BILL ANALYSIS
AB 957
Page 1
Date of Hearing: April 20, 2009
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Pedro Nava, Chair
AB 957 (Galgiani) - As Introduced: February 26, 2009
SUBJECT : Residential real estate transfers: title insurance:
escrow companies.
SUMMARY : Enacts the Buyer's Choice act. Specifically, this
bill :
1)Prohibits a mortgagee, beneficiary under a deed of trust, or
other person who acquired title to residential real property
as a foreclosure sale from, as a condition of selling that
real property to a buyer, requiring the buyer to purchase
title insurance or use escrow services in connection with the
sale from a company chosen by a seller.
2)Prohibits a seller from, without good cause, disapproving the
use of a title or escrow company chosen by a buyer.
3)Requires a seller who violates this provision to be liable to
the buyer for a civil penalty in an amount equal to 6 percent
of the sale prices of the property.
4)Defines "seller" as a mortgagee, beneficiary under deed of
trust, or other person who acquired title to residential real
property at a foreclosure sale.
EXISTING FEDERAL LAW:
1)Authorizes federally-chartered financial institutions to
engage in the business of mortgage lending, brokering, and
servicing and governs the rules under which such activities
may be conducted under a wide variety of laws, including, but
not limited to, the Home Ownership and Equity Protection Act
(HOEPA), Real Estate Settlement Procedures Act (RESPA), Truth
in Lending Act (TILA), Home Mortgage Disclosure Act (HMDA),
and regulations that interpret those acts (most notably
Regulation C, which interprets the Home Mortgage Disclosure
Act and Regulation Z, which interprets the Truth in Lending
Act).
2)Enacts section 9 of RESPA to prohibit a seller from requiring
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the home buyer to use a particular title insurance company,
either directly or indirectly, as a condition of sale. Buyers
may sue a seller who violates this provision for an amount
equal to three times all charges made for the title insurance.
3)Authorizes under section 9 of RESPA that individuals have one
year to bring a private law suit to enforce violations.
Lawsuits may be brought in any federal district court in the
district in which the property is located or where the
violation is alleged to have occurred. U.S. Housing and Urban
Development, a State Attorney General or State Insurance
Commissioner may bring an injunctive action to enforce
violations within three years.
EXISTING STATE LAW specifies that the Department of Corporations
(DOC) has the authority to enforce licensees it finds to have
violated any provision of RESPA, as amended (12 U.S.C. Sec. 2601
et seq.), or its regulations. (Financial Code Section, 17425)
FISCAL EFFECT : None.
COMMENTS :
The author believes, "Since the last major bout of foreclosures
during the downturn of the 1990's, a practice has developed in
the foreclosure market that is having significant consequences
to many groups, including home buyers. Banks and the Federal
Department Housing and Urban Development Department (HUD) are
increasingly requiring the use of specific service providers
when they are the seller of residential property, regardless of
who pays for the service. This practice is illegal under
federal laws and regulations. Assembly Bill 957 seeks to
strengthen state law to further curtail this practice."
In addition, the sponsor, the Escrow Institute of California,
further states, "What we are witnessing in the REO marketplace
is anti-competitive monopoly where banks direct the flow of the
sale of foreclosure properties to pre-selected settlement
service providers regardless of service or cost, and if a
potential buyer does not agree to use these services providers
their purchase offer will not be submitted or if reviewed by the
lender will be denied."
AB 957 seems to be repetitive with federal law under Section 9
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of RESPA. Although, the intention of the bill may already be
prohibited under federal law, the author and sponsor believe
California needs to further enforce that the action of banks
pre-determining title and escrow companies for buyers is
prohibited especially with the sale of REO properties. Is the
issue existing law or the regulators who are required to enforce
it? KCRA, recently released a story in regards to banks forcing
buyers to use their escrow companies. This behavior restricts
what should be a healthy competitive environment and backs
buyers into a corner by forcing them to accept higher fees. If
enacted the bill language will go into the civil code which
still poses the question of what state regulator will enforce
this provision? Although the California Attorney General would
be able to bring actions to enforce this and individuals could
bring civil suits, should the bill be moved to the financial
code so a regulator such as the Department of Corporations (DOC)
would clearly be required to make sure the law is enforced?
The bill seems to address a serious issue, but as addressed will
not affect the perpetrators who seem to be the ones acting in an
already prohibited manner. Recently, HUD came under scrutiny
in regards to their own behavior. In a letter to the Federal
Housing commissioner, the American Land Title Association (ALTA)
accused HUD of violating RESPA because it is directing title and
closing services involving HUD-owned properties. According to
ALTA, many other lenders also have assumed this practice on
their bank owned real estate. Title agents contend this
practice creates an anti-competitive environment. California
cannot implement laws regulating HUD therefore what perpetrators
under state law will this bill effect?
In favor of this bill, HUD has openly stated in the past, "The
effectiveness of RESPA could be enhanced by assuring that
creative business structures do not defeat the purposes of
Sections 8 and 9 of RESPA, and by providing the Secretary and
State regulators with the necessary tools to enforce the
statute." AB 957 could help ensure further enforcement. In
addition HUD has written several informal opinions explaining
that all direct and indirect methods of requiring the buyer to
use the seller's selected title agent are illegal. For example,
a seller who gave the buyer a choice of using one of three title
agencies, and who charged a higher fee if another agency was
used, violates section 9 of RESPA. A clause in a purchase
agreement that has the effect of forcing the buyer to obtain and
pay for a lender's title policy from a specific title company or
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title agency is illegal. The seller and the seller's real
estate broker are liable to the buyer for three times the cost
of the title insurance policy each time that a seller or the
seller's real estate broker includes such a clause in the
purchase agreement.
PREVIOUS LEGISLATION :
AB 804 (Huff, Chapter 237, Statutes of 2007) enacted various
changes to the laws involving independent escrow agents, some of
which are technical, some of which are intended to ease
compliance burdens for licensed escrow agents, and some of which
are intended to be pro-consumer. Further clarified that the DOC
has the authority to enforce RESPA.
AMENDMENTS :
The definition of seller should add those that may be a trustee
or agent to the seller. A lot of the time the seller works very
closely with, for example, the auctioneer, who is charge of
organizing the sale of REO properties. As written, the bill
would not capture an agent to the seller. The following
amendment should be added to ensure the bill does what the
author intends it to do.
1)On page 2, line 21, after sale, add ", or trustee, agent,
officer or other employee of any such person, "
REGISTERED SUPPORT / OPPOSITION :
Support
Escrows For You, Inc.
Escrow Institute of California
Property ID
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081