BILL NUMBER: AB 2359 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MAY 27, 2008
AMENDED IN ASSEMBLY MAY 15, 2008
AMENDED IN ASSEMBLY APRIL 28, 2008
AMENDED IN ASSEMBLY MARCH 28, 2008
INTRODUCED BY Assembly Member Jones
FEBRUARY 21, 2008
An act to amend Section 2953 of the Civil Code, to amend
Section 1281 of the Code of Civil Procedure, and to repeal and add
Section 4979.8 of the Financial Code, relating to loans.
LEGISLATIVE COUNSEL'S DIGEST
AB 2359, as amended, Jones. Loans.
(1) Existing
Existing law regulates the process of foreclosure on
real property subject to a mortgage or deed of trust. Existing law
provides that any express agreement made or entered into by a
borrower at the time of or in connection with the making of or
renewing of any loan secured by any instrument creating a lien on
real property, whereby the borrower agrees to waive specified rights
or privileges conferred upon him or her, shall be void. Existing law
excepts from these provisions any deed of trust, mortgage, or other
liens given to secure the payment of bonds or other indebtedness
authorized or permitted to be issued by the Commissioner of
Corporations or made by a public utility, as specified.
This bill would prohibit a broker, trustee, or mortgagee, or his
or her agent, beneficiary, or assigns from requiring as a condition
of an agreement regarding a high-cost covered
loan, subprime loan, or nontraditional mortgage, as defined,
that a borrower or an applicant for the loan waive any rights,
duties, remedies, obligations forums
, or procedures of California law with respect to a residential
mortgage or mortgage foreclosure.
This bill would also prohibit a broker, trustee, or mortgagee, or
his or her agent, beneficiary, or assigns from refusing to enter into
an agreement with a borrower or an applicant regarding a
high-cost covered loan, subprime loan, or
nontraditional mortgage solely because he or she refuses to waive
rights, duties, remedies, obligations
forums , or procedures provided for in those provisions.
The bill would also provide that the exercise by a borrower or
applicant of the right to refuse to waive legal rights, duties,
remedies, obligations forums , or
procedures, including a rejection of an agreement to arbitrate,
shall not affect any other term of the agreement. This bill would
also place on the broker, trustee, or mortgagee or his or her agent,
beneficiary, or assigns, the burden of proving that any waiver of
rights, duties, remedies, obligations
forums , or procedures of California law with respect to
these loans, including any agreement to arbitrate a claim or dispute,
was knowingly and voluntarily made by the borrower or applicant and
was not a condition of the agreement. This provision would apply to
an agreement to waive any rights, duties, remedies,
obligations forums , and procedures of
California law with respect to those loans, including an agreement to
arbitrate, that is entered into, altered, modified, renewed, or
extended on or after January 1, 2009.
(2) Under existing law, a written agreement to submit to
arbitration an existing controversy or a controversy thereafter
arising is valid, enforceable, and irrevocable, except upon those
grounds that exist for the revocation of any contract.
This bill would specify that provision would not apply to any
arbitration agreement that is involuntary, unconscionable, against
public policy, or otherwise unenforceable.
(3) Existing law imposes certain limitations and prohibitions on
licensed persons, including real estate brokers, finance lenders,
residential mortgage lenders, and financial institutions, with
respect to consumer loans and covered loans, as defined. Existing law
exempts an assignee that is a holder in due course from liability
under these provisions regulating consumer and covered loans.
Existing law exempts persons chartered by Congress to engage in the
secondary mortgage market from the provisions regulating consumer and
covered loans.
This bill would delete that exemption from liability for an
assignee that is a holder in due course and the exemption for persons
chartered by Congress to engage in the secondary mortgage market.
The bill would instead make any purchaser or assignee of a high-cost
loan, on or after January 1, 2009, subject to all affirmative claims
and any defenses with respect to the loan that the consumer could
assert against the original creditor or broker of the loan, except as
specified. The bill would also authorize a borrower to assert
certain claims to reduce or extinguish the borrower's liability under
a high-cost loan within specified timeframes against a subsequent
holder or assignee of the loan.
(4) This bill would also make other conforming, nonsubstantive,
technical changes to those provisions.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares that it is the
public policy of the State of California to ensure that homeowners
and prospective home buyers have the full benefit of the rights,
remedies, obligations duties, remedies,
forums , and procedures of California law with respect to
agreements regarding high-cost covered
loans, subprime loans, and nontraditional mortgages, and that
homeowners and applicants for those loans shall not be deprived of
those rights, remedies, obligations duties,
remedies, forums , or procedures by the use of coerced and
involuntary waivers. It is the purpose of this act to ensure that any
agreement between (a) a broker, trustee, or mortgagee or their
agents, beneficiaries, or assigns and (b) a borrower or applicant for
a loan that purports to waive any rights, remedies,
obligations legal rights, duties, remedies, forums
, or procedures under California law regarding a
high-cost , including any agreement that has the
effect of limiting the application or enforcement of those legal
rights, duties, remedies, forums, or procedures regarding a covered
loan, subprime loan, or nontraditional mortgage is a matter of
voluntary consent and not coercion.
The Legislature finds and declares that involuntary contractual
waiver provisions with respect to a high-cost
covered loan, subprime loan, or nontraditional mortgage,
including, but not limited to, an agreement to arbitrate a dispute,
that limit or purport to limit a borrower's or applicant's access to
any administrative complaint or dispute resolution procedure of the
State of California or any other public agency, including,
but not limited to, the right to file and pursue a
complaint against a licensed person or entity, to file and pursue a
civil action, or to limit the authority of the State of California or
other public agency to investigate and pursue claims alleging
violation of law or regulations, imposed as a condition of a loan,
are against the public policy of this state.
SEC. 2. Section 2953 of the Civil Code is amended to read:
2953. (a) Any express agreement made or entered into by a
borrower at the time of or in connection with the making of or
renewing of any loan secured by a deed of trust, mortgage, or other
instrument creating a lien on real property, whereby the borrower
agrees to waive the rights, or privileges conferred upon him or her
by Sections 2924, 2924b, 2924c of the Civil Code or by Sections 580a
or 726 of the Code of Civil Procedure, shall be void. The provisions
of this section shall not apply to any deed of trust, mortgage, or
other liens given to secure the payment of bonds or other evidences
of indebtedness authorized or permitted to be issued by the
Commissioner of Corporations or made by a public utility subject to
the provisions of the Public Utilities Act.
(b) A broker, trustee, or mortgagee, or his or her agent,
beneficiary, or assigns shall not , on or after January 1, 2009,
require as a condition of an agreement regarding a
high-cost covered loan, subprime loan, or
nontraditional mortgage that a borrower or an applicant for the loan
waive any rights, remedies, obligations
duties, remedies, forums , or procedures of California law with
respect to a residential mortgage or mortgage foreclosure,
including, but not limited to, the right to file and pursue an
administrative complaint or invoke a dispute resolution procedure of
the state or any other public agency, the right to file and pursue an
administrative complaint or other proceeding against a licensed
person or entity, or to file and pursue a civil action, or require as
a condition of an agreement that the borrower or applicant limit the
authority of the state or any other public agency to investigate and
pursue claims alleging violation of law or regulations.
(c) A broker, trustee, or mortgagee, or his or her agent,
beneficiary, or assigns shall not , on or after January 1, 2009,
refuse to enter into an agreement with a borrower or an
applicant regarding a high-cost covered
loan, subprime loan, or nontraditional mortgage solely because he or
she refuses to waive rights, remedies, obligations
legal rights, duties, remedies, forums , or
procedures provided for in this section. The exercise by a borrower
or applicant of the right to refuse to waive legal rights,
remedies, obligations duties, remedies, forums ,
or procedures, including a rejection of an agreement to arbitrate,
shall not affect any other term of the agreement.
(d) Any waiver of rights, remedies, obligations
d uties, remedies, forums , or procedures of
California law with respect to a high-cost
covered loan, subprime loan, or nontraditional mortgage by a
mortgagor or trustor, or applicant for that loan, on or after
January 1, 2009, shall be knowing and voluntary, and shall
expressly not be a condition of the agreement. Any waiver,
including an agreement to arbitrate a dispute with respect to that
loan, that is required as a condition of the agreement in violation
of this section, shall be deemed involuntary, unconscionable, against
public policy, and unenforceable.
(e) A broker, trustee, or mortgagee or his or her agent,
beneficiary, or assigns has the burden of proving that any waiver of
rights, remedies, obligations duties,
remedies, forums , or procedures of California law with respect
to a high-cost covered loan, subprime
loan, or nontraditional mortgage, including any agreement to
arbitrate a claim or dispute, was knowingly and voluntarily made by
the borrower or applicant and was not a condition of the agreement.
This subdivision shall apply to an agreement to waive any rights,
remedies, obligations duties, remedies,
forums , and procedures of California law with respect to those
loans, including an agreement to arbitrate, that is entered into,
altered, modified, renewed, or extended on or after January 1, 2009.
(f) For purposes of this section, the following definitions shall
apply:
(1) "Creditor" has the same meaning as "lender" as defined in
Section 3500.2 of Title 12 of the Code of Federal Regulations and
includes a mortgage broker.
(2) "High-cost "Covered loan" has
the same meaning as set forth in Section 4970 of the Financial Code.
(3) "Subprime loan" or "subprime mortgage" means a loan secured by
a dwelling that is, or will be, the consumer's principal dwelling
and in which the annual percentage rate exceeds the greater of either
of the following:
(A) If the loan is a closed-end loan, the difference between the
annual percentage rate for the loan and the yield on treasury
securities having comparable periods of maturity is either equal to
or greater than (i) 3 percentage points if the loan is secured by a
first lien mortgage or deed of trust or (ii) 5 percentage points if
the loan is secured by a subordinate lien mortgage or deed of trust.
If the loan is an open-end credit plan, the difference between the
annual percentage rate for the loan and the yield on treasury
securities having comparable periods of maturity is equal to or
greater than 3 percentage points, regardless of whether the open-end
credit plan is secured by a first or subordinate lien mortgage or
deed of trust. Without regard to whether the loan is subject to or
reportable under the provisions of the federal Home Mortgage
Disclosure Act (HMDA) (12 U.S.C. Sec. 2801 et seq.), the difference
between the annual percentage rate and the yield on treasury
securities having comparable periods of maturity shall be determined
using the same procedures and calculation methods applicable to loans
that are subject to the reporting requirements of the HMDA.
(B) The difference between the annual percentage rate for the loan
and the annual yield on conventional mortgages published by the
Board of Governors of the Federal Reserve System, as published in the
Federal Reserve Statistical Release (H.15) or any publication that
may supersede it, is either equal to or greater than (i) 1.75
percentage points, if the loan is secured by a first lien mortgage or
deed of trust or (ii) 3.75 percentage points, if the loan is secured
by a subordinate lien mortgage or deed of trust.
(4) "Nontraditional loan" or "nontraditional mortgage" means a
mortgage product that allows a consumer to defer payment of principal
and, sometimes, interest, as set forth in the "Interagency Guidance
on Nontraditional Mortgage Product Risks" (71 Fed. Reg. 58609 (Oct.
4, 2006)).
(5) "Points and fees" shall include the following:
(A) All items included in the definition of finance charge in
Sections 226.4 (a) and 226.4 (b) of Title 12 of the Code of Federal
Regulations, except interest or the time price differential.
(B) All items described in Section 226.32(b)(1)(iii) of Title 12
of the Code of Federal Regulations.
(C) All compensation paid directly or indirectly to a mortgage
broker from any source, including, but not limited to, any payment of
a yield spread premium, and including a payment to a mortgage broker
that originates a loan in its own name in a table-funded
transaction.
(D) The cost of all premiums financed by the creditor directly or
indirectly for any credit life, credit disability, credit
unemployment or credit property insurance, or any other life or
health insurance, or any payments financed by the creditor directly
or indirectly for any debt cancellation or suspension agreement or
contract, except that insurance premiums or debt cancellation or
suspension fees calculated and paid in full on a monthly basis shall
not be considered financed by the creditor.
(E) The maximum prepayment fees and penalties that may be charged
or collected under the terms of the loan documents.
(F) All prepayment fees or penalties that are incurred by the
borrower if the loan refinances a previous loan made or currently
held by the same creditor or an affiliate of the creditor.
(G) For open-end loans, the points and fees are calculated by
adding the total points and fees known at or before closing,
including the maximum prepayment penalties that may be charged or
collected under the terms of the loan documents, plus the minimum
additional fees the consumer would be required to pay to draw down an
amount equal to the total credit line.
(6) "Points and fees" shall not include the following:
(A) Taxes, filing fees, recording fees, and other charges and fees
paid or to be paid to public officials for determining the existence
of or for perfecting, releasing, or satisfying a security interest.
(B) Bona fide and reasonable fees paid to a person other than the
creditor or an affiliate of the creditor for fees for tax payment
services, flood certification, pest infestation and flood
determination, appraisal fees, fees for inspections performed prior
to closing, credit report fees, survey fees, attorney's fees if the
consumer has the right to select the attorney from an approved list
or otherwise, notary fees, escrow charges, so long as not otherwise
included in the definition of finance charge in subparagraph (A) of
paragraph (5), title insurance premiums, and fire and hazard
insurance and flood insurance premiums, provided that the conditions
in Section 226.4(d)(2) of Title 12 of the Code of Federal Regulations
are met.
SEC. 3. Section 1281 of the Code of Civil
Procedure is amended to read:
1281. (a) Except as provided in subdivision (b), a written
agreement to submit to arbitration an existing controversy or a
controversy thereafter arising is valid, enforceable, and
irrevocable, except upon those grounds that exist for the revocation
of any contract.
(b) Subdivision (a) does not apply to any arbitration agreement
that is involuntary, unconscionable, against public policy, or
otherwise unenforceable.
SEC. 4. Section 4979.8 of the Financial Code is
repealed.
SEC. 5. Section 4979.8 is added to the
Financial Code, to read:
4979.8. (a) Notwithstanding any other provision of law, any
person who, on or after January 1, 2009, purchases or is otherwise
assigned a high-cost loan shall be subject to all affirmative claims
and any defenses with respect to the loan that the borrower could
assert against the original creditor or broker of the loan, provided
that this subdivision shall not apply if the purchaser or assignee
demonstrates, by a preponderance of the evidence, that it does all of
the following:
(1) Has in place at the time of the purchase or assignment of the
loan, policies that expressly prohibit its purchase or acceptance of
assignment of any high-cost loan.
(2) Requires by contract that a seller or assignor of consumer
loans to the purchaser or assignee represents and warrants to the
purchaser or assignee either of the following:
(A) That it will not sell or assign any high-cost home loan to the
purchaser or assignee.
(B) That the seller or assignor is a beneficiary of a
representation and warranty from a previous seller or assignor to
that effect.
(3) Exercises reasonable due diligence at the time of purchase or
assignment of consumer loans or within a reasonable period of time
thereafter intended by the purchaser or assignee to prevent the
purchaser or assignee from purchasing or taking assignment of any
high-cost loan. Reasonable due diligence shall provide for sampling
and shall not require loan-by-loan review.
(b) Notwithstanding any other law to the contrary, but limited to
amounts required to reduce or extinguish the borrower's liability
under the loan plus amounts required to recover costs, including
reasonable attorney's fees, a borrower acting only in an individual
capacity may assert claims that the borrower could assert against the
original creditor or broker of the loan against the subsequent
holder or assignee of the high-cost loan pursuant to any of the
following:
(1) Within six years of the closing of a high-cost loan, a claim
for a violation of this section in connection with the loan as an
original action.
(2) At any time during the term of a high-cost loan, after an
action to collect on the high-cost loan or an action to foreclose on
the collateral securing the high-cost loan has been initiated or the
debt arising from the high-cost loan has been accelerated or the
high-cost loan has become 60 days in default, any defense, claim, or
counterclaim.
(c) It is a violation of this section, for the purposes of
subdivision (b), for any person, in bad faith, to attempt to avoid
the application of this section by doing any of the following:
(1) Dividing any loan transaction into separate parts.
(2) Engaging in any other such subterfuge, with the intent of
evading the provisions of this section.
(d) Nothing in this section shall be construed to limit the
substantive rights, remedies, or procedural rights, including, but
not limited to, recoupment rights under the common law, available to
a borrower against any creditor, assignee, or holder under any other
law. The limitations on assignee liability in subdivision (a) shall
not apply to the assignee liability in subdivision (b) or (c).
(e) (1) A creditor in a high-cost loan who, when acting in good
faith, fails to comply with the provisions of this section, shall not
be deemed to have violated this section if the creditor establishes
either of the following:
(A) Within 45 days of the loan closing, the creditor has made
appropriate restitution to the borrower, and appropriate adjustments
are made to the loan.
(B) Within 365 days of the loan closing and prior to receiving any
notice from the borrower of the compliance failure, if the
compliance failure was not intentional and resulted from a bona fide
error notwithstanding the maintenance of procedures reasonably
adopted to avoid those errors, the borrower is notified of the
compliance failure, appropriate restitution is made to the borrower,
and appropriate adjustments are made to the loan.
(2) For purposes of subparagraph (B) of paragraph (1), examples of
bona fide errors include clerical, calculation, computer malfunction
and programming, and printing errors. An error of legal judgment
with respect to a person's obligations under this section is not a
bona fide error.
(f) The remedies provided in this section are cumulative.
(g) For purposes of this section, "high-cost loan" has the same
meaning as defined in Section 4970.
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and 5.
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