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 AB 1950 (Davis) Page 1 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 AB 1950 (Davis) Page 2 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 AB 1950 (Davis) Page 3 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.