BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair AB 1730 (Wagner) - Mortgage loan modification. Amended: June 5, 2014 Policy Vote: JUD 6-0; PS 6-1 Urgency: No Mandate: Yes Hearing Date: August 14, 2014 Consultant: Jolie Onodera SUSPENSE FILE. AS AMENDED. Bill Summary: AB 1730 would enhance civil and criminal penalties for violating the prohibitions against accepting advance fees for loan modification services, as specified. Specifically, this bill would enhance the penalty for violating existing provisions of law related to unlawful activities in conjunction with a mortgage loan modification from a misdemeanor to an alternate felony/misdemeanor offense. Fiscal Impact (as approved on August 14, 2014): Minor, absorbable costs to the Attorney General (AG) and non-reimbursable costs to prosecutors for new civil actions, offset to a degree by fine revenues under the enhanced civil penalty provisions of this measure. Under 2011 Realignment Legislation, the state provided funding to the counties to place offenders in county jail for specified felonies ("1170(h) felonies") that previously would have required a state prison sentence. Pursuant to Proposition 30 (2012), legislation enacted after September 30, 2012, that has an overall effect of increasing the costs already borne by a local agency for programs or levels of service mandated by the 2011 Realignment Legislation apply to local agencies only to the extent that the state provides annual funding for the cost increase. While Proposition 30 specifies that legislation defining a new crime or changing the definition of an existing crime is not subject to this provision, changing the penalty for a crime is not specifically exempted and could potentially require a subvention of funds from the state. Background: Existing law provides that it is unlawful for any person who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan AB 1730 (Wagner) Page 1 modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower, to do any of the following: 1) 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. 2) Take any wage assignment, any lien of any type of real or personal property, or other security to secure the payment of compensation. 3) Take any power of attorney from the borrower for any purpose. (CC § 2944.7(a)) Existing law provides that a violation of the foregoing 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, or if by a business entity, the violation is punishable by a fine not exceeding $50,000. These penalties are cumulative to any other remedies or penalties provided by law. (CC § 2944.7(b)) Proposed Law: This bill enhances the civil and criminal penalties for violations of the prohibition on accepting advance fees for mortgage loan modification and related services, as follows: Increases the penalty for violations of CC § 2944.7(a), currently punishable as a misdemeanor for up to one year in county jail and/or a fine of up to $10,000, 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 (or state prison if the defendant has a current or prior conviction for a serious or violent felony). Provides that a violation of CC § 2944.7 is subject to a civil penalty of up to $20,000 for each violation in any civil action brought by the AG, a district attorney, or county counsel, pursuant to existing authority under the Unfair Competition Law. Provides that a violation of CC § 2944.7 is subject to an additional civil penalty of up to $2,500 in any action where the subject of the violation was a person over the age of 65 or a person with a disability. Provides that any action to enforce any cause of action shall be commenced within four years after the cause of AB 1730 (Wagner) Page 2 action accrued. Related Legislation: AB 1072 (Wagner) 2014 would have created an alternate felony/misdemeanor offense for violating existing provisions of law related to unlawful activities in conjunction with a mortgage loan modification, and specifically authorized 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. This bill died in the Assembly Committee on the Judiciary. Staff Comments: By imposing lengthier jail terms for convictions for violating the prohibitions against accepting advance fees for loan modification services, this bill could increase costs to local agencies for longer sentences served in county jail. Under 2011 Realignment Legislation, the state provided funding to the counties to place offenders in county jail for specified felonies ("1170(h) felonies") that previously would have required a state prison sentence. Staff notes that because the crime of mortgage loan modification fraud (CC § 2944.7(a)) under existing law is a misdemeanor, no costs were provided to local agencies under 2011 Realignment Legislation for this crime. Pursuant to Proposition 30 (2012), legislation enacted after September 30, 2012, that has an overall effect of increasing the costs already borne by a local agency for programs or levels of service mandated by the 2011 Realignment Legislation apply to local agencies only to the extent that the state provides annual funding for the cost increase. Although Proposition 30 specifies that legislation defining a new crime or changing the definition of an existing crime is not subject to this provision, changing the penalty for a crime is not specifically exempted and could potentially require a subvention of funds from the state. While it is unknown how many cases would potentially be impacted by this measure, assuming even two annual convictions are charged as a felony and serve jail terms an average of 12 months longer (given the difference in sentencing terms of up to one year for a misdemeanor vs. up to three years under this bill), would result in annual costs of $73,000 (General Fund) assuming an average daily jail rate of $100. AB 1730 (Wagner) Page 3 The enhanced civil penalties proposed in this measure are estimated to result in absorbable costs to the AG and local prosecutors related to new civil actions potentially brought forward, offset to a degree by fine revenues resulting from the new civil penalty assessment of up to $20,000 per violation. Recommended Amendments: To reduce potential state costs, the author may wish to consider an amendment to remove the enhanced felony jail penalty proposed in this measure. Committee amendments remove the felony penalty provision from the bill.