BILL ANALYSIS �
AB 1072
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Date of Hearing: April 23, 2013
Counsel: Stella Choe
ASSEMBLY COMMITTEE ON PUBLIC SAFETY
Tom Ammiano, Chair
AB 1072 (Wagner) - As Amended: April 18, 2013
SUMMARY : Creates an alternate felony/misdemeanor offense for
violating existing provisions of law related to unlawful
activities in conjunction with a mortgage loan modification.
Specifically, this bill authorizes a violation of these
sections, currently punishable as a misdemeanor, to be
punishable as either a misdemeanor, or a felony punishable by
imprisonment in the county jail for a term of either 16 months,
2 or 3 years.
EXISTING LAW :
1)States, notwithstanding any other provision of law, that it
shall be unlawful for any person 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 [Civil Code
Section 2944.7(a)]:
a) Claim, demand, charge, collect, or receive any
compensation until after the person has fully performed
each and every service the person 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 other security to secure the
payment of compensation; or,
c) Take any power of attorney from the borrower for any
purpose.
d) Specifies that a violation of the above provisions by a
natural person is punishable by a fine not exceeding
$10,000, by imprisonment in the county jail for a term not
to exceed one year, or by both that fine and imprisonment;
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if violated by a business entity, the violation is
punishable by a fine not exceeding $50,000. [Civil Code
Section 2944.7(b).]
2)States that nothing in this section precludes a person, or
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 doing any of the
following [Civil Code Section 2944.7(c).]:
a) Collecting principal, interest, or other charges under
the terms of a loan, before the loan is modified, including
charges to establish a new payment schedule for a
nondelinquent loan, after the borrower reduces the unpaid
principal balance of that loan for the express purpose of
lowering the monthly payment due under the terms of the
loan;
b) Collecting principal, interest, or other charges under
the terms of a loan, after the loan is modified; or,
c) Accepting payment from a federal agency in connection
with the federal Making Home Affordable Plan or other
federal plan intended to help borrowers refinance or modify
their loans or otherwise avoid foreclosures.
d) Provides that the above section shall apply only to
mortgages and deeds of trust secured by residential real
property containing four or fewer dwelling units. [Civil
Code Section 2944.7(d).]
3)States that it shall be unlawful for any licensee 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 [Business and Professions Code Section
10085.6(a)]:
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, or it would perform;
b) Take any wage assignment, any lien of any type on real
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or personal property, or other security to secure the
payment of compensation; or,
c) Take any power of attorney from the borrower for any
purpose.
d) Provides that a violation of the above section by a
natural person who is a licensee is a public offense
punishable by a fine not exceeding $10,000, by imprisonment
in the county jail for a term not to exceed one year, or by
both that fine and imprisonment, or if by a corporation,
the violation is punishable by a fine not exceeding
$50,000. These penalties are cumulative to any other
remedies or penalties provided by law. [Business and
Professions Code Section 10085.6(b).]
4)Requires any licensee 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 to the borrower a separate statement
containing specified language, in not less than 14-point bold
type, prior to entering into any fee agreement with the
borrower. [Business and Professions Code Section 10147.6(a).]
a) Requires whenever loan modification or other mortgage
loan forbearance services are offered or negotiated in one
of the specified languages, a translated copy of the
statement in subdivision (a) shall be provided to the
borrower in that foreign language. [Business and
Professions Code Section 10147.6(b).]
b) States that a violation of the above notice requirement
by a natural person who is a licensee is a public offense
punishable by a fine not exceeding $10,000, by imprisonment
in the county jail for a term not to exceed one year, or by
both that fine and imprisonment, or if by a corporation,
the violation is punishable by a fine not exceeding
$50,000. These penalties are cumulative to any other
remedies or penalties provided by law. [Business and
Professions Code Section 10147.6(c).]
5)Authorizes the Department of Real Estate (DRE) to enforce
violations of the sections of the Civil Code relating to
mortgages (Civ. Code Sec. 2920 et seq.) by real estate
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licensees, and include identical advance fee, notice, and
penalties for licensees under the Real Estate Law. (Business
and Professions Code Section 10177.)
6)States that it shall constitute cause for the imposition of
discipline of an attorney within the meaning of this chapter
for an attorney to engage in any conduct in violation of
existing provisions of law related to unlawful activities in
conjunction with a mortgage loan modification. This section
shall remain in effect only until January 1, 2017, and as of
that date is repealed, unless a later enacted statute, that is
enacted before January 1, 2017, deletes or extends that date.
(Business and Professions Code Section 6016.3.)
EXISTING FEDERAL LAW prohibits providers of mortgage assistance
relief services (MARS), as defined, from making false or
misleading claims; mandates providers to disclose certain
information about these services; bars the collection of advance
fees for these services; prohibits anyone from providing
substantial assistance or support to another they know or
consciously avoid knowing is engaged in a violation of the MARS
Rule; and imposes recordkeeping and compliance requirements.
[16 Code of Federal Regulations Part 322 (2010).]
FISCAL EFFECT : Unknown
COMMENTS :
1)Author's Statement : According to the author, "District
attorneys are finding that the penalties for the statutory
violation are not sufficient to deter the crime as victims of
fraud are potentially losing hundreds of thousands of dollars
in the aggregate, but the offense is just a misdemeanor. This
bill would authorize a violation of these provisions to be
punished as a felony with imprisonment in jail, as specified."
2)SB 94 (Calderon), Chapter 630, Statutes of 2009 : SB 94
prohibits any person who charges borrowers a fee for helping
negotiate a loan modification or other form of mortgage loan
forbearance from collecting their fee until they performed all
agreed-upon services. SB 94 also requires those who charge
for these services to clearly inform their potential customers
that similar services were available, free of charge, from
non-profit housing counseling agencies. SB 94 provides that a
real estate licensee or an attorney licensed through the state
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bar would also be subject to disciplinary action based on a
violation of one of its new provisions.
In 2012, the provisions in SB 94 were reconsidered in SB 980
(Vargas), Chapter 563, Statutes of 2012. In assessing the
effectiveness of SB 94, the committee analysis provided the
following information: "Since enactment of SB 94 on October
11, 2009, the State Bar, DRE, and State Attorney General have
taken a significant number of enforcement actions against
unscrupulous providers of loan modification services. In the
time since SB 94's passage, the State Bar has received over
8,600 complaints alleging misconduct in loan modification
matters by attorneys, and has conducted approximately 6,250
investigations against approximately 800 attorneys.
Approximately 2,500 of those complaints have resulted in some
form of disbarment of, resignation from the Bar by, or
discipline against an attorney. Another 450 cases are pending
before the State Bar Court. About 700 complaints are still
under investigation by the Bar or in the early stages of a
pending disciplinary action. All told, approximately 110
attorneys have been disciplined, 50 attorneys are awaiting
discipline by the Supreme Court, and another 50 attorneys'
cases are pending before the State Bar Court.
"Since enactment of SB 94, DRE has filed over 1,100
administrative actions against loan modification scammers. It
has issued over 300 desist and refrain orders, revoked or
accepted the surrender of approximately 100 licensees, and
suspended the licenses of another 20 licensees.
"Since enactment of SB 94, the State Attorney General has filed
approximately one dozen civil cases, involving approximately
40 defendants, and seven criminal cases involving over 50
defendants. An additional 16 criminal investigations are
pending." [Sen. Com. on Banking and Financial Institutions,
Analysis of Senate Bill 980 (2011-2012 Reg. Sess.) as
introduced January 23, 2012, p. 3.]
3)Jail Overcrowding Concerns : After the implementation of
criminal justice realignment, several anecdotal stories in the
media claimed that realignment is the cause of overcrowding in
county jails and, thus, has resulted in early release of
county jail inmates. However, overcrowding is not a new issue
for California's county jails. A recent report by the Public
Policy Institute of California found that while realignment
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has led to an increase in jail populations, overcrowding
issues existed in county jails prior to realignment. The
report notes that 17 counties were operating under court
orders limiting the number of inmates in their jails. In all,
13 counties, including some of the biggest (Los Angeles,
Orange, San Diego, and Sacramento), had average daily
populations that were larger than the number of beds their
jails were rated for. [Public Policy Institute of California,
Capacity Challenges in California's Jails (September 2012), p.
5.]
Currently, a violation of the code section affected by this bill
is a misdemeanor punishable by up to a year in jail, and a
fine of up to $10,000 if committed by a natural person, and up
to $50,000 if committed by a corporation. This bill
alternatively allows the violation to be charged as a felony,
with a determinate sentencing term of 16 months, 2 years or 3
years in county jail. The increase in sentencing proposed by
this bill has the potential to exacerbate overcrowding issues
faced by county jails.
4)Prior Legislation :
a) SB 94 (Calderon), Chapter 630, Statutes of 2009, until
January 1, 2013, prohibits any person, including a real
estate licensee, who negotiates, attempts to negotiate,
arranges, attempts to arrange, or otherwise offers to
perform residential mortgage loan modifications or other
forms of mortgage loan forbearance, as specified, for a fee
or other compensation paid by a borrower, from demanding or
receiving any pre-performance compensation, as specified,
requiring any security as collateral for final
compensation, or taking a power of attorney from a
borrower, and would make a violation of that prohibition a
misdemeanor or subject to specified fines.
b) SB 980 (Vargas), Chapter 563, Statutes of 2012, extends
the state's prohibition against collecting up-front fees in
connection with mortgage loan modifications and other forms
of mortgage loan forbearance as enacted by SB 94
(Calderon), Chapter 630, Statutes of 2009, until January 1,
2017. The sunset date in SB 980 was chaptered out by AB
1950 (Davis), Chapter 569, Statutes of 2012.
c) AB 1950 (Davis), Chapter 569, Statutes of 2012, modified
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several provisions related to mortgage fraud enforcement,
including removing the sunset date on law that prohibits
certain conduct by a real estate licensee in connection
with a mortgage loan modification or forbearance,
originally enacted by SB 94 (Calderon, Chapter 630,
Statutes of 2009).
REGISTERED SUPPORT / OPPOSITION :
Support
None
Opposition
Taxpayers for Improving Public Safety
Analysis Prepared by : Stella Choe / PUB. S. / (916) 319-3744