BILL ANALYSIS
AB 957
Page 1
ASSEMBLY THIRD READING
AB 957 (Galgiani)
As Amended May 14, 2009
Majority vote
BANKING & FINANCE 10-1 JUDICIARY 10-0
-----------------------------------------------------------------
|Ayes:|Nava, Gaines, Evans, |Ayes:|Feuer, Tran, Brownley, |
| |Fong, Fuentes, | |Skinner, Jones, Knight, |
| |Mendoza, Ruskin, Swanson, | |Krekorian, Lieu, Monning, |
| |Torres, Tran | |Nielsen |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Anderson | | |
| | | | |
-----------------------------------------------------------------
SUMMARY : Enacts the Buyer's Choice Act, to generally prohibit a
lender, or other party that acquires title to, and seeks to
sell, a foreclosed residential property, from requiring a buyer
to purchase title insurance or escrow services from a particular
company chosen by the seller.. Specifically, this bill :
1)Provides that a seller, as defined, shall not directly or
indirectly, as a condition of selling residential real
property to a buyer, require the buyer to purchase title
insurance or escrow services in connection with the sale of
that property from a company chosen by the seller.
2)Provides a violation by a seller, as defined, shall be liable
in an amount equal to three times all charges made fore the
title insurance or escrow service. In addition, any person in
violation shall be deemed to have violated his or her license
law and shall be subject to discipline by his or her licensing
entity.
3)Specifies a transaction shall not be invalidated solely
because of the failure of any person to comply with any
provision of this act.
4)Defines "seller" for purposes of this bill to mean a
mortgagee, beneficiary under deed of trust, or other person
who acquired title to residential real property at a
AB 957
Page 2
foreclosure sale, including a trustee, agency, officer, or
other employee of any such mortgagee, beneficiary, or other
person.
5)Enacts a sunset date of January 1, 2015.
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
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
AB 957
Page 3
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."
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. 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 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
AB 957
Page 4
practice creates an anti-competitive environment.
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
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.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0000694