BILL NUMBER: AB 901 CHAPTERED
BILL TEXT
CHAPTER 531
FILED WITH SECRETARY OF STATE OCTOBER 5, 2005
APPROVED BY GOVERNOR OCTOBER 5, 2005
PASSED THE ASSEMBLY AUGUST 31, 2005
PASSED THE SENATE AUGUST 29, 2005
AMENDED IN SENATE AUGUST 23, 2005
AMENDED IN SENATE AUGUST 15, 2005
AMENDED IN SENATE JULY 1, 2005
AMENDED IN ASSEMBLY MAY 4, 2005
AMENDED IN ASSEMBLY APRIL 20, 2005
AMENDED IN ASSEMBLY APRIL 11, 2005
INTRODUCED BY Assembly Member Ridley-Thomas
FEBRUARY 18, 2005
An act to amend Section 4970 of the Financial Code, and to amend
Section 27388 of the Government Code, relating to loans.
LEGISLATIVE COUNSEL'S DIGEST
AB 901, Ridley-Thomas Covered loans.
Existing law imposes various restrictions on certain consumer
loans defined as "covered loans," including prohibiting a covered
loan from including a prepayment fee or penalty after the first 36
months after the date of the loan and requiring a specified
disclosure notice to a consumer before a covered loan is made.
Existing law defines the term "covered loan" to mean a consumer loan
in which the original principal balance of the loan does not exceed
$250,000 in the case of a mortgage or deed of trust where certain
conditions are met.
This bill would instead provide that the term "covered loan" means
a consumer loan in which the original principal balance of the loan
does not exceed the most current conforming loan limit for a
single-family first mortgage loan established by the Federal National
Mortgage Association.
Existing law requires a county board of supervisors to review
annually the effectiveness of the district attorney in deterring,
investigating, and prosecuting real estate fraud crimes based upon
information provided by the district attorney in an annual report
submitted to the board.
This bill would also provide that the report be submitted to the
Legislative Analyst's Office, which would be required to compile the
results and report to the Legislature.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 4970 of the Financial Code is amended to read:
4970. For purposes of this division:
(a) "Annual percentage rate" means the annual percentage rate for
the loan calculated according to the provisions of the federal Truth
in Lending Act and the regulations adopted thereunder by the Federal
Reserve Board.
(b) "Covered loan" means a consumer loan in which the original
principal balance of the loan does not exceed the most current
conforming loan limit for a single-family first mortgage loan
established by the Federal National Mortgage Association in the case
of a mortgage or deed of trust, and where one of the following
conditions are met:
(1) For a mortgage or deed of trust, the annual percentage rate at
consummation of the transaction will exceed by more than eight
percentage points the yield on Treasury securities having comparable
periods of maturity on the 15th day of the month immediately
preceding the month in which the application for the extension of
credit is received by the creditor.
(2) The total points and fees payable by the consumer at or before
closing for a mortgage or deed of trust will exceed 6 percent of the
total loan amount.
(c) "Points and fees" shall include the following:
(1) All items required to be disclosed as finance charges under
Sections 226.4(a) and 226.4(b) of Title 12 of the Code of Federal
Regulations, including the Official Staff Commentary, as amended from
time to time, except interest.
(2) All compensation and fees paid to mortgage brokers in
connection with the loan transaction.
(3) All items listed in Section 226.4(c)(7) of Title 12 of the
Code of Federal Regulations, only if the person originating the
covered loan receives direct compensation in connection with the
charge.
(d) "Consumer loan" means a consumer credit transaction that is
secured by real property located in this state used, or intended to
be used or occupied, as the principal dwelling of the consumer that
is improved by a one-to-four residential unit. "Consumer loan" does
not include a reverse mortgage, an open line of credit as defined in
Part 226 of Title 12 of the Code of Federal Regulations (Regulation
Z), or a consumer credit transaction that is secured by rental
property or second homes. "Consumer loan" does not include a bridge
loan. For purposes of this division, a bridge loan is any temporary
loan, having a maturity of one year or less, for the purpose of
acquisition or construction of a dwelling intended to become the
consumer's principal dwelling.
(e) "Original principal balance" means the total initial amount
the consumer is obligated to repay on the loan.
(f) "Licensing agency" shall mean the Department of Real Estate
for licensed real estate brokers, the Department of Corporations for
licensed residential mortgage lenders and licensed finance lenders
and brokers, and the Department of Financial Institutions for
commercial and industrial banks and savings associations and credit
unions organized in this state.
(g) "Licensed person" means a real estate broker licensed under
the Real Estate Law (Part 1 (commencing with Section 10000) of
Division 4 of the Business and Professions Code), a finance lender or
broker licensed under the California Finance Lenders Law (Division 9
(commencing with Section 22000)), a residential mortgage lender
licensed under the California Residential Mortgage Lending Act
(Division 20 (commencing with Section 50000)), a commercial or
industrial bank organized under the Banking Law (Division 1
(commencing with Section 99)), a savings association organized under
the Savings Association Law (Division 2 (commencing with Section
5000)), and a credit union organized under the California Credit
Union Law (Division 5 (commencing with Section 14000)). Nothing in
this division shall be construed to prevent any enforcement by a
governmental entity against any person who originates a loan and who
is exempt or excluded from licensure by all of the licensing
agencies, based on a violation of any provision of this division.
Nothing in this division shall be construed to prevent the Department
of Real Estate from enforcing this division against a licensed
salesperson employed by a licensed real estate broker as if that
salesperson were a licensed person under this division. A licensed
person includes any person engaged in the practice of consumer
lending, as defined in this division, for which a license is required
under any other provision of law, but whose license is invalid,
suspended or revoked, or where no license has been obtained.
(h) "Originate" means to arrange, negotiate, or make a consumer
loan.
(i) "Servicer" has the same meaning provided in Section 6 (i)(2)
of the Real Estate Settlement Procedures Act of 1974.
SEC. 2. Section 27388 of the Government Code is amended to read:
27388. (a) In addition to any other recording fees specified in
this code, upon the adoption of a resolution by the county board of
supervisors, a fee of up to two dollars ($2) shall be paid at the
time of recording of every real estate instrument, paper, or notice
required or permitted by law to be recorded within that county,
except those expressly exempted from payment of recording fees. "Real
estate instrument" is defined for the purpose of this section as a
deed of trust, an assignment of deed of trust, a reconveyance, a
request for notice, and a notice of default. "Real estate instrument"
does not include any deed, instrument, or writing subject to the
imposition of a documentary transfer tax as defined in Section 11911
of the Revenue and Taxation Code, nor any document required to
facilitate the transfer subject to the documentary transfer tax. The
fees, after deduction of any actual and necessary administrative
costs incurred by the county in carrying out this section, shall be
paid quarterly to the county auditor or director of finance, to be
placed in the Real Estate Fraud Prosecution Trust Fund. The amount
deducted for administrative costs shall not exceed 10 percent of the
fees paid pursuant to this section.
(b) Money placed in the Real Estate Fraud Prosecution Trust Fund
shall be expended to fund programs to enhance the capacity of local
police and prosecutors to deter, investigate, and prosecute real
estate fraud crimes. After deduction of the actual and necessary
administrative costs referred to in subdivision (a), 60 percent of
the funds shall be distributed to district attorneys subject to
review pursuant to subdivision (d), and 40 percent of the funds shall
be distributed to local law enforcement agencies within the county
in accordance with subdivision (c). In those counties where the
investigation of real estate fraud is done exclusively by the
district attorney, after deduction of the actual and necessary
administrative costs referred to in subdivision (a), 100 percent of
the funds shall be distributed to the district attorney, subject to
review pursuant to subdivision (d). The funds so distributed shall be
expended for the exclusive purpose of deterring, investigating, and
prosecuting real estate fraud crimes.
(c) The county auditor or director of finance shall distribute
funds in the Real Estate Fraud Prosecution Trust Fund to eligible law
enforcement agencies within the county pursuant to subdivision (b),
as determined by a Real Estate Fraud Prosecution Trust Fund Committee
composed of the district attorney, the county chief administrative
officer, the chief officer responsible for consumer protection within
the county, and the chief law enforcement officer of one law
enforcement agency receiving funding from the Real Estate Fraud
Prosecution Trust Fund, the latter being selected by a majority of
the other three members of the committee. The chief law enforcement
officer shall be a nonvoting member of the committee and shall serve
a one-year term, which may be renewed. Members may appoint
representatives of their offices to serve on the committee. If a
county lacks a chief officer responsible for consumer protection, the
county board of supervisors may appoint an appropriate
representative to serve on the committee. The committee shall
establish and publish deadlines and written procedures for local law
enforcement agencies within the county to apply for the use of funds
and shall review applications and make determinations by majority
vote as to the award of funds using the following criteria:
(1) Each law enforcement agency that seeks funds shall submit a
written application to the committee setting forth in detail the
agency's proposed use of the funds.
(2) In order to qualify for receipt of funds, each law enforcement
agency submitting an application shall provide written evidence that
the agency either:
(A) Has a unit, division, or section devoted to the investigation
or prosecution of real estate fraud, or both, and the unit, division,
or section has been in existence for at least one year prior to the
application date.
(B) Has on a regular basis, during the three years immediately
preceding the application date, accepted for investigation or
prosecution, or both, and assigned to specific persons employed by
the agency, cases of suspected real estate fraud, and actively
investigated and prosecuted those cases.
(3) The committee's determination to award funds to a law
enforcement agency shall be based on, but not be limited to, (A) the
number of real estate fraud cases filed in the prior year; (B) the
number of real estate fraud cases investigated in the prior year; (C)
the number of victims involved in the cases filed; and (D) the total
aggregated monetary loss suffered by victims, including individuals,
associations, institutions, or corporations, as a result of the real
estate fraud cases filed, and those under active investigation by
that law enforcement agency.
(4) Each law enforcement agency that, pursuant to this section,
has been awarded funds in the previous year, upon reapplication for
funds to the committee in each successive year, in addition to any
information the committee may require in paragraph (3), shall be
required to submit a detailed accounting of funds received and
expended in the prior year. The accounting shall include (A) the
amount of funds received and expended; (B) the uses to which those
funds were put, including payment of salaries and expenses, purchase
of equipment and supplies, and other expenditures by type; (C) the
number of filed complaints, investigations, arrests, and convictions
that resulted from the expenditure of the funds; and (D) other
relevant information the committee may reasonably require.
(d) The county board of supervisors shall annually review the
effectiveness of the district attorney in deterring, investigating,
and prosecuting real estate fraud crimes based upon information
provided by the district attorney in an annual report submitted to
the board and to the Legislative Analyst's Office, which shall
compile the results and report to the Legislature, detailing both:
(1) Facts, based upon, but not limited to, (A) the number of real
estate fraud cases filed in the prior year; (B) the number of real
estate fraud cases investigated in the prior year; (C) the number of
victims involved in the cases filed; (D) the number of convictions
obtained in the prior year; and (E) the total aggregated monetary
loss suffered by victims, including individuals, associations,
institutions, corporations, and other relevant public entities,
according to the number of cases filed, investigations, prosecutions,
and convictions obtained.
(2) An accounting of funds received and expended in the prior
year, which shall include (A) the amount of funds received and
expended; (B) the uses to which those funds were put, including
payment of salaries and expenses, purchase of equipment and supplies,
and other expenditures by type; (C) the number of filed complaints,
investigations, prosecutions, and convictions that resulted from the
expenditure of funds; and (D) other relevant information provided at
the discretion of the district attorney.
(e) The intent of the Legislature in enacting this section is to
have an impact on real estate fraud involving the largest number of
victims. To the extent possible, an emphasis should be placed on
fraud against individuals whose residences are in danger of, or are
in, foreclosure as defined under subdivision (b) of Section 1695.1 of
the Civil Code. Case filing decisions continue to be in the
discretion of the prosecutor.
(f) A district attorney's office or a local enforcement agency
that has undertaken investigations and prosecutions that will
continue into a subsequent program year may receive nonexpended funds
from the previous fiscal year subsequent to the annual submission of
information detailing the accounting of funds received and expended
in the prior year.
(g) No money collected pursuant to this section shall be expended
to offset a reduction in any other source of funds. Funds from the
Real Estate Fraud Prosecution Trust Fund shall be used only in
connection with criminal investigations or prosecutions involving
recorded real estate documents.