BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 1770|
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CONSENT
Bill No: AB 1770
Author: Dababneh (D)
Amended: 7/1/14 in Senate
Vote: 21
SENATE BANKING & FINANCIAL INSTIT. COMMITTEE : 9-0, 6/18/14
AYES: Evans, Block, Correa, Hill, Hueso, Morrell, Roth, Torres,
Vidak
SENATE JUDICIARY COMMITTEE : 7-0, 6/24/14
AYES: Jackson, Anderson, Corbett, Lara, Leno, Monning, Vidak
ASSEMBLY FLOOR : 76-0, 5/19/14 - See last page for vote
SUBJECT : Real property liens: equity line of credit:
suspend and close
SOURCE : California Land Title Association
DIGEST : This bill provides a procedure by which an entitled
person, as defined, can, with the approval of the borrower,
request the suspension and closure of a home equity line of
credit (HELOC), as specified.
ANALYSIS :
Existing law:
1. Provides that, within 30 calendar days after an obligation
secured by a deed of trust has been satisfied, the
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beneficiary or its assignee (i.e., the lender or its
representative) shall execute and deliver to the trustee the
original note, deed of trust, request for a full
reconveyance, and other documents necessary to reconvey the
deed of trust.
2. Defines an "entitled person" as a borrower, lender in first
or subordinate position, and as the escrow or title company
handling the property escrow (technically, as "the trustor or
mortgagor of, or his/her successor in interest in, the
mortgaged or trust property, or any part thereof, any
beneficiary under a deed of trust, any person having a
subordinate lien or encumbrance of record thereon, or the
escrowholder." (Civil Code (CIV) Section 2943)
3. Defines a "payoff demand statement" as a written statement,
prepared in response to a written demand made by an entitled
person or authorized agent, setting forth the amounts
required as of the date of preparation by the beneficiary, to
fully satisfy all obligations secured by the loan that is the
subject of the payoff demand statement. The statement must
include information necessary to calculate the payoff amount
on a per diem basis for the period of time, not to exceed 30
days, during which the per diem amount is not changed by the
terms of the note. (CIV Section 2943)
4. Requires a beneficiary (i.e., the lender) or his/her
authorized agent, to prepare and deliver a payoff demand
statement to the person demanding it within 21 days of
receipt of the demand, and authorizes the beneficiary to
charge up to $30 per statement, except as specified.
Provides that a payoff demand statement may be relied upon by
the entitled person or her or her authorized agent, in
accordance with its terms, for the purpose of establishing
the amount necessary to pay the obligation in full. A
willful violation of this provision requires the beneficiary
to pay the entitled person $300, and renders the beneficiary
liable to the entitled person for all damages he/she may
sustain.
This bill:
1. Defines the following terms:
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A. "Beneficiary," "entitled person," and "payoff demand
statement" by reference to Civil Code Section 2943.
B. "Borrower's Instruction to Suspend and Close Equity
Line of Credit" for purposes of this bill, is the
instruction described in #5 below, signed by the
borrower(s) under an equity line of credit.
C. "Equity line of credit" for purposes of this bill,
is a equity line of credit used for consumer purposes
which is secured by a mortgage or deed of trust
encumbering residential real property, as specified.
D. "Suspend" for purposes of this bill, as prohibiting
a borrower from drawing on, increasing, or incurring
any additional principal debt on his/her equity line of
credit.
2. Requires a beneficiary that provides a payoff demand
statement in connection with an equity line of credit to
include an e-mail address, fax number, or mailing address for
delivery of a request to suspend and close a line of credit.
3. Requires a beneficiary to suspend a borrower's equity line of
credit for a minimum of 30 days, upon receipt from an
entitled person of a Borrower's Instruction to Suspend and
Close Equity Line of Credit, prepared and presented to the
borrower by the entitled person and signed by the borrower.
4. Requires a beneficiary to close an equity line of credit and
release or reconvey the property securing that line of
credit, once the beneficiary is in receipt of a Borrower's
Instruction to Suspend and Close Equity Line of Credit and
payment in accordance with the payoff demand statement.
5. Prescribes the form of the Borrower's Instruction to Suspend
and Close Equity Line of Credit and provide that an alternate
form is acceptable, if it is made in substantially the same
form as the example provided in statute. The wording of the
form that is written into statute asks for the identities of
the lender, borrower, and escrow or settlement agent; the
property address; and the account number of the equity line
of credit. By signing the form, a borrower acknowledges
that:
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A. The escrow or settlement agent named on the form has
requested a payoff demand statement for the equity line
of credit.
B. The borrower's ability to use the equity line of
credit will be suspended for at least 30 days to
accommodate the pending transaction.
C. The credit and debit cards and checks associated
with the equity line of credit while suspended cannot
be used.
D. The equity line of credit will be due and payable
upon close of escrow.
E. The equity line of credit will be closed once
payment is made in accordance with the payoff demand
statement.
F. If any amounts remain due after payment is made in
accordance with the payoff demand statement, the
borrower understands that he/she will remain personally
liable for those amounts, even if the equity line of
credit has been closed and the property released.
G. The borrower is instructing the beneficiary to close
his/her line of credit and cause the secured lien
against the subject property to be released, when the
lender is in receipt of the signed instruction and
payment in accordance with the lender's payoff demand
statement.
6. Provides that the beneficiary may conclusively rely on the
Borrower's Instruction to Suspend and Close Equity Line of
Credit provided by the entitled person as coming from the
borrower.
7. Provides for a delayed operative date of July 1, 2015, and a
sunset date of
July 1, 2019.
Background
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A HELOC is a type of home loan that allows a borrower to open up
a line of credit using his or her home as collateral. A HELOC
allows the homeowner to borrow up to a pre-determined amount set
by the mortgage lender and is similar to a credit card in that
it is a revolving line of credit.
Under existing law, the borrower may draw funds from a HELOC
while the home is in escrow for sale to a new purchaser, and,
depending on the timing of the withdrawal, the resulting HELOC
lien may not be fully paid off as part of the sale of the home.
In addition, the borrower may request multiple HELOCs from
different lenders, and the borrower may draw funds from one
HELOC while another HELOC is being requested. In this scenario,
the second or third lenders may not receive updated information
that the first HELOC has an outstanding balance, creating loan
priority problems for the subsequent lenders.
This bill, upon the borrower's instruction to close out the
loan, directs a lender to suspend (freeze) the HELOC for a
minimum of 30 days, and close the account completely upon
payment of a payoff demand.
Comments
According to the author's office, some HELOC lenders under a
revolving line of credit often take the position that they are
under no obligation to release their security interest in real
property unless they receive specific documentation from their
borrower, instructing the lender to close the account and
terminate the line of credit, even though it is clear that the
property is being sold to a third party or refinanced with a
lender who expects to have a first lien position. When the line
of credit is not closed and the security not released, a
borrower can continue to borrow on the account, resulting in an
insured owner (new buyer) or lender (new purchase money mortgage
or refinancing lender) being subject to an apparent prior lien.
What follows is often expensive litigation and loss payments,
causing harm to the insured, the original lender, the escrow or
settlement company and, of course, the title insurer.
The author's office states that this bill creates a standardized
written notification process for the shutting down the HELOC
during the escrow process so that the HELOC and their underlying
liens do not become the problem of the new buyer of a home.
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FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local:
No
SUPPORT : (Verified 7/2/14)
California Land Title Association (source)
ARGUMENTS IN SUPPORT : The bill's sponsor, the California Land
Title Association, asserts that this bill will "clarify the
process for closing a [HELOC] loan when the home is being sold
or an existing loan refinanced. Currently, existing practice
results in some HELOC loans not being shut down to the detriment
of new homebuyers, purchase money mortgage lenders, refinancing
lenders, and title companies." CLTA notes that this bill
replicates a process that already works for consumers, HELOC
lenders, and title companies in Arizona, and is written so that
HELOC lenders are provided with a written request signed by the
HELOC borrower to shut down his or her HELOC loan in conformity
with their existing HELOC contracts and federal regulations.
ASSEMBLY FLOOR : 76-0, 5/19/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonilla, Bonta, Bradford, Brown, Buchanan, Ian
Calderon, Campos, Chau, Chávez, Chesbro, Conway, Cooley,
Dababneh, Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon,
Gorell, Gray, Grove, Hagman, Hall, Harkey, Roger Hernández,
Holden, Jones, Jones-Sawyer, Levine, Linder, Logue, Lowenthal,
Maienschein, Medina, Melendez, Mullin, Muratsuchi, Olsen, Pan,
Patterson, Perea, John A. Pérez, V. Manuel Pérez, Quirk,
Quirk-Silva, Rendon, Ridley-Thomas, Rodriguez, Salas, Skinner,
Stone, Ting, Wagner, Waldron, Weber, Wieckowski, Wilk,
Williams, Yamada, Atkins
NO VOTE RECORDED: Mansoor, Nazarian, Nestande, Vacancy
MW:d 7/2/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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