BILL ANALYSIS Ó
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
AB 1950 (Davis)
As Amended May 21, 2012
Hearing Date: July 3, 2012
Fiscal: Yes
Urgency: No
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SUBJECT
Prohibited Business Practices: Enforcement
DESCRIPTION
Existing law prohibits any person who, for a fee, assists a
borrower in obtaining a loan modification from charging
compensation before a service is completed. This ban on the
charging of upfront fees sunsets on January 1, 2013. This bill,
which is part of the "California Homeowner Bill of Rights"
sponsored by Attorney General Kamala Harris, would remove that
sunset and extend these provisions indefinitely.
This bill would also provide that it is unlawful to act as a
mortgage loan originator without being licensed and would extend
the statute of limitations period for prosecution of certain
misdemeanors such as loan modification scams or selling real
estate without a license.
BACKGROUND
On March 24, 2009, this Committee held an informational hearing
that focused on the serious problem of foreclosure-related scams
facing delinquent homeowners. Many of those scams involved 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 in November 2009,
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
(more)
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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 Ýsic]. 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.
In response to these incidents, the Legislature passed and the
Governor signed SB 94 (Calderon, Chapter 630, Statutes of 2009)
which prohibited, until January 1, 2013, any person who, for a
fee, assists a borrower in obtaining a loan modification from
charging compensation before a service is completed. This bill
would remove the sunset date on portions of SB 94, thus,
extending those portions indefinitely.
CHANGES TO EXISTING LAW
1.Existing law , until January 1, 2013, prohibits any person,
real estate licensee, or attorney 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 person or licensee has fully
performed each and every service he or she contracted to
perform or represented that he or 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; or
c. take any power of attorney from the borrower for any
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purpose. (Bus. & Prof. Code Secs. 6106.3; 10085.6; Civ.
Code Sec. 2944.7.)
Existing law , until January 1, 2013, provides that a violation
of the above provision is a misdemeanor, punishable by a fine
not exceeding $10,000 ($50,000 if the party violating the law
is a corporation), imprisonment in a county jail for up to one
year, or by both a fine and imprisonment, and provides that
those penalties are cumulative to any other remedies or
penalties provided by law. (Bus. & Prof. Code Sec. 10085.6(b);
Civ. Code Sec. 2944.6.)
Existing law , until January 1, 2013, provides that a violation
of Civil Code Section 2944.6 by an attorney constitutes cause
for the imposition of discipline of that attorney by the State
Bar. (Bus. & Prof. Code Sec. 6106.3.)
This bill would delete the sunset dates on Business and
Professions Code Section 10085.6 and Civil Code Section 2944.7
which apply to real estate licensees and other persons,
respectively, thereby extending these provisions indefinitely.
2.Existing law generally applies a one year statute of
limitations to the prosecution of misdemeanor violations of
California laws not punishable by death or imprisonment.
(Pen. Code Sec. 802.)
This bill would extend the statute of limitations from one
year to three years after discovery of the offense or
completion of the offense, whichever is later, for prosecution
of misdemeanor violations of all of the following:
a. Business and Professions Code Sections 6126 (prohibition
against the practice of law by unlicensed or disbarred
persons);
b. Business and Professions Code Section 10085.6
(prohibition against collecting up-front fees in connection
with offers to help borrowers obtain mortgage loan
modifications or other forms of mortgage loan forbearance);
c. Business and Professions Code Section 10139 (prohibition
against the practice of real estate by unlicensed persons);
d. Business and Professions Code Section 10147.6
(requirement for real estate licensees to provide a
specified notice to borrowers before entering into a fee
agreement with them in connection with offers to help
obtain mortgage loan modifications or other forms of
mortgage loan forbearance);
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e. Civil Code Section 2944.6 (general requirement to
provide a specified notice to borrowers before entering
into a fee agreement with them in connection with offers to
help obtain mortgage loan modifications or other forms of
mortgage loan forbearance); and
f. Civil Code Section 2944.7 (general prohibition against
collecting up-front fees in connection with offers to help
borrowers obtain mortgage loan modifications or other forms
of mortgage loan forbearance).
3.Existing law provides that no individual may engage in the
business of, act in the capacity of, advertise as, or assume
to act as a real estate broker or a real estate salesman
without first obtaining a real estate license. (Bus. & Prof.
Code Sec. 10130.)
Existing law prohibits an individual from engaging in business
as a mortgage loan originator without first obtaining and
maintaining a real estate license and obtaining and
maintaining a real estate license endorsement. (Bus. & Prof.
Code Sec. 10166.02.)
This bill would specify that no person may engage in the
business of, act in the capacity of, advertise as, or assume
to act as a mortgage loan originator within this state without
holding a real estate license or a mortgage loan originator
license endorsement.
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COMMENT
1.Stated need for the bill
In support of this bill, the author writes:
In May 2011, the Attorney General's office established a
Mortgage Fraud Strike Force to investigate and prosecute civil
and criminal violations of California's mortgage and
foreclosure laws. A widespread investigation of misconduct is
required, due to the depth and breadth of the crisis, and the
degree to which scam artists have gravitated towards
homeowners in distress. To be effective, the Mortgage Fraud
Strike Force needs adequate time to investigate and prepare
prosecutions, time that they are not currently afforded under
the current statutory scheme. That is, misdemeanor violations
of California laws that protect homeowners in the foreclosure
process are subject to a one-year statute of limitations.
2.Deletion of sunset date on portions of SB 94
This bill would delete the January 1, 2013 sunset date on two
provisions contained in SB 94 (Calderon, Chapter 630, Statutes
of 2009) which prohibit, until January 1, 2013, any person or
real estate licensee who, for a fee, assists a borrower in
obtaining a loan modification from charging compensation before
a service is completed.
As noted in the Background above, SB 94 was intended to crack
down on unscrupulous individuals who scammed homeowners who were
delinquent on their mortgage loans by charging them
up-front-often nonrefundable-fees in exchange for a promise to
help the homeowner obtain a loan modification or other type of
mortgage forbearance. Instead of performing the promised work,
however, the scammer would take the homeowner's money and often
advise them to stop making their mortgage payments, leaving the
homeowner in a worse off position.
SB 94's ban on the charging of upfront fees for mortgage loan
modification services applies to real estate licensees (Business
and Professions Code Section 10085.6) and any other persons
(Civil Code Section 2944.6). SB 94 also authorized the State
Bar to discipline attorneys who violate the ban (Business and
Professions Code Section 6106.3). All of these provisions
sunset on January 1, 2013. This bill would delete the sunset
date on the provisions relating to real estate licensees and any
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other persons, thereby extending these prohibitions
indefinitely. This bill would not delete the sunset date on the
specific provision authorizing the State Bar to discipline
attorneys who violate the upfront fee ban, however, because the
general ban would remain in place under Civil Code Section
2944.6, attorneys would still be prohibited from charging
upfront fees for performing loan modification services.
Although the State Bar's express authority to impose discipline
on attorneys pursuant to Business and Professions Code Section
6106.3 would sunset on January 1, 2013, the Bar would retain its
general disciplinary authority over an attorney who violated
Section 2944.6. As a result, an attorney who is convicted of a
misdemeanor committed in the course of the practice of law or
who is convicted of a crime involving dishonesty or other moral
turpitude must still report that conviction to the State Bar,
for possible disciplinary action.
3.Extending the Statute of Limitations on Certain Real
Estate-Related Misdemeanors
Under existing law, an offense not punishable by death or
imprisonment is subject to a one-year statute of limitations.
This bill would extend that statute of limitations to three
years after discovery of the offense or completion of the
offense, whichever is later, for prosecution of certain
misdemeanor violations. Specifically, this bill would provide
for a three-year statute of limitations on the following
prohibitions: (1) unlicensed practice of law; (2) collecting
up-front fees in connection with promises to help borrowers
obtain mortgage loan modifications or other forms of mortgage
loan forbearance; (3) unlicensed practice of real estate; and
(4) failing to provide a specified notice to borrowers before
entering into a fee agreement with them in connection with
promises to help obtain mortgage loan modifications or other
forms of mortgage loan forbearance.
In support of this provision of the bill, Attorney General
Kamala D. Harris, sponsor of the measure, writes:
Under existing law, misdemeanor violations of California laws
that protect homeowners in the foreclosure process are subject
to a one-year statute of limitations. For example, Civil Code
sections 2944.6 and 2944.7, which prohibit charging up-front
fees for loan modification services, a practice which has been
the hallmark of mortgage scams, are subject to only a one-year
statute of limitations. Additionally, the crimes of acting as
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a real estate broker or salesperson without a license, acting
as a mortgage loan originator without a license, and
practicing law without a license are all misdemeanor offenses
that are subject to a one-year statute of limitations. The
Attorney General's Office has successfully brought charges
against and shut down a number of mortgage-related scams.
However, the one-year limitations period has inhibited a
number of prosecutions because the foreclosure process is a
protracted one, and victims often do not discover the illegal
activity and refer their case to the Attorney General before
it is too late for prosecution.
This bill would help to address these problems by giving the
Attorney General's Office and district attorneys additional time
to investigate and prosecute these types of misdemeanor
violations.
4.Clarifying the Real Estate Law
Under existing law, no individual may engage in the business of,
act in the capacity of, advertise as, or assume to act as a real
estate broker or a real estate salesman without first obtaining
a real estate license. In addition, an individual may not
engage in business as a mortgage loan originator without first
obtaining and maintaining a real estate license and obtaining
and maintaining a real estate license endorsement. This bill
would more specifically provide that no person may engage in the
business of, act in the capacity of, advertise as, or assume to
act as a mortgage loan originator within this state without
holding a real estate license or a mortgage loan originator
license endorsement.
5.Technical amendment
When this bill was heard in the Senate Banking and Financial
Institutions Committee, the author committed to taking the
technical amendment described below. Due to timing
restrictions, that amendment needs to be put into the bill in
this Committee.
Technical amendment:
On page 4, line 18, strike "without being so licensed or"
Support : Alameda County Board of Supervisors; American
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Federation of State, County and Municipal Employees (AFSCME),
AFL-CIO; California Bankers Association; California Chamber of
Commerce; California Independent Bankers; California Land Title
Association; California Mortgage Association; California
Mortgage Bankers Association; California Nurses Association;
California Professional Firefighters; Consumer Attorneys of
California; Los Angeles County Democratic Party; National Asian
American Coalition; PICO California; United Trustees Association
Opposition : None Known
HISTORY
Source : Attorney General Kamala D. Harris
Related Pending Legislation : SB 980 (Vargas), which would
extend the sunset date on the provisions contained in SB 94 from
January 1, 2013 to January 1, 2017, is scheduled to be heard in
the Assembly Judiciary Committee on July 3, 2012.
Prior Legislation : SB 94 (Calderon, Chapter 630, Statutes of
2009) (See Background)
Prior Vote :
Senate Banking & Financial Institutions Committee (Ayes 6, Noes
0)
Assembly Floor (Ayes 56, Noes 22)
Assembly Appropriations Committee (Ayes 12, Noes 5)
Assembly Local Government Committee (Ayes 7, Noes 2)
Assembly Public Safety Committee (Ayes 4, Noes 2)
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