BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                    SB 94|
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                              UNFINISHED BUSINESS


          Bill No:  SB 94
          Author:   Calderon (D), et al
          Amended:  8/31/09
          Vote:     27 - Urgency

           
           SENATE BANKING, FINANCE, AND INS. COMMITTEE  :  7-2, 4/1/09
          AYES:  Calderon, Correa, Florez, Kehoe, Liu, Lowenthal,  
            Padilla
          NOES:  Runner, Cox
          NO VOTE RECORDED:  Harman, Vacancy

           SENATE JUDICIARY COMMITTEE  :  3-2, 4/21/09
          AYES:  Corbett, Florez, Leno
          NOES:  Harman, Walters

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           SENATE FLOOR  :  21-14, 5/21/09
          AYES:  Alquist, Calderon, Corbett, Correa, DeSaulnier,  
            Ducheny, Florez, Hancock, Kehoe, Leno, Liu, Lowenthal,  
            Negrete McLeod, Padilla, Pavley, Simitian, Steinberg,  
            Wiggins, Wolk, Wright, Yee
          NOES:  Aanestad, Ashburn, Benoit, Cogdill, Cox, Denham,  
            Dutton, Hollingsworth, Huff, Maldonado, Runner,  
            Strickland, Walters, Wyland
          NO VOTE RECORDED:  Cedillo, Harman, Oropeza, Romero,  
            Vacancy

           ASSEMBLY FLOOR  :  62-10, 9/2/09 - See last page for vote


           SUBJECT  :    Mortgage loans
                                                           CONTINUED





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           SOURCE  :     Author


           DIGEST  :    This bill prohibits persons from charging  
          advance fees to borrowers in connection with a loan  
          modification, and requires those who wish to charge a fee  
          for loan modification services to provide a notice to  
          borrowers regarding other options available to the  
          borrower.

           Assembly Amendments  (1) add a January 1, 2013 sunset date  
          to specified actions that a licensed real estate broker may  
          not take, specify an agent acting on that person's behalf,  
          who offers loan modification or other loan forbearance  
          services for a loan owned or serviced by that person from  
          collecting principal, interest, or other charges under the  
          terms of the loan, as specified, (2) redefine the term  
          "advance fee," (3) clarify that the real estate law does  
          not apply to a HUD-certified counseling organization or its  
          employees, when the organization or its employees provides  
          counseling services at no cost to a borrower, and (4) add  
          an urgency clause.

           ANALYSIS  :    Existing law prohibits real estate licensees  
          from charging a borrower an advance fee in connection with  
          a residential real estate loan, before the borrower becomes  
          obligated on the loan.
           
          Existing law allows licensed real estate brokers to charge  
          borrowers an advance fee for helping negotiate a loan  
          modification on a borrower's behalf, as long as the  
          broker's fee agreement has been reviewed by the Department  
          of Real Estate (DRE), and DRE has no objections to it.  

          Existing law regulates the activities of foreclosure  
          consultants, which are defined as one who makes any  
          solicitation, representation, or offer to any owner of a  
          property on which a notice of default has been recorded, to  
          perform specified services for compensation.

          Existing law exempts certain individuals and businesses  
          from the foreclosure consultant law, including persons  
          licensed to practice law, a licensed real estate broker, as  







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          specified, a licensed accountant, a licensed finance  
          lender, as specified, a licensed depository institution, a  
          licensed escrow agent or other licensed person authorized  
          to conduct a title or escrow business, and licensed  
          residential mortgage lenders or servicers.  

          This bill:

          1. Prohibits licensed real estate brokers, until January 1,  
             2013, who negotiate, attempt to negotiate, arrange,  
             attempt to arrange, or otherwise offer to perform a  
             mortgage loan modification or other form of mortgage  
             loan forbearance for a fee or other compensation paid by  
             the borrower in regards to mortgages and deeds of trust  
             secured by residential real property containing four or  
             fewer dwelling units to do any of the following: 

             A.    Claim, demand, charge, collect, or receive any  
                compensation until after the licensee has fully  
                performed each and every service the licensee  
                contracted to perform or represented that he/she/it  
                would perform.

             B.    Take any wage assignment, any lien of any type on  
                real or personal property, or any other security to  
                secure the payment of compensation.

             C.    Take any power of attorney from the borrower for  
                any purpose. 

          2. Requires a licensed real estate broker who negotiates,  
             attempts to negotiate, arranges, attempts to arrange or  
             otherwise offers to perform a mortgage loan modification  
             or other form of mortgage loan forbearance for a fee or  
             other form of compensation paid by the borrower to  
             provide the following notice to the borrower, as a  
             separate statement, in not less than 14-point bold type,  
             prior to entering into any fee agreement with the  
             borrower: 

             "It is not necessary to pay a third party to arrange for  
             a loan modification or other form of forbearance from  
             your mortgage lender or servicer. You may call your  
             lender directly to ask for a change in your loan terms.  







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             Nonprofit housing counseling agencies also offer these  
             and other forms of borrower assistance free of charge. A  
             list of nonprofit housing counseling agencies approved  
             by the United States Department of Housing and Urban  
             Development (HUD) is available from your local HUD  
             office or by visiting www.hud.gov." 

             Requires a translated copy of the above notice to be  
             provided to a borrower, if the loan modification or  
             other mortgage loan forbearance services are offered to  
             or negotiated with the borrower in one of the foreign  
             languages set forth in Section 1632 of the Civil Code  
             (Spanish, Korean, Vietnamese, Tagalog, and Chinese). 

          3. Provides that a violation of the above fee provision and  
             notice requirements is a public offense, punishable by a  
             fine not exceeding $10,000 for a natural person or  
             $50,000 for a business entity, or by imprisonment in a  
             county jail for up to one year, or by both a fine and  
             imprisonment.  Those penalties are cumulative to any  
             other remedies or penalties provided by law. 

          4. Requires persons including attorneys (with no sunset  
             date) who negotiates, attempts to negotiate, arranges,  
             attempts to arrange, or otherwise offers to perform a  
             mortgage loan modification or other form of mortgage  
             loan forbearance for a fee or other compensation paid by  
             the borrower to provide the following notice to the  
             borrower in regards to mortgages and deeds of trust  
             secured by residential real property containing four or  
             fewer dwelling units, as a separate statement, in not  
             less than 14-point bold type, prior to entering into any  
             fee agreement with the borrower: 

             "It is not necessary to pay a third party to arrange for  
             a loan modification or other form of forbearance from  
             your mortgage lender or servicer.  You may call your  
             lender directly to ask for a change in your loan terms.  
             Nonprofit housing counseling agencies also offer these  
             and other forms of borrower assistance free of charge.   
             A list of nonprofit housing counseling agencies approved  
             by the United States Department of Housing and Urban  
             Development (HUD) is available from your local HUD  
             office or by visiting www.hud.gov." 







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             A.    Requires a translated copy of the above notice to  
                be provided to a borrower, if the loan modification  
                or other mortgage loan forbearance services are  
                offered to or negotiated with the borrower in one of  
                the foreign languages set forth in Section 1632 of  
                the Civil Code (Spanish, Korean, Vietnamese, Tagalog,  
                and Chinese). 

             B.    Provides that a violation of the above notice  
                requirement is a public offense, punishable by a fine  
                not exceeding $10,000 for a natural person or $50,000  
                for a corporation, or by imprisonment in a county  
                jail for up to one year, or by both a fine and  
                imprisonment.  Those penalties are cumulative to any  
                other remedies or penalties provided by law. 

             C.    Specifies that the requirement in #4 above does  
                not apply to a person, or an agent acting on that  
                person's behalf, offering loan modification or other  
                loan forbearance services for a loan owned or  
                serviced by that person. 

          5. Prohibits persons including attorneys, until January 1,  
             2013, who negotiates, attempts to negotiate, arranges,  
             attempts to arrange, or otherwise offers to perform a  
             mortgage loan modification or other form of mortgage  
             loan forbearance for a fee or other compensation paid by  
             the borrower to do any of the following: 

             A.    Claim, demand, charge, collect, or receive any  
                compensation until after the licensee has fully  
                performed each and every service the licensee  
                contracted to perform or represented that he/she  
                would perform. 

             B.    Take any wage assignment, any lien of any type on  
                real or personal property, or any other security to  
                secure the payment of compensation.
              
             C.    Take any power of attorney from the borrower for  
                any purpose. 

          6. Provides that a violation of the above fee requirement  







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             is a public offense, punishable by a fine not exceeding  
             $10,000 for a natural person or $50,000 for a business  
             entity, or by imprisonment in a county jail for up to  
             one year, or by both a fine and imprisonment.  Those  
             penalties are cumulative to any other remedies or  
             penalties provided by law. 

          7. Explains that nothing in #5 above precludes a person, or  
             an agent acting on that person's behalf, who offers loan  
             modification or other loan forbearance services for a  
             loan owned or serviced by that person from collecting  
             principal, interest, or other charges under the terms of  
             the loan, as specified. 

          8. Redefines the term "advance fee" to mean a fee,  
             regardless of the form, that is claimed, demanded,  
             charged, received, or collected by a licensee from a  
             principal before fully completing each and every service  
             the licensee contracted to perform, or represented would  
             be performed. 

          9. Clarifies that the real estate law does not apply to a  
             HUD-certified counseling organization or its employees,  
             when the organization or its employees provides  
             counseling services at no cost to a borrower, and in  
             connection with the modification of the terms of a loan  
             secured directly or collaterally by a lien on  
             residential real property containing four or fewer  
             dwelling units. 

          10.Authorizes the Department of Real Estate (DRE) to  
             enforce violations of the sections of the Civil Code  
             relating to mortgages (Section 2920 et seq. of the Civil  
             Code). 

          11.Prohibits any California Finance Lender Law licensee  
             from making a materially false or misleading statement  
             or representation to a borrower about the terms or  
             conditions of that borrower's loan, when making or  
             brokering the loan. 

          12.Makes technical changes to the foreclosure consultant  
             law, to more clearly describe the entities that are  
             exempt from that law. 







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          13.Contains an urgency clause, allowing this bill to take  
             effect immediately upon enactment.

           Background  

          On March 24, 2009, the Senate Judiciary Committee held an  
          informational hearing that focused on the serious problem  
          of foreclosure related scams facing delinquent homeowners.   
          Many of those scams involve a promise to renegotiate a  
          delinquent borrower's loan in exchange for a significant  
          up-front fee.  In arresting three members of a foreclosure  
          fraud ring in Southern California last November, the  
          Attorney General's office reported:

            The arrests came after an investigation into First Gov,  
            also operating as Foreclosure Prevention Services,  
            uncovered that the company was soliciting hundreds of  
            homeowners with mail flyers offering to help them stop  
            the foreclosure process on their homes.  The scammers  
            falsely told homeowners that they would renegotiate their  
            mortgages, reduce monthly payments, and transfer any  
            delinquent loan amounts to the renegotiated principle  
            [sic].  The company demanded an up-front fee, ranging  
            from $1,500 to $5,000, to participate in the  
            loan-modification program.  The company also told the  
            victims to stop any mortgage payments or communications  
            with their lender, claiming they would interfere with the  
            company's effort to negotiate the loan modification. 

            When victims complained that they were still receiving  
            delinquency or foreclosure notices from their lenders,  
            fraud-ring members told the victims that the mortgage  
            loans had been renegotiated, but the lenders needed a  
            "good faith" payment to secure the new accounts.   
            Homeowners made payments to accounts under business names  
            such as "Reinstatement Department" or "Resolution  
            Department" that made it appear as if the payment had  
            been applied toward the loan.  Bank records indicate that  
            more than $700,000 was stolen from homeowners who fell  
            victim to this scheme.

          The Attorney General reported the arrest of two women last  
          month who ran a similar foreclosure scam ring.  The  







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          Attorney General noted:

            The two women operated a company called Foreclosure  
            Freedom, which sent hundreds of fliers to Californians  
            promising help in stopping the foreclosure of their  
            homes.  The fliers read: "FINAL NOTICE - Respond only to  
            this notice immediately."  This is similar to First Gov  
            scam, which the Attorney General stopped late last year. 

            When homeowners called the number on the flyer, they were  
            told their mortgages could be renegotiated to a lower  
            monthly payment.  Victims, however, were required to pay  
            thousands of dollars in up-front fees and were instructed  
            not to contact their lenders.  Victims were assured the  
            company had "private lenders and specialists exclusive to  
            their company who are very experienced in the options and  
            methods used to renegotiate home loans," yet neither of  
            the women who operated the company had real estate  
            licenses, legal training, or any experience in the home  
            mortgage market.  Investigators found no evidence of any  
            successful loan modifications and most of the victims  
            were either forced into bankruptcy or lost their homes to  
            foreclosure.  

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

           SUPPORT  :   (Verified  9/3/09)

          AARP
          American Federation of State, County and Municipal  
          Employees
          ByDesign Financial Solutions
          California ACORN [Association of Community Organizations  
            for Reform Now]
          California Association of Mortgage Brokers
          California Association of Realtors
          California Labor Federation
          California State Bar
          Center for Responsible Lending
          City and County of San Francisco District Attorney Kamala  
          Harris
          Cities of Los Angeles and Oakland
          Coalition for Quality Credit Counseling







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          Consumer Credit Counseling Service of Orange County
          Consumer Credit Counseling, Twin Cities
          Consumers Union
          Los Angeles County District Attorney's Office
          Novadebt

           OPPOSITION  :    (Verified  9/3/09)

          PARSA Law Group

           ARGUMENTS IN SUPPORT  :    The author's office notes that the  
          bill has four provisions.  The first two provisions  
          regarding advance fees and multilingual borrower  
          notification "are a response to a cottage industry that has  
          sprung up to exploit borrowers who are having trouble  
          affording their mortgages, and are facing default, and  
          possible foreclosure, if they are unable to negotiate a  
          loan modification or other form of mortgage loan  
          forbearance with their lender."  

          The third provision, a prohibition against loan  
          modification fees by servicers, "addresses two issues -  
          first, whether servicers may charge borrowers fees in  
          connection with the modification of loans they are  
          servicing (they may not under the provisions of this bill),  
          and second, whether servicers may act as foreclosure  
          consultants, and offer to help borrowers negotiate loan  
          modifications or other forms of mortgage loan forbearance  
          or forgiveness from other servicers (they may act in this  
          capacity under the provisions of the bill, but may not  
          charge for these services)."

          The author's office notes that the final provision would  
          strengthen the California Finance Lenders Law by expressly  
          banning false, deceptive, or misleading statements,  
          representations, or omissions.


           ASSEMBLY FLOOR  :
          AYES:  Ammiano, Arambula, Beall, Bill Berryhill, Tom  
            Berryhill, Block, Blumenfield, Brownley, Caballero,  
            Charles Calderon, Carter, Chesbro, Conway, Davis, De La  
            Torre, De Leon, Eng, Evans, Feuer, Fletcher, Fong,  
            Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,  







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            Gilmore, Hagman, Harkey, Hayashi, Hernandez, Hill, Huber,  
            Huffman, Jeffries, Jones, Krekorian, Lieu, Bonnie  
            Lowenthal, Ma, Mendoza, Monning, Nava, Niello, Nielsen,  
            John A. Perez, V. Manuel Perez, Portantino, Ruskin,  
            Salas, Saldana, Silva, Skinner, Solorio, Swanson,  
            Torlakson, Torres, Torrico, Villines, Yamada, Bass
          NOES:  Adams, Anderson, Blakeslee, DeVore, Knight, Miller,  
            Nestande, Smyth, Audra Strickland, Tran
          NO VOTE RECORDED:  Buchanan, Cook, Coto, Duvall, Emmerson,  
            Hall, Logue, Vacancy


          JJA:mw  9/4/09   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

                                ****  END  ****