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
SB 94
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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
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