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  








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          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  








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               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.








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          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.