BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 6
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          Date of Hearing:   June 27, 2011

                      ASSEMBLY COMMITTEE ON BANKING AND FINANCE
                                   Mike Eng, Chair
                SB 6 (Calderon & Vargas) - As Amended:  June 15, 2011

           SENATE VOTE  :   39-0
           
          SUBJECT  :   Real estate: appraisal and valuation

           SUMMARY  :   Updates California's Real Estate Law, Appraisal Law, 
          and Civil Code to reflect recent changes enacted at the federal 
          level pursuant to the Dodd-Frank Wall Street Reform and Consumer 
          Protection Act (Dodd-Frank).  Specifically,  this bill  :   

          1)Amends the Real Estate Law to provide that:

             a)   No real estate licensee shall knowingly or intentionally 
               misrepresent the value of real property; and,

             b)   No real estate licensee that offers or provides an 
               opinion of value of real property that is used as the basis 
               for an origination of a mortgage loan shall have an 
               interest in that property, within the meaning of federal 
               regulations implementing Dodd-Frank.

          2)Amends the Appraisal Law to clarify that:

             a)   No person or entity acting in the capacity of an 
               appraisal management company (AMC) shall improperly 
               influence or attempt to improperly influence the 
               development, reporting, result, or review of any appraisal 
               through coercion, extortion, inducement, collusion, 
               bribery, intimidation, compensation, or instruction 
               (including a list of prohibited and allowable acts); and,

             b)   No person or entity preparing an appraisal or performing 
               appraisal management functions in connection with the 
               origination, modification, or refinancing of a mortgage 
               loan shall have a direct or indirect interest, financial or 
               otherwise, in the property or the transaction for which the 
               appraisal or appraisal management functions are performed.

          3)Amends the Civil Code to clarify that:









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             a)   No person with an interest in a real estate transaction 
               involving a valuation shall improperly influence or attempt 
               to improperly influence the development, reporting, result, 
               or review of that valuation through coercion, extortion, 
               bribery, intimidation, compensation, or instruction 
               (including a list of prohibited and allowable acts); and,
              
             b)   "Valuation" means an estimate of the value of real 
               property in written or electronic form, other than one 
               produced solely by an automated valuation model or system.  
               This definition includes both appraisals and broker price 
               opinions (BPOs).

           

          EXISTING LAW  

          1)Defines an appraisal as a written statement independently and 
            impartially prepared by a qualified appraiser setting forth an 
            opinion in a federally related transaction as to the market 
            value of an adequately described property as of a specific 
            date, supported by the presentation and analysis of relevant 
            market information (Business and Professions Code Section 
            11302).

          2)Provides that the term "appraisal" does not include an opinion 
            given by a real estate licensee or engineer or land surveyor 
            in the ordinary course of his or her business in connection 
            with a function for which they are licensed, and states that 
            any opinion returned by a real estate licensee, engineer, or 
            land surveyor may not be referred to as an appraiser (Business 
            and Professions Code Section 11302).  Although the real estate 
            law does not expressly authorize real estate licensees to 
            provide opinions of real value of real property, Section 11302 
            is commonly understood to authorize real estate brokers to 
            perform so-called broker price opinions, or BPOs.  

          3)Provides that it is a violation of the Real Estate Law for a 
            real estate licensee to provide an opinion of the value of 
            residential real property in connection with a short sale, in 
            order to manipulate the lienholder (i.e., the lender) into 
            rejecting the proposed short sale or to acquire a financial or 
            business advantage, including a listing agreement, which 
            directly results from the inaccurate opinion of value 
            (Business and Professions Code Section 10177(m))








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          4)Specifies that a violation of the federal Real Estate 
            Settlement Procedures Act (12 U.S.C. Sec. 2601 et seq.), the 
            federal Truth in Lending Act (15 U.S.C. Sec. 1601 et seq.), 
            the Federal Home Ownership Equity Protection Act (15 U.S.C. 
            Sec. 1639) or any regulation promulgated under any of the 
            federal acts cited is also a violation of the Real Estate Law. 
             (Business and Profession Code Section 10177(q)) 

          5)Provides for the licensure and regulation of real estate 
            appraisers, and for the registration and regulation of 
            appraisal management companies (AMCs) by the California Office 
            of Real Estate Appraisers (OREA; Business and Professions Code 
            Section 11300 et seq.).   Licensed appraisers are required to 
            comply with the federal Uniform Standards for Professional 
            Appraisal Practice and with the Appraisal Law.  Registered 
            AMCs are required to comply with the portions of the Appraisal 
            Law, which were added by SB 237 (Calderon), Chapter 173, 
            Statutes of 2009.  Among these rules is a requirement that 
            AMCs adhere to appraisal independence standards patterned on 
            the federal Home Valuation Code of Conduct (HVCC; Business and 
            Professions Code Section 11345.4)

          6)Provides that no person with an interest in a real estate 
            transaction involving an appraisal shall improperly influence 
            or attempt to improperly influence, through coercion, 
            extortion, or bribery, the development, reporting, result, or 
            review of a real estate appraisal sought in connection with a 
            mortgage loan (Civil Code Section 1090.5).  Civil Code Section 
            1090.5 includes a list of several acts that are prohibited, 
            and several acts that are allowable, pursuant to the section.  


           FISCAL EFFECT  :   None

           

          COMMENTS  :   

          According to the author's office, "In recent years, California 
          enacted two bills intended to ensure the integrity of the real 
          property appraisal process.  SB 223 (Machado), Chapter 291, 
          Statutes of 2007 prohibited any person with an interest in a 
          real estate transaction from inappropriately influencing, or 
          attempting to inappropriately influence, the development, 








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          reporting, result, or review of a real estate appraisal sought 
          in connection with a mortgage loan.  SB 237 (Calderon), Chapter 
          173, Statutes of 2009, plugged a hole in California's appraisal 
          regulatory scheme, by defining the term "appraisal management 
          company," requiring appraisal management companies doing 
          business in California to register with California's Office of 
          Real Estate Appraisers, and enacting a set of allowable and 
          prohibited actions by appraisal management companies and the 
          appraisers who work for them.  

          "At the same time California was changing its laws to ensure the 
          integrity of the real property appraisal process; federal 
          agencies were promulgating regulations with similar intent.  
          Until enactment of the Dodd-Frank in July 2010, California's 
          laws were more comprehensive, and more protective of consumers, 
          than the federal rules.  Since enactment of Dodd-Frank, however, 
          California's rules have fallen behind some of those recently 
          promulgated by federal regulators.  Portions of state law are 
          also now inconsistent with federal regulations in certain 
          cases."

           Background  .  Dodd-Frank, signed into law by President Obama in 
          July 2010, was a response to the mortgage crisis in the middle 
          of the last decade.  Dodd-Frank made significant changes to the 
          American financial regulatory environment and affects all 
          federal financial regulatory agencies and almost every aspect of 
          the nation's financial services industry.  

          The Federal Reserve Board (FRB) has recently promulgated 
          regulations implementing Dodd-Frank.  This bill updates state 
          law to conform to the following provisions of Dodd-Frank that 
          reform the mortgage business:

           Defines real property valuations and protects those who perform 
          them from inappropriate influence.   In its recently-promulgated 
          regulations implementing Dodd-Frank, FRB recognized that many 
          types of real property valuations, including, but not limited 
          to, appraisals, are being utilized in the current housing 
          environment.  To address this observation, the FRB defined the 
          term "real property valuation" and enacted a series of rules 
          designed to ensure that no entity that prepares a real property 
          valuation is inappropriately influenced in connection with their 
          value conclusion.

          This measure adopts the FRB's definition of a real property 








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          valuation.  In doing so, it broadens California's existing 
          prohibition against inappropriate influence of appraisers to 
          cover all types of real property valuations and those who 
          prepare them.  This change will have the effect of protecting 
          real estate brokers that perform BPOs from inappropriate 
          influence, by covering them under the same rules that are 
          currently intended to protect appraisers from inappropriate 
          influence.  

           Revises and replaces the HVCC.   The HVCC was an agreement 
          reached between Fannie Mae, Freddie Mac, and then- New York 
          State Attorney General Anthony Cuomo in 2008.  One of the core 
          elements of the HVCC was the concept of appraiser independence.  
          In its recent regulations, the FRB enacted rules intended to 
          replace the HVCC.  These rules have a similar intent as the 
          HVCC, but are written differently and accompanied by extensive 
          commentary never published in connection with the HVCC.

          In its recent regulations, the FRB also enacted a provision 
          intended to ensure that no entity that prepares a real property 
          valuation in connection with the origination of a residential 
          mortgage loan has a direct or indirect interest, as defined, in 
          the property or the transaction for which the valuation is 
          sought.  The FRB included extensive commentary to describe 
          acceptable and prohibited interests.  

          This measure amends California's Appraisal Law to prohibit 
          appraisers and AMCs from providing opinions of value of real 
          property in connection with the origination, of a mortgage loan 
          if they have a direct or indirect interest, financial or 
          otherwise, in the property or transaction for which the opinion 
          of value was sought.

           Previous legislation  . 

          SB 237 (Machado) Chapter 173, Statues of 2009, closes a loophole 
          in California's appraisal regulatory scheme by defining the term 
          "appraisal management company" and requiring management 
          companies doing business in California to register with OREA, 
          and enacting a set of allowable and prohibited actions for AMCs 
          and the appraisers who work for them.

          SB 223 (Machado) Chapter 291, Statutes of 2007, prohibits any 
          person with an interest in a real estate transaction from 
          inappropriately influencing, or attempting to inappropriately 








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          influence, a real property appraiser with the aim of convincing 
          the appraiser to alter his or her value conclusion.  

           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          American Society of Appraisers
          Appraisal Institute
           
            Opposition 
           
          None on file.

           Analysis Prepared by  :    Mark Farouk / B. & F. / (916) 319-3081