BILL ANALYSIS
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THIRD READING
Bill No: AB 957
Author: Galgiani (D)
Amended: 8/17/09 in Senate
Vote: 27 - Urgency
SENATE JUDICIARY COMMITTEE : 4-0, 6/23/09
AYES: Corbett, Harman, Florez, Leno
NO VOTE RECORDED: Walters
ASSEMBLY FLOOR : 77-0, 5/26/09 - See last page for vote
SUBJECT : Residential real estate transfers
SOURCE : Author
DIGEST : This bill prohibits a seller of residential real
property from requiring a buyer to purchase title insurance
or escrow services, in connection with the sale of a
property, from a company chosen by the seller, as
specified. This bill limits its provision to properties
improved by four or fewer dwelling units purchased at a
foreclosure sale. The provisions of the bill sunset on
January 1, 2105.
Senate Floor Amendments of 8/17/09 add clarifying language
and state that a buyer may agree to accept the services of
a title insurer or escrow agent recommended by the seller
if written notice of the right to make an independent
selection is provided. The amendments also limit the
bill's provisions to residential real property improved by
CONTINUED
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four or fewer dwelling units, add findings and
declarations, and make other clarifying changes.
ANALYSIS :
Existing law:
Existing federal law, the federal Real Estate Settlement
Procedures Act (RESPA), regulates transactions between
buyers, sellers, and mortgagees involving "settlement
services" (including title insurance and escrow services).
That Act generally requires that borrowers receive certain
timely disclosures relating to the costs of those
settlement services, and prohibits certain practices on the
part of a mortgagee that increase the costs of settlement
services. (12 United States Constitution Section 2601 et
seq.)
Existing federal law provides, under RESPA, that no seller
of property that will be purchased with the assistance of a
federally related mortgage loan shall require directly or
indirectly, as a condition to selling the property, which
title insurance covering the property be purchased by the
buyer from any particular title company. Any seller who
violates that provision is liable to the buyer in an amount
equal to three times all charges made for such title
insurance. (12 United States Constitution Section 2608.)
Existing state law, the Escrow Law, provides for the
licensing of escrow agents by the Department of
Corporations, and states that any person subject to the
Escrow Law who violates any provision of RESPA, or any
regulation promulgated thereunder, violates the Escrow Law.
(Financial Code Section 17425.)
Existing state law requires a real property seller, or the
seller's agent, to disclose to buyers any material facts
that would have a significant and measurable effect on the
value or desirability of the property (if the buyer does
not know, and would not reasonably discover, those facts).
( Karoutas v. Homefed Bank (1991) 232 California Appeals 3d
767; Reed v. King (1983) 145 California Appeals 3d 261.)
Existing state law requires a seller, or the seller's agent
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in certain cases, to disclose to a buyer when a property is
in a specified natural hazard zone, and requires the
disclosure to be on a Natural Hazard Disclosure Statement,
as specified. (Civil Code Sections. 1103, 1103.2.)
Existing law permits a seller to use an expert report or
opinion from an engineer, land surveyor, geologist, or
expert in natural hazard discovery to fulfill his or her
natural hazard notification requirements. (Civil Code
Section 1103.4.)
Existing state law exempts certain transfers from the above
requirement to provide a natural hazard disclosure
statement, including transfers of property acquired at a
foreclosure sale. (Civil Code Section 1103.1.) Existing
law provides that neither the seller, nor their agent,
shall be liable for any error, inaccuracy, or omission of
any information delivered if the error, inaccuracy, or
omission was not within the personal knowledge of the
transferor or the listing or selling agent, as specified.
(Civil Code Section 1103.4.)
This bill enacts the Buyer's Choice Act.
This bill contains the following findings and declarations:
(1) sales of foreclosed properties have become a dominant
portion of homes on the resale real estate market; (2) the
recent troubled real estate market has resulted in a
concentration of the majority of homes available fore
resale within the hands of foreclosing lenders and has
dramatically changed the market dynamics affecting ordinary
home buyers; (3) preserving the fair negotiability of
contract terms is an important policy goal to be preserved
in real estate transactions; (4) the potential for
unfairness occasioned by the resale of large numbers of
foreclosed homes on the market requires that protection
against abuses be made effective immediately; (5) the
federal Real Estate Settlement Procedures Act (RESPA)
creates general rules for fair negotiation of settlement
services prohibits kickbacks and specifically prohibits a
seller in a federally related transaction from requiring a
buyer to purchase title insurance from a particular
insurer; (6) California law doe not specifically prohibit a
seller from imposing, as a condition of sale of a
foreclosed home, the purchase of title insurance or escrow
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services from a particular insurer or provider; (7)
therefore it is necessary to add this act to California law
to provide to a home buyer protection that follows the
RESPA model and applies to, and prevents, the conditioning
of a sale of a foreclosed home on the buyer's purchase of
title insurance from a particular insurer or title company
and/or the buyer's purchase of escrow services from a
particular provider.
This bill specifies that it is the intent of the
Legislature that, for the purpose of this act, the sale of
a residential real property is deemed to include the
receipt of an offer to purchase that residential real
property.
The bill provides that a seller of residential real
property improved by four or fewer dwelling units shall not
require directly or indirectly, as a condition of selling
the property, that title insurance covering the property or
escrow service provided in connection with the sale of the
property be purchased by the buyer from a particular title
insurer or escrow agent. This bill does not prohibit a
buyer from agreeing to accept the services of a title
insurer or an escrow agent recommended by the seller if
written notice of the right to make an independent
selection of those services is first provided by the seller
to the buyer.
The bill contains the following definitions:
1. "Escrow service", means service provided by a person
licensed pursuant to Division 6 (commencing with Section
17000) of the financial Code, or exempt from licensing
pursuant to Section 17006 of the Financial Code.
2. "Seller", means a mortgagee or beneficiary under a deed
of trust who acquired title to residential real property
improved by four or fewer dwelling units at a
foreclosure sale, including a trustee, agent, officer,
or other employee of any such mortgagee beneficiary.
3. "Title insurance" means insurance offered by an insurer
admitted in this state to transact title insurance
pursuant to Chapter 1 (commencing with Section 12340) of
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Part 6 of the Insurance Code.
This bill states that a seller who violates the bill's
provisions shall be liable to a buyer in an amount equal to
three times all charges made for the title insurance,
escrow service, or Natural Hazard Disclosure Statement. In
addition, any person who violates this section shall be
deemed to have violated his/her license law and shall be
subject to discipline by his/her licensing entity.
This bill provides that a transaction subject to the bill's
provisions shall not be invalidated solely because of the
failure of any person to comply with any provision of the
Act.
This bill sunset on January 1, 2015.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/24/09)
California Association of Realtors
Escrow Institute of California
ARGUMENTS IN SUPPORT : According to the author's office,
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
Housing and Urban Development Department 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. This bill seeks to strengthen
state law to further curtail this practice. Small
businesses are the undisputed heart of the American
economy. Local businesses, which offer the best resources
and solutions for relieving the current housing crisis, are
being shut out of the Real Estate Owned (REO) market.
Instead of local businesses assisting homeowners and
expediting the transfer of foreclosed properties to
purchasers, they're literally on the outside with no way to
get in. Excluding local businesses from competition for
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services, eliminates local job creation that stimulates
local economies and violates anti-competition and
anti-trust laws.
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
Duvall, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Gilmore,
Hagman, Hall, Harkey, Hayashi, Hernandez, Hill, Huber,
Huffman, Jones, Knight, Krekorian, Lieu, Logue, Bonnie
Lowenthal, Ma, Mendoza, Miller, Monning, Nava, Nestande,
Niello, Nielsen, John A. Perez, V. Manuel Perez,
Portantino, Price, Ruskin, Salas, Saldana, Silva,
Skinner, Smyth, Solorio, Audra Strickland, Swanson,
Torlakson, Torres, Torrico, Tran, Villines, Yamada, Bass
NO VOTE RECORDED: DeVore, Garrick, Jeffries
RJG:do 8/24/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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