BILL ANALYSIS                                                                                                                                                                                                    Ó




                   Senate Appropriations Committee Fiscal Summary
                           Senator Christine Kehoe, Chair


           (Davis) - Prohibited business practices: enforcement.
          
          Amended: August 6, 2012         Policy Vote: Judiciary 4-0
          Urgency: No                     Mandate: Yes
          Hearing Date: August 16, 2012                          
          Consultant: Jolie Onodera       
          
          SUSPENSE FILE.
          
          
          Bill Summary: AB 1950 would remove the January 1, 2013, sunset 
          date on the prohibition from unlawfully performing mortgage loan 
          modification or loan forbearance services. This bill would 
          extend the statute of limitations period for prosecution of 
          certain real estate-related misdemeanors, as specified, and 
          would provide that it is unlawful to act as a mortgage loan 
          originator without being licensed.

          Fiscal Impact: 
              Ongoing court costs for increased misdemeanor filings 
              potentially in excess of $100,000 (General Fund) per year, 
              offset to a degree by fine revenue.
              Potential non-reimbursable local enforcement and 
              incarceration costs, offset to a degree by fine revenue.
              While the impact of this bill independently on local jails 
              could be minor, the cumulative effect of increasing the 
              number of misdemeanors filed could create General Fund cost 
              pressure on capital outlay, staffing, programming, the 
              courts, and other resources in the context of recently 
              enacted 2011 Public Safety Realignment.

          Background: This bill is part of the Attorney General's package 
          of mortgage fraud reform termed the "California Homeowner Bill 
          of Rights." This bill seeks to enable more thorough 
          investigations and prosecutions of mortgage-related crime. In 
          May 2011, the Attorney General announced the creation of the 
          Mortgage Fraud Strike Force whose purpose is to monitor and 
          prosecute violations related to all steps in the mortgage 
          process. The Attorney General has indicated the one-year statute 
          of limitations on various mortgage-related crimes has inhibited 
          a number of prosecutions due to the protracted nature of the 
          foreclosure process and the delayed discovery of illegal 








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          activity.
          
          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 forbearances for a fee or other compensation paid by the 
          borrower to do any of the following: 
                     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.
                     Take any wage assignment, any lien of any type on 
                 real or personal property, or any other security to 
                 secure the payment of compensation.
                     Take any power of attorney from the borrower for any 
                 purpose.

          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 the 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.

          Existing law generally applies a one year statute of limitations 
          to the prosecution of violations of California laws not 
          punishable by death or imprisonment in the state prison or 
          pursuant to subdivision (h) of PC section 1170.

          Proposed Law: This bill seeks to expand protections related to 
          mortgage fraud. Specifically, this bill:
                 Deletes the January 1, 2013, sunset date on the 
               prohibition against charging up-front fees, thereby 
               extending the prohibition indefinitely. 
                 Deletes the January 1, 2013, sunset date on Business and 
               Professions Code section 10085.6 and Civil Code section 
               2944.7 which apply to real estate licensees and other 
               persons, thereby extending these provisions indefinitely.
                 Extends 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 the following:
                  o         Prohibition against the practice of law by 








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                    unlicensed or disbarred persons.
                  o         Prohibition against collecting up-front fees 
                    in connection with offers to help borrowers obtain 
                    mortgage loan modifications or forbearance.
                  o         Prohibition against the practice of real 
                    estate by unlicensed persons.
                  o         Requirement for real estate licensees to 
                    provide a specified notice to borrowers before 
                    entering into a fee agreement in connection with 
                    offers to help obtain mortgage loan modifications or 
                    forbearance.
                  o         General requirement to provide a specified 
                    notice to borrowers before entering into a fee 
                    agreement with them in mortgage loan transactions.
                  o         General prohibition against collecting 
                    up-front fees in connection with offers to help 
                    borrowers obtain mortgage loan modifications or 
                    forbearance.
                 Provides that it is unlawful to act as a mortgage loan 
               originator without being licensed.

          Related Legislation: SB 980 (Vargas) 2012 would extend the 
          sunset date on the provisions of SB 94 from January 1, 2013, to 
          January 1, 2017. This bill has been referred to the Assembly 
          Committee on Appropriations.

          SB 94 (Calderon) Chapter 630/2009 prohibits, 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.

          Staff Comments: The provisions of this bill will likely result 
          in an increased number of misdemeanor court filings that 
          otherwise would not have occurred under existing law in the 
          absence of the removal of the sunset date and the extension of 
          the statute of limitations from one to three years for specified 
          offenses. It is unknown how many additional filings will result 
          due to the provisions of this bill. The Judicial Council would 
          incur costs for increased misdemeanor filings of approximately 
          $120,500 (General Fund) statewide for 250 new misdemeanors filed 
          annually, offset to a degree by fine revenue. This estimate 
          equates to less than five misdemeanor filings per county per 
          year. To the extent the actual number of annual filings per 
          county is greater, associated costs to the courts could be 








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          significantly higher.

          The creation of new, or the extension of existing, misdemeanors 
          has historically been analyzed by this Committee to result in 
          non-reimbursable state mandated costs for local law enforcement 
          and incarceration. Staff notes, however, that the potential for 
          an increased number of misdemeanor convictions taken 
          cumulatively could increase the statewide adult jail population 
          to a degree that could potentially impact the flexibility of 
          counties to manage their jail populations recently increased 
          under the 2011 Public Safety Realignment. While the provisions 
          of this bill could be minor, the cumulative effect of all 
          additional misdemeanors could create unknown General Fund cost 
          pressure on capital outlay, staffing, programming, the courts, 
          and other resources.