Belote of California Advocates. California Advocates is one of California’s oldest contract lobbying groups. And Mike comes with over 35 years of experience in specifically the real estate industry. He’s worked for the United trustee Association, the California Association of Realtors, California Land Title Association, California Mortgage Association. So he comes with a lot of experience. Today we explored SB 1079. Here in California, it was a bill sort of put in place to stop the foreclosure process and institutional investors from buying up all those houses, owner occupancy, a lot of things are on the table, but it also created some unintended consequences that we’re worried about. And it certainly impacts some of the people that use PropertyRadar. You won’t want to miss this week. Okay. Welcome to the Data Driven Real Estate Podcast, the podcast for real estate professionals dedicated to driving business using data. I’m Aaron Norris with co-host Sean O’Toole with property radar and today we’re very excited to have Mike Belote, the President of the California Advocates, thank you for joining us. You have an illustrious career in the lobbying industry and would love to find out how you started in that realm.
Mike Belote 01:14
You know, there are all kinds of lobbyists. Aaron, I started as an employee of several associations, first for the California Society of CPAs for three years, five years with the California Association of Realtors, which was a real learning experience for me, allows you a deep dive into real estate issues. I served for two years as Vice President of the California land title Association kind of getting into the Zen of title insurance issues. And then in 1990, I joined California Advocates and have been with the firm ever since I’m now the president of the firm. But we are a contract lobbying firm not unlike a law firm. We represent clients on a contract basis. And in real estate, that includes foreclosure trustees, mortgage brokers, escrow officers, architects, land surveyors, all kinds of real estate groups. I don’t know if I said mortgage brokers but the California Mortgage Association as well. So but we also have corporate clients like apple and Delta Airlines and Equifax and see’s candy was an interesting one, it’s a fascinating way to make a living. I would say that the lobbying profession is far different than people expect. Certainly in California, it’s far cleaner. And, you know, we, we all know each other, we trust each other, we tell the truth. When you cease telling the truth, you’re really out of business in Sacramento. We’re an information resource to legislators who have to know a little tiny bit about a huge array of subjects basically every subject of interest to California. They can’t possibly know enough about real estate or foreclosures to compare with me. So it’s my job to impart information, sometimes, successfully, sometimes not. We had some good outcomes this year, the legislature was very concerned about evictions and foreclosures, but they did not impose a foreclosure moratorium, in spite of some proposals to do that. They did not impose a requirement for forbearances, even though that was proposed. But they did enact some changes in trustee sales that I know we’re going to talk about. And I’ll explain why.
Aaron Norris 03:50
Okay. I guess we could just jump into that. I know, we’ll bounce around a little bit. I contact you about SB 1079. And it was a little bit surprised, early on, am I mistaken that they were really looking at the pre-foreclosure process. And then it seemed at the very end, they switched course and decided to really make it a post-sale issue for…
Sean O’Toole 04:11
I don’t think anybody has any idea what SB 1079 is most of our so let’s start with if we’re going to jump into that, let’s start with we had one bill this year that took us by surprise. You know, and I usually, you know, do stay on top of these things, especially ones that affect our customers. And, you know, this one seemed to come out of nowhere. I used to work pretty closely with the legislative analyst who always called me on foreclosure-related stuff. So I guess I was just got lazy and expected that call rather than watching. And so Mike, maybe you can tell us what SB 1079 is, you know how it got introduced? You know, and what, what, what the genesis behind it was?
Mike Belote 05:01
So first, Shawn, this question of how to monitor things. You know, every year the California Legislature introduces 23 to 2500 new bills. They are a bill factory. That’s what they make. You know, GM makes cars, the legislature makes law. And they believe some of them believe the more law they make, the more productive they are. Approximately half of those bills pass every year. Out of the bills that passed the legislature, maybe 12 1400 of them a year, about 1000 in a typical year are signed by whoever the governor is. So California is a highly codified state, there are 1000 new laws affecting Californians every year. It’s next to impossible for somebody not involved in the legislative process to keep track of that. You know, the bills are introduced early in the year, they often are changed many times as SB 1079. Was occasionally you will have a contact in the legislature, who will think to call you but that is why organizations like the United trustees Association, the California Mortgage Association, and others exist to keep track of those bills and keep their members apprised of them. So the first order of business I think is is to encourage your viewers to join a relevant Association whose job it is to keep those bills on their radar if you will, and lobby for or against them as the case might be. SB 1079 was authored or is authored by a Bay Area senator Nancy Skinner from the Oakland Berkeley area. You may recall an incident and I don’t really remember the details were a group of mothers took over property, and we’re attempting to purchase it. I don’t even remember how that turned out. But this notion of owner-occupants, taking control of properties was something that appeals to Senator Skinner, she recalls the Great Recession, where in her view, huge swathes of property were purchased by institutional investors, who converted neighborhoods from owner-occupied neighborhoods to corporate what she called corporate rental neighborhoods. I don’t think she quite understood how that occurred mechanically, and why this period of time is different than the Great Recession. But what she said was, we have to prevent that from occurring again, so that people can live in owner-occupied neighborhoods? Well, you know, most of us do live in owner-occupied neighborhoods, and I understand the argument why that is preferable. But the devil, of course, is in the details. How do you prevent huge institutional investors from buying real distressed real estate? She talked about
Sean O’Toole 08:27
Why is that even a good thing to prevent that? Right, like? I mean, I think there’s a question there like that there’s an assumption there that that is a good thing. And, you know, while I have some empathy for that position, you know, back in 2008, had those folks not stepped in, where would have held housing prices bottomed? How much worse would have that recession been?
Mike Belote 08:49
Yeah. And we tried to explain that the environment was completely different. 10 years ago, you know, you had hundreds of thousands, maybe millions of properties flooding the market. Bank, REO departments awash in property and, and they needed to get rid of it. banks aren’t in the real estate, landlord business, you know, they needed to sell those properties and get them back into productive ownership. And they did. But we’re in a completely environment, different environment. Now, people tend to have equity foreclosures are down. But she made the argument that look, we’re heading back into an acute foreclosure and eviction crisis, something must be done, or the same thing will happen now, as happened back then. And that issue kind of resonates with legislators, they sort of intuitively agreed with her and saw her point. She talked about properties being bundled for sale. Added I’m sure back in In the Great Recession on a post foreclosure REO basis, I’m sure properties were bundled and sold off to people who wanted to buy large numbers of them.
Sean O’Toole 10:10
California law present prevents that.
Mike Belote 10:12
That’s right? What she where she got it I think wrong is she argued that there was bundling occurring in the foreclosure process.
Sean O’Toole 10:20
It doesn’t happen.
Mike Belote 10:22
Doesn’t happen, can’t happen. Yeah, I mean, I don’t know how I could sell your property and my property and shot and Aaron’s property, and still figure out how much proceeds were derived from each sale if they were bundled into one transaction, you can’t do it. So we tried to explain that. But it’s, again, legislators are dealing with thousands of bills, need to know a little bit about each one of them. And we’re trying to explain the nonjudicial foreclosure process to them. And it’s hard. Now this bill, just to get into the politics a little bit, you know, was opposed by the trustees, mortgage brokers, Mortgage Bankers, Cal bankers, realtors, credit unions, a huge coalition of real estate groups oppose the bill throughout the process. And we’re trying to explain the foreclosure process and some of the issues involved with the bill. But again, and again, without getting into the legislative weeds. Basically, our California Assembly and Senate is have so called Super majorities of Democrats in each house, Democrats control approximately three-quarters of the seats. So if you have a democratic author, in a house, with three quarters, Democrats, it’s hard to kill a bill. That is why you tend to want to amend bills to make them better, because rolling the dice and going for a kill, if you will, is a highly risky proposition. So on SB 1079, we were sort of going down to tracks trying to amend it so that it would be more workable, but still saying this is a bad idea. You do not understand what you’re going to do to the nonjudicial foreclosure process. In fact, we think the outcome could make your identified problem worse, not better. And we made that argument all through the legislative process and to the governor’s office, unfortunately, unavailing, this year the governor vetoed a lower percentage of bills than Governor’s typically do. I don’t know. I can’t ascribe that to a reason whether it’s the pandemic or wildfires or what it is, but he vetoed about 11% of the bills sent to Governor Newsome. We had hoped that this one would be vetoed, it wasn’t. So on January one, the bill takes effect.
Sean O’Toole 13:01
Yeah, we just we jumped in and did a little research. And we should talk about what those effects are for our trustee sale, investor customers. But, you know, we did a little research and you know, some of these the claims and the bill right that these properties all became corporate-owned, there was an example of the Blackstone, you know, ending up with 13,000 properties. Well, that’s 13,000, over almost 1.2 million foreclosures that happened during the time, right. So the idea that these all became corporate-owned is kind of nuts. We went back and looked at all 1.1 million foreclosures and 95% of those today are, you know, not corporate-owned. So less than 5% of those foreclosures ended up corporate or even being bundled by the banks after the fact. And the majority are also owner occupied. Right. So like none of the basis of this bill that has any, any basis in reality at all. Right. So it’s super, super disappointing. There, you know, there was a, there was a claim to that, you know, that, that these houses sat vacant for long periods of time. And, you know, and this is the moms for housing group moved into a vacant house that was purchased at foreclosure. This is actually a huge problem for foreclosure investors because the house kind of has to sit vacant for some periods of time, right after you buy it, you have to wait for a deed before you can really go in and do anything to the property, then you’ve got to you know, get it cleaned out, you’ve got to repair it, you know that those aren’t periods of time that people can be in there. And a lot of these houses need that rehabilitation before a lender will loan to somebody who can buy it as an owner-occupied home. So these are necessary parts of the process. And those investors By the sale do that on 154 days. Where’s it when it goes back to the bank? It sits far longer. Yeah. And so, you know, to the degree that there is vacancy, it’s necessary. And it’s pretty darn short right for for all the things that have to occur. And they compared that to what was in Ohio.
Aaron Norris 15:22
Pulling in Cleveland…
Sean O’Toole 15:23
There’s a huge problem with vacancy because of what happened in a while. But Ohio spent millions and millions of dollar bulldozing vacant homes because there was simply no people who wanted them. That wasn’t a true here. Like I just, I just have no basis, in fact, for the whole bill.
Mike Belote 15:39
Yeah, my only point was all of those arguments were made by very, very substantial organizations, the California Bankers Association, the California Association of Realtors, the California Mortgage Bankers Association, the California Credit Union League, UTA, CMA, it’s not as if those arguments were not made. So, you know, we under we, we get it, we agree, we made the arguments, in this case, and this is an unusual environment, you know, the legislature is convinced that we are on the cusp of a eviction tsunami, and, and perhaps also foreclosure, avalanche, if you will, if I can mix my metaphors. And so they’re, they’re looking for things and by the way, subsequent to the signing of the bill, they are getting some of that publicity that they were looking for, you know, for, you know, legislature gives owner occupants first crack at foreclosed properties. And people say, great, you know, but they don’t understand, in my view, what they really did, and what might happen here. So let me, let me talk briefly about how the bill started, and how it evolved over time. So the hallmark of the bill in its first iteration was no purchaser could buy more than three properties at a trustee sale on the same day in the same County. And that was to address this Blackstone situation. Well, we pointed out that you can’t possibly enforce such a thing. How would a trustee know whether it’s..
Sean O’Toole 17:23
Purchased at other auctions?
Mike Belote 17:24
Yeah, on the same day in some other place in the county, not only would you not know it, but it’d be easy for a sophisticated investor to simply set up a web of LLCs and buy and title, the properties under those names. You it would be so easy to get around it. We explained well, that that just can’t work.
Sean O’Toole 17:47
When they wish you guys would have just let that one go. I would have much rather had that law.
Mike Belote 17:50
In retrospect, maybe that’s, you know, maybe that would have been a better outcome then. And there were some other things added to the bill. They had a and still have a prohibition on bundling properties in foreclosure sales. Well, the law already says that. Yeah. And they repeated it unnecessarily, in our view, but you know, perhaps harmlessly, that was already not happening. They also proposed a dramatic increase in local government fine authority for a failure to maintain present laws says a city or county can impose a fine up to $1000 a day for failing to maintain and there were maintenance problems in the Great Recession. The bill proposed do…
Sean O’Toole 18:38
By Banks, not by ones that went to trustee sale investors.
Mike Belote 18:43
But again, the bill proposed taking it from $1000 a day to $10,000 a day. And we said well, what evidence is there that $1000 a day isn’t enough, after all, that’s $30,000 a month that ought to get somebody’s attention. What evidence do you have that $1000 a day isn’t working? And they said, well, none, but if, but 10 thousands more than $1000. And we said well that can’t argue with that. But there’s no evidence that $1000 a day isn’t working. So you don’t need to do this.
Sean O’Toole 19:16
And $30,000 in one month, $1,000 a month and $1,000 a day is more than the average profit of a trustee sale purchase. Right? So basically, yeah, there’s
Mike Belote 19:29
So they ultimately changed that a little bit.
Sean O’Toole 19:33
And then they understand who that hurts like so you do a $10,000 a day and do they think the banks pay this? Don’t they understand that CalPERS pays that ultimately, the you know, it’s not like the banks invest in these loans, right? People the Federal Reserve, we as taxpayers are the one to back these loans. So when you add these fines, right, that go through to the banks. It’s not like the bank. pay these fines, the banks that banks pass them on there, they’re a servicer, that’s just, you know, there’s an investor underlying that thing. That’s probably CalPERS.
Mike Belote 20:09
Yeah. So I’m not sure those fines are being assessed very much. Now, I don’t think we have the same failure to maintain issues that we had during the recession. So, you know, we got the thing changed. It’s now $1000, up to $2000. And then $5000, a day after a month. And you know, there’s various details in that I don’t see that as a, as a huge issue with the bill, because I just don’t think that’s a problem. They’re sort of fighting the last war on that one, in my view. And then finally, there was some provisions for pre-foreclosure, a first look, which came out of the bill, in favor of the main feature of the bill now, which we’ll get to in a minute, which is this opportunity to purchase post-foreclosure for certain entitled parties. So the bill underwent a variety of amendments, some good, but not good enough, in our view, which is why we continue to seek a veto. But it’s really the new California Civil Code 2924. m, as in Mike, unfortunately, where I think
Sean O’Toole 21:34
They named it after you.
Mike Belote 21:35
Yeah, yeah, thank you. That’s where I think the focus has to be because I think it’s what’s going to affect your viewers here. And it’s gonna have to be worked out with, with trustees conducting the sales, with lenders, and their credit bids, and potentially taking the property back at sale, or with bitters at sale. And it’s gonna get, in my view, pretty complicated pretty fast. On January 1, the bill, the provisions that we’re going to talk about last four, five years, they will sunset, as we say, at the end of the five year period, unless extended by the legislature. Personally, I think, very few, entitled parties will actually succeed in buying properties, post trustee sale, but we’re going to have to see, at the end of the day, legislation is a series of experiments, they take a problem real or imagined. And they propose something to address the problem. And then they see if it works, and if it doesn’t, it’s changed, hopefully. So we’re gonna see, we’re gonna see where the problems are, where cleanup may be necessary. And that’s where you and your viewers and all the associations are going to be looking to appeal to Senator Skinner and say, Look, you did x, the following problems have arisen, let’s fix them. And that’s why those associations, as I said, exist.
Sean O’Toole 23:25
The so let’s let’s get to the heart of the issue, right, the piece of law, that’s, that’s, you know, most going to impact those folks that are, you know, buying these properties, cleaning them up, making them available for purchase with a loan, right? So, they go down there, they do all this research in advance, right, they don’t get to inspect the property, they’re expected to pay cash in full. They don’t get title insurance, right. So they take a whole bunch of risk upfront, right, just to show up to bid, I’ve purchased 160 of these properties. And I would say I researched 50 plus for every one that I purchased, right? So it’s a lot of work to get ready to, you know, to show up and most of these postpone, they cancel, they never actually come up to sale and that’s why you have to research 50 to buy one because most of them just don’t ever get sold. And so you do all that work, you show up you bid you’re the winning better, right. And now, it starts a 45-day clock in which I can be fined if the property has issues, but at which the property can be redeemed or purchased or I don’t know if the right word is thereby an eligible bid on by an eligible bitter taking the property away from me with no remove you numeration for my costs. In the meantime, it doesn’t even say that they have to, to, if I get fined $10,000 a day for those 45 days, I don’t even get that money back from anything I can see in the bill.
Mike Belote 25:13
I’m going to respectfully disagree with you on that. I don’t believe you own the property until the trustees deed says you do. And I don’t believe you’ll be subject to that fine during that period.
Sean O’Toole 25:24
The trustees deed once recorded, sets my ownership date as of the date of the sale.
Mike Belote 25:31
Yeah, but it’s not going to record till the end of the 45 day period. So anyway, we’ll talk about that some more. I will say, you know, this is a, you know, again, I’m we’re trying to explain nonjudicial foreclosure to people who don’t know, you know,
Sean O’Toole 25:47
I’m not taking any issue with you, I’m just trying to…
Mike Belote 25:49
I know, you’re trying to explain kind of the essence of the argument we were making. And the first point was, you don’t understand nonjudicial foreclosure, that is not a process for the timid, that is a process for people who know what they’re doing, who know what the risks are, who are willing to put money up and take the risk, whether they’re going to sell it off of fix and flip or whatever they’re going to do with the property, you better know what you’re doing. I said, you may wake up some night at midnight and watch them infomercial about how to get rich, buying foreclosed real estate. In my view, the only people getting rich, the rich are rich in that situation, are the people doing the infomercial, you know, the people that really know what they’re doing, are buying these properties for productive purposes. But you don’t want to send the uninitiated in. They don’t know the condition of the property. They don’t know the priority of the lien they’re involved with, there’s all sorts of reasons why. The basic, you know, young couple, not to be trying to buy foreclosed real estate, it’s a it’s a not for the faint of heart. And…
Sean O’Toole 27:04
We have just to, you know, put it in perspective for viewers, right, like, we probably have 90%, or better market share of these professional investors, right, our software has been used to purchase the vast majority of those 1.2 million foreclosures through the foreclosure crisis, like almost all of them. And you we have always said that if you’re not buying at least 10 properties a year, this is a game you should not play, right? It is it is for professionals. And despite the fact that we make money from having more customers, you know, go down and bid on these things, we have still completely discouraged it, right? You should be a large player doing at least 10 deals a year, before you even consider this form of investing.
Mike Belote 27:22
So and again, you’re I’m talking to somebody in the capital, in many cases, who has never bought a home. They don’t know what a deed of trust is. And I’m trying to explain you buy it, you know, the young couple that buys it sale, you don’t say okay, now I’m the winning bid, I’m gonna go get a loan, you got to have real money, you got to know what you’re doing. And, so…
Sean O’Toole 28:23
I want to come back to because Okay, so we just set up all this hard work goes into buying this thing. Now an eligible bidder has 45 days.
Mike Belote 28:32
So let me let me talk about the detail of the bill.
Sean O’Toole 28:34
Mike Belote 28:35
So okay, so it created a new Civil Code Section, again, Civil Code 2924 M. And it is quite technical. People will want to familiarize themselves with it. You might do a service by by putting it on your website or something so people can really read it and try to understand what’s happening here. But you’re right, for a period of 45 days after the trustee sale. If you are an eligible party, you can come in and essentially overbid the last and highest bid at the sale. Buy as little as one penny. There is no minimum overbid. And there is a long list of who these eligible people are. But I’m looking at it here kind of going down through at first our tenants in the property. Uh, well, you know, I get it, but how often is a tenant going to be able to come up with a cashier’s check? If they could, they probably would have gone to the sale and bought the property there or bought it from the owner pre-sale. So tenants are first, a second, people who sign a certification that they intend to buy occupy the property as an owner occupant within 60 days following sale and for at least a year. So… How do they do that within 60 days to sale if it’s currently occupied by the prior owner, and you have to evict them and evictions can take a year? Yeah, there’s an eye out for that if they can’t get possession within 60 days, so they thought of that. Okay, the big one is, and I’ll just read it verbatim, a nonprofit association, nonprofit corporation, or cooperative Corporation in which an eligible tenant buyer or prospective owner occupant is a voting member, or an eligible nonprofit corporation in California whose primary activity is the development and preservation of affordable housing. So basically, and it has community land Trust’s and the state and the UC system and counties. So basically, it is creating a group of entitled parties, which basically are tenants, prospective owner-occupants, nonprofit housing entities, or the government. And during that period, the first thing they have to do is they have to give the trustee and by the way, trustees or their authorized agents are required to put on both a website and a toll free telephone line, date of the highest, the date of the trustee sale and the amount of the highest blasket highest bid. So the property sold for $100,000 at the trustee sale on this date. At that point you have, they will have 15 days to give the trustee a notice of intention to purchase. Unfortunately, there is no as you already noted, penalty for putting in such a notice and then not performing. But the first order of business is within 15 days, one of these eligible parties has to file a notice of intention to buy the property. If that doesn’t occur in the 15 day period, the trustee is authorized to record the trustees deed, and everything is over. And if they do that within 18 days now, as you already hinted, the sale will relate back to am of the date of sale. that’s similar to present law. Then if somebody files one of these notices of intention to purchase, by the 45th day, they must submit a qualifying bid, which includes a cashier’s check for the full amount or another qualifying instrument, real money to buy the property outright within that 45 day period, if that doesn’t occur.
Sean O’Toole 32:52
One question on that. So I have to submit a bid and the cashier’s check. So if there are 10 prospective bidders all 10 have to put up cashier’s checks?
Mike Belote 33:05
I presume, and the trustee be would be required to sort through that figure out what the highest one is. Make sure it’s all good money, I assume.
Sean O’Toole 33:15
That’s a lot of money for not to ask nonprofits to put out for something that may not even occur, right? They’re paying interest on that and all the rest.
Mike Belote 33:23
Yeah, before we even get to that. We argued that this whole thing will discourage bidding at trustee deed sales, that investors may be loath to put up money with the hope that 40 interest-free with the hope that 45 days later, they may own the property. And again, we’re talking about.
Sean O’Toole 33:46
And I want to just add something to that, because I think this is really important is so not only that, but that person gets to look at this property after the fact. So when I’m as a trustee sale investor, I’m going down there, I know that that 49 out of 50 are going to cancel or postpone or be a complete waste of my time. This person now putting in this intent to bid after it’s sold knows that unless somebody outbids them, they’re getting that property. They don’t have to do all of that research on the possibility of winning one. So there I would put the chances that a trustee sale investor continues to invest in this environment at really close to zero.
Mike Belote 34:34
Well, I hope you’re wrong. Because
Sean O’Toole 34:37
There’s almost no chance that I can’t I can’t imagine trustees investor bidding.
Mike Belote 34:42
So you’re humble lobbyist here I’m making arguments to the legislature and I’m explaining if you kill bidding, if you discourage people from bidding at foreclosure sales, that is a very bad thing. You were talking about a bit. You’re talking about 100 years of California history designed to maximize bids, not lower them, and not for the benefit of the lender, they’re going to get their money back for the benefit of the owner, who will be entitled to surplus funds. To the extent there are any. So you want high bids, by encouraging bidding, not low bids by discouraging bidding. So we argued the very fundamental principle that this bill will chill and discourage bids, which is bad for the very people who are losing their home to foreclosure. And you shouldn’t do it.
Sean O’Toole 35:38
We have a ton of data that shows that our entry into the market is foreclosure radar back in 2007. Right, opened up the market to a lot more professional investors and dramatically raised bidding to the benefit of homeowners now, the original 40 thieves weren’t pretty boring, very happy that we came into this business and made it so much easier. But we know we had a huge impact on overheads and on, you know, many homeowners getting millions, hundreds of millions of dollars in excess proceeds that would not have happened before it was more competitive.
Mike Belote 36:22
Yeah. So that kind of democratization is is a good thing. Obviously, we want more people involved in buying these properties. For the benefit of the people losing.
Sean O’Toole 36:33
This bill, no question in my mind takes millions and millions of dollars away from homeowners losing their home in foreclosure?
Mike Belote 36:41
Well, I certainly hope not. If that’s true, then we’re going to be seeking modifications repeal, certainly not extending the sunset when it’s over. Because, you know, I’ve spent 30 years for UTA, for example, fighting bills, which would discourage bidding. Uh, you know, there were, well, I won’t even go into all the detail of the bills, which we thought would be bad, because it would make it harder to bid. The legislature once in a while we’ll have bid bills on collusive bidding and making sure that doesn’t happen, you know, you know, I get that foreclosure sales can be gamed, and you want to root that out. And make it a fair process. Again, not for the benefit of the lender, but for the benefit of the homeowner.
Sean O’Toole 37:38
Well, just keep in mind, I hate this for the benefit of the lender, right? There is not a bank, that is funding on a wide-scale basis, their own loans, you do not hurt lenders, here at all. So all this anti-lender thing, it doesn’t affect the lender, the harder you make the process, the longer you make the process, the richer you make the lender because they’re going to do more servicing work, and they’re going to pass those costs along so that you’re hurting CalPERS you’re hurting the American taxpayer. Whenever you hear somebody say you are hurting lenders, we’re going to go after lenders, lenders aren’t going to be hurt. All of those costs get passed along to the underlying investor, which guess what we, as you know, Fannie and Freddie, we still have, we still guarantee those loans, right? Like it, we do more so after 2008, not less so, and CalPERS invests in those and all these other things invest into those. So that’s just such a false narrative. I’m not saying it’s your false narrative, but I just want to, I just, I feel so passionate about that one, but I just want to yell it from the rooftops.
Mike Belote 38:48
We’re sort of jumping to the end of the argument. So we say so if you discourage bidding, if that keeps people from attending the trustee sale, and putting up money without interest in the hope they will get the property a, you will have more properties, going back to banks and entering our property, it’s going to go back to the bank. Well, I you know, we’re gonna find out. The more that go back to banks. First, obviously, the homeowner isn’t getting surplus funds, you have driven down the price not up. But secondly, now banks are going to have more REO and more incentive to sell to institutional investors, the very evil we were attempting to address by the bill, if you believe it is an evil and you know, I’m not expressing an opinion on that. My point is the very thing you wanted to address. You could be encouraging rather than discouraged.
Sean O’Toole 39:49
And those those those properties are likely to sit vacant longer or they will sit vacant longer because we have data on every single foreclosure sale. If the sale goes back to the bank, it takes them on average 280 days to resell it, versus 154 days for a trustee sale investor. So they’re going to sit vacant longer, too, which was one of the other big things that this bill was supposed to address. Right. I also think, you know, I’m already hearing, you know, please like, get us, okay, nonprofits can go in and purchase these, right? There’s nothing that I can see. And I’d love for you to clarify this. For me. There’s nothing that says the nonprofit can’t go in and buy these and sell them at some sort of slight premium to the same corporations that they’re worried about, right? There’s nothing that says what the nonprofit does with it after the fact. So I am hearing some of these large players, right, are going out to partner with nonprofits as a revenue stream for the nonprofit to go gather these properties up, which they’re going to get incredibly cheap, because they’re going to remove the competition that’s been there in the in the normal mom and pop trustee sale investor that we so corporations are also going to, I believe, get these properties cheaper?
Mike Belote 41:13
Well, not only, you know, can they game the I call it gaming, somebody who is free to disagree. But there’s also opportunity for fraud, you know, you just falsely a fi that you are going to be an owner-occupant or you are a tenant, or the tenant makes a deal with somebody, there is a there, you know, human minds creativity is going to be juiced by this. And I’m afraid in an unfortunate way.
Sean O’Toole 41:49
The DOJ or the attorney general or the state attorney general is listening, we will have the data to go after that. So if if people are doing that fraudulently and not doing that we would be happy to help because I don’t you know, as much as I don’t like this bill, you know, I like fraud, less, and we’ve helped a lot with law enforcement over the years with providing the detailed data, they need to go in and root that out. And we will continue to serve that purpose.
Mike Belote 42:21
Now. Again, it’s UTA is mission. And the very reason for their existence is to protect trustee. So we put language or we got language inserted that the trustee can rely on what they’re being told, they don’t have to investigate Is this a real nonprofit Is that a real tenant, if somebody puts in an intention to bid, we can rely on that, that would that’ll start this 30-day clock ticking during which they have to perform with real money. And again, we tried to point out to the legislature, these people could all have showed up at the trustee sale and bought the property there. So now you have created this …
Sean O’Toole 43:03
An auction with auction rules. There doesn’t appear to be any auction rules around I mean, it’s kind of the highest bid, but there’s no the details around the process of that bidding. And the rest seem really unclear is the UTA going to be providing advice to their members are going to be?
Mike Belote 43:25
Absolutely, and the lenders as as you can imagine, are going to have to retool their credit bid strategy. You know, you, you know, if you put in a credit bid for 50% of the indebtedness. Now somebody gets the property afterwards for in my hundred thousand dollar indebtedness example, they’ll get the property for $50,000.01, well, you can’t have that. So it will change credit bid strategies, I’m sure.
Sean O’Toole 43:57
There will be no more dropped bids. So and just so for folks who have viewing at home, a drop bid is used by lenders when the amount owed is likely more than the amount that the property’s worth. It didn’t really exist until 2008. Like I’d never seen one until 2008. When banks were taking so many properties back, they’re like whoa, we don’t want to take any more back they started lowering the bid below what they were owed, to try to encourage bidding and have somebody else buy the property so that they would stop taking quite so many on. They’re fairly rare again right now, but in that case, you know, although auction.com does do kind of a fake opening bid that’s below the reserve bid to try to encourage people to show up at the auction and then they you know, they use auctioneers to try to bring that that bidding up and I don’t think that auction calm will be able to continue that strategy because of this risk of Okay, we didn’t have a bit above $50,000. There, we reserved It was $100,000. Now we’re in real trouble.
Mike Belote 45:08
And I know, I’m a lobbyist, I happen to be a lawyer. But I don’t do this for a living. I’m a lobbyist. But I understand they’re highly technical reasons why lenders might have what you call a drop bid, you know, there could be issues of the property, title issues, insurance issues, all sorts of things can arise, which would
Sean O’Toole 45:29
There are also tax implications to taking properties back at a lower price and things like that.
Mike Belote 45:35
Right. So I think there it is going to significantly change, credit bid strategies, and certainly change bitters strategies at sale. The remaining elements of the bill, they have, again, this meaningless addition to the language on bundling. They just restate present law, which is, again, unnecessary and duplicative, but probably harmless. And then they do have this increase in the potential fine for failing to maintain. I personally think you can’t very well find a bank who can’t get access to the property while in during this Limbo period, or the high bidder who doesn’t own the property during the limbo period, if you will.
Sean O’Toole 46:28
I think if that happens, I think it goes to court and I, you know, I would hope that court would be smart enough to go it’s not reasonable to find somebody for something when they can’t do anything about it. don’t own it. Yeah, they don’t, they don’t really own it. I mean, even if the law says, Okay, well, the deeds recorded, and they now own it. So they technically owned it for that period of time. They didn’t at the time, right. So I think, you know, we’ve worked a lot with code enforcement groups around the state, we have a lot of them as customers who use us to go check on these properties after foreclosure and that kind of stuff. And it will be interesting to have some conversations with them. But they all seem like really reasonable, fair, people. So I think you’re probably right. I don’t like the fact that the bill didn’t more clearly address it. But I think you’re probably right, that it shouldn’t be a problem.
Mike Belote 47:18
And I, so again, you have this sort of purgatory for 45 days, you’re certainly not going to maintain the property, the lender can’t, they don’t have access to the property, the tenant is not going to the tenant might put in a notice of intention to buy, just to give themselves another 45 days. So, you know, so you have this limbo period. I do think it’s fair…
Sean O’Toole 47:48
And I think, I think the other thing is right, coming back to mom’s for housing, squatters. Right? Like, we they’re one of the biggest problems trustee sale investors face today as they buy a house at trustee sale, right. And even if it’s vacant, they have folks that watch the sales that go move into these houses before the investor can secure it before they get their deed. Right. And, and then those people basically sit and squat in order to get cash for keys, right, and they just basically move from foreclosed house to, you know, stick up, hold up trustee sale investors for money, cash for keys. And you know, now, this increases that, I think, to the degree that Okay, now there’s a 45 day period where I as a squatter, I just watch every foreclosure going to sale, I go move into that house, right, bought squatter rights. In California, I go move into that house, I get to live there free for at least 45 days, right. And then somebody probably pays me to move out, or they have to start an eviction period, which probably gives me another, you know, 90 days to 365 days depending on how good that person is about abusing the bankruptcy process and other things like that
Mike Belote 49:09
Or depending on how fast our court system comes up to speed on eviction actions, which is in real doubt right now, obviously, because of the pandemic. I do think we’ve been through a lot so far. For the record. I don’t think there was anything venal about this. I think Senator Skinner’s, uh, you know, I think that she acted in good faith. She,
Sean O’Toole 49:38
Mike Belote 49:38
I think that has to be said, this is a public.
Sean O’Toole 49:41
I think that’s fair.
Mike Belote 49:43
So I want to say that because, yeah, she’s not a bad person. She’s a very nice person. She’s not a real estate expert. As with all legislators, she has to deal with lots of subjects. She got convinced and she had a bank of Good guy, we’re gonna sort of housing types, a nonprofit type saying this is a good thing. So there was nothing, you know, in bad faith about this, I just think it’s
Sean O’Toole 50:13
A lot of those nonprofits that are, you know, there was a little self-serving, like, Hey, we want an easy way to go after these properties and not have to do all the hard work that the trustee sale investors do. Let them do all the hard work, set the bid, and then we can just come in and cherry-pick what we want. If you look at that group of supporters, man, that’s a long list of nonprofits. And, you know, so
Mike Belote 50:35
And that’s how I that’s how my life goes, you know that you get a big list of nonprofits in support, you get a big list of business groups in opposition. And here we go. I, it seems to me, the sort of takeaway is the risks are a you will discourage bidding, and, or eliminate bidding, which would be a very bad outcome. And to that you will have manipulation and gaming and perhaps outright fraud after-sale during this 45 day period. And when those things, if those things happen. Obviously, we’re going to be back to the legislature and said, look, you may have had good intentions here. This is what really happened.
Aaron Norris 51:18
I left on the senate analysis bill, it says fiscal impact. No, I’m like, I bet you the trustees have a different thought on that. This is clearly 45 days that they’re usually done and out the door. Now, this is 45 days, they’re potentially involved in multiple bidders from eligible bids. Who’s going to bear that extra cost to do that?
Mike Belote 51:36
Yeah, that’s a good point. And trustees are talking about that.
Sean O’Toole 51:40
Because the trustees fees are set in the code, right.
Mike Belote 51:44
I’m fully aware. Yeah. Yeah. The technical legislative point, when they say fiscal, they mean cost to the state. Oh, I know.
Aaron Norris 51:54
Yeah. Somebody is paying just not them. Yeah. I just wanted to point that out. That just made me laugh that it said that.
Sean O’Toole 52:01
Yeah, and I, you know, I think the other thing, which we touched on, I just don’t come because we didn’t quite close on it is the period of time these homes are vacant, with them going back to the bank, and even with adding this 45 days after the fact is going to increase. So the, you know, adding 45 days increases the number one problem that they were out to address was these vacant homes. It’s, it’s a little nuts. Okay, we’re coming up at the end of our time to talk about this forever. So I see, you know, there’s 2500 bills, really hard to keep track of them all, unfortunately. And Aaron and I have talked about this for years, there is not, you know, the trustees have an association, the realtors have an association. Real estate investors don’t have a good Association. They don’t have they’re not hiring you should be right. Um, so given that most real estate investors can’t there isn’t some association that they can go join, that’s going to keep them informed. What do you tell us? Those guys, these are hard work in small businesses. You know, a lot of times it’s husband and wife, couples, you know, this isn’t the big business thing that you think it is. When you go look at the all the foreclosures that were purchased by third parties, a very small percentage of those are purchased by large entities. So, you know, most of these folks are like my friend, Richard, who, you know, got almost wiped out his retirement in 2008, took the little bit of money he had left and started investing in trustee sales and was able to build back through flipping and buying rentals put himself in a better position than he was, you know, when he went to retire in 2008, and had his retirement savings wiped out. That’s the story of trustee sale investors that I have thousands and thousands of. So if you’re Richard, right, and, you know, you’re probably not investing after January 1. And you know, that has a huge impact on you your family’s income and the rest. How do you avoid that ever happening to you again?
Mike Belote 54:24
Yeah, it’s a it’s a good question. I would say sort of big picture. People need to understand what the California legislature does has vastly more impact on Richard, than the federal government. You know, it’s good theater to watch presidential debates. You know, we all have our opinions on the presidential race, which is upcoming here. But what the state does has way more impact on Richard than the fence. The California Legislature makes real estate law they make these fines by You know, empowering local government to impose fines for failure to maintain? It’s it’s important to keep track of the California legislature. Are there associations that fit perfectly? Arguably not, I think of the groups that were opposed to SB 1079, probably the California Mortgage Association is the closest, they have members who are investors in real estate, although the majority of the members are people who make loans to them, but I think that that CMA is probably the closest, but paying attention to your company and your efforts to make to keep up with what’s happening there is obviously critical. It’s hard, you know, they’re 2500 bills, and the average human can’t keep up with that. lobbyists. hardly keep up with them. But we, we work real hard, and there isn’t a great answer to your question, Shawn, I, I would say CMA is probably the closest and paying attention to you.
Sean O’Toole 56:13
I have one topic, I really meant. I know, we’re up on the hour. But there’s one topic that I think is that you could speak to given your background in mortgage as well. So in this 45 day period, let’s say you’re a potential owner-occupant, you want you’re looking for a house, you keep getting out bid. Now you see this foreclosure, right, it had a pretty attractive bid, you want to buy this, you’re not going to be able to get conventional financing, right? The the owner might still be in there, you can’t get inspections, you can’t like there’s really not a practical way for you as an owner occupant to buy this in the 45 days. Was there any conversation in this bill about how to overcome that gap? And is there an opportunity? You know, for, you know, third parties, maybe even nonprofits to act as a, you know, hard money lending to consumers is incredibly difficult in California, practically illegal? I would say, right? And it seems to me like there’s an opportunity to learn this person, some in a nonconventional hard money way is owner occupant, some money to overcome those hurdles of getting through eviction getting through these other pieces, to where they can actually end up an owner occupant feels to me like there’s an opportunity there. Was there any conversation about that? And do you have any thoughts on whether that will happen or not?
Mike Belote 57:43
I, again, I, I have some faith in the creativity of people to do good things, and not just bad things, you know, not just manipulate and game and commit fraud, you may see the development of organizations who provide, you know,
Sean O’Toole 58:02
Loan financing, bridge financing.
Mike Belote 58:05
Yeah, that kind of thing. And maybe CMA members pick up that those who have a real strong stomach. You know, we’ve talked for years in the legislature about how to allow the small guy to buy these properties. And there have been proposals to allow them to, to come in and get take some time to get financing. Well, that’s pretty complicated. You know,
Sean O’Toole 58:33
Arizona has, for example, you pay a $10,000 deposit, and you have a certain period of time to come up with the rest of the money, right. So that would have been a much better thing to do on this bill. In my humble opinion than a 45 day redemption period, which eliminates the bidding process. Yeah, but not, you know, it gives a bid after the bid. I mean, honestly, the guys that were colluding, that’s what they did, right. Like that’s the worst thing that’s ever happened in trustee sales is one guy goes in and buys it and then they do bidding after the bidding to set the real bid, right like that. This is like institutionalized the straw man are terrible.
Mike Belote 59:12
People went to jail for that kind of activity. My hope is, again, maybe starry-eyed optimist, but my hope is some legitimate Lending Act, avenues are developed to accommodate this. That would be a good outcome from the bill, whether likely or not, we’re going to have to wait and see.
Sean O’Toole 59:34
No conversation that you’re aware of there on the it doesn’t seem to me like current law supports that like the limits on points and fees to take that risk as a lender to come in for that short period of time and make that short term loan. It seems to me like everything in California law right now essentially makes that illegal and unlikely to happen which is unfortunate because that could be the one that brightspot out of this square owner-occupants can actually participate in the trustee sale process, even though I think it’s in the wrong way.
Mike Belote 1:00:07
And that maybe something that has to develop, you know, the law. You know, I’ve been doing this for 40 years and 30 years for UTA and CMA, and some of those groups is an evolving thing. It’s always changing. It’s an organic process. And hopefully some good will come out of this. If not, we have to revisit it. All right.
Aaron Norris 1:00:30
We’re up against that hour. And I wanted to make sure I mentioned that the United Trustee Association has a virtual event coming up in the next 30 days, I believe, and I will post the link to it. For those that are buying it trustee sale, do you think it would benefit for them to possibly participate to hear the conversation about the how the trustees plan to adjust to this?
Mike Belote 1:00:47
Aaron Norris 1:00:49
Will definitely post that.
Sean O’Toole 1:00:50
I will say that I’ve been a member of I don’t know if I’ve been a member, but the UTA has a book called The NMRST, I think National Mortgage service, something. So that book, it’s about when when they printed it, it was about this thick, I still have a copy on my desk. But it’s got it goes through analysis of all the foreclosure laws in all of the states. And it’s an incredible resource in the UTA is an incredible resource. So I’ve been a fan and follower. And I don’t know, remember, if I had to get a membership to get the book or not, I’m not a trustee. So it didn’t really make perfect sense for me to be a member. But I think I’ve been a member on and off. But it’s a it’s a pretty great, pretty useful organization. So, you know, so those in the trustee sale business, even in other states besides California, like it’s a good resource,
Aaron Norris 1:01:50
So goes California, they say, so this could be coming to a neighborhood near you. So…
Mike Belote 1:01:55
I don’t think so.
Aaron Norris 1:01:55
Hopefully not. Mike, thank you so much for your time, I really appreciate it. If people would like to find follow some of your work, where would you like them to go?
Mike Belote 1:02:04
Well, our firm has a website, California Advocates, CaliforniaAdvocates.com you know, I’m honored to do what I do. Aaron, I I’m proud of what we do. We tell the truth to legislators, sometimes we win sometimes we lose depends on the environment and all the political things that are happening. This was one that the outcome was not what we desired. But we have a lot of wins.
Aaron Norris 1:02:31
All right. Well, if we can help in the future, please let us know. We’d love to.
Mike Belote 1:02:33
Thank you. Thanks. Thanks
Sean O’Toole 1:02:35
Yeah Mike, you thanks so much for all the information and details here. And the rest, I mean, really, super helpful, useful conversation. And, you know, yeah, I do appreciate you. And we actually met 10 years ago, on when they were changing the posting and publishing requirements. And I got really involved in that bill and working with the legislative analyst. And you were there on behalf of I think the UTA is also at that time, as well as another gentleman from the lenders, and, you know, is interesting sitting around that table, you know, people on both sides, and I kind of had my own position. But that was absolutely my takeaway, you know, for all the bad-mouthing, that lobbying gets, right. It seemed to me, everybody that was there was professional, looking for the best outcome, you know, bringing different perspectives to the table. And, you know, trying to try to get a better bill pass. So I appreciate your, your work on this one. And, yeah, thank you. For the time.
Mike Belote 1:03:46
This may be a conversation that continues. So thank you.
Sean O’Toole 1:03:50
All right. Take care.
Aaron Norris 1:03:53
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