BILL ANALYSIS
AB 941
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Date of Hearing: April 23, 2007
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Ted Lieu, Chair
AB 941 (Torrico) - As Amended: April 17, 2007
SUBJECT : Real property loans: documents.
SUMMARY : Requires a real estate broker or lender to provide
the borrower with the option to receive all documents connected
with a loan in an electronic format. Specifically, this bill :
1)Authorizes a real estate broker to give the borrower the
option to receive a copy of the statement required by initial
disclosures as required and any other document connected with
the loan in electronic format instead of paper format.
2)Allows a lender, defined, that negotiates or services a loan
for a borrower to give them the option of any loan document in
electronic format instead of paper format.
3)Defines "electronic format" as information held in a record
created, generated, sent, communicated, received, or stored by
electronic means.
4)Emphasizes that the electronic format shall be a format that
does not jeopardize or compromise the security or integrity of
the original record or of any proprietary software in which it
is maintained.
EXISTING LAW :
1)Requires that a seller or the seller's agent disclose to a
buyer as soon as practicable, in addition to the disclosure in
(3) above, the following disclosures:
a) A Real Estate Transfer Disclosure Statement that details
the condition of the property. (Civil Code, Section 1102 et
seq.);
b) Notice regarding specific information concerning the
neighborhood or community the property is located in. For
example, the disclosure would include if the property is
located near an airport. (Civil Code, Section 1102.6a);
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c) The seller must provide a Natural Hazard Disclosure
Statement if the property is located near:
i) A special flood hazard zone as designated by the
Federal Emergency Management Agency. (Government Code,
Section 8589.3);
ii) An area of potential flooding that is shown on a map
as an area that would be inundated if a dam fails.
(Government Code 8589.4);
iii) A designated wildland fire area that may contain
significant risk of forest fire and hazards. (Public
Resources Code, Section 4136); or;
iv) An earthquake fault zone. (Public Resources Code,
Section 2621.9)
d) A notice disclosing whether the property is within one
mile of an area that may have been used for military
training that may contain live ordinance. (Civil Code,
Section 1102.15);
e) Requires a notice of the existence of any widow security
bars and any safety release mechanisms on the bars. (Civil
Code, Section 1102.16);
f) A notice that the property complies with California law
relating to smoke detectors. (Health & Safety Code,
Section 13113.8);
g) A disclosure of any existing lead based paint hazards,
as well as, a disclosure of environmental hazards that may
exist in the home such as, asbestos, radon gas,
formaldehyde, fuel or chemical storage tanks, and
contaminated soil or water. (Civil Code, Section 1099 &
Business & Professions Code, Section 8519 et seq.);
h) A notice of disclosure for a property containing a water
heater that the water heater has been braced, anchored or
strapped to resist falling or horizontal movement during an
earthquake. (Health & Safety Code, Section 19211)
2)Provides that a real estate broker must disclose the
following:
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a) The results of a visual inspection conducted on the
property. (Civil Code, Section 2079 et seq.);
b) Their relationship and duties as the agent of the
seller, agency of the buyer or agent of both seller and
buyer. (Civil Code, Section 2079.13 et seq.);
c) Notice of the rate or amount of the real estate agent's
commission. (Business and Professions Code, Section
10147.5); and;
d) A notice provided to the seller and buyer of the selling
price within one month after the close of escrow. (Business
and Professions Code, Section 10141)
3)Mandates that a real estate licensee or lender must disclose
the following to a prospective borrower in certain real
property secured transactions:
a) A disclosure regarding the terms and meanings concerning
an adjustable rate mortgage loan. (Title 12 Code of
Federal Regulations Part 29 of Chap I and 563 or Chapter V
& Civil Code, Section 1921);
b) A disclosure to the borrower of the amount financed,
finance charges, APR, payment schedule, identity of the
lender, itemization of amount financed, prepayment
penalties, late payment charges, insurance and whether
premiums are included in finance charge, variable interest
rate disclosures, and total points and fees. (Federal
Truth in Lending Act [TILA], 15 U.S. Code 1601 et seq.);
c) A notice as provided by the federal Real Estate
Settlement Procedures Act (RESPA) that provides detailed
information on settlement and escrow and it itemized cost
so that borrowers can shop around for settlement/escrow
services. RESPA also ensures that a buyer receives an
informational booklet from Department of Housing and Urban
Development (HUD) which explains RESPA, a broker's good
faith estimate of settlement/closing cost, a lenders
estimate of settlement/closing cost, an Affiliated Business
Arrangement disclosure where the lender designates specific
escrow service providers, an advanced TILA statement, a HUD
Uniform Settlement Statement and a Mortgage Servicing
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disclosure statement. (12 U. S. Code Sections 2601 - 2617;
24 CFR Part 3500 - Real Estate Settlement Procedures Act,
Regulation X; the Housing and Community Development Act of
1992; Business and Professions Code Sections 10176(a) and
(g));
d) A disclosure from the agent receiving compensation from
a lender detailing the form and amounts of any source of
compensation received or expected to be received.
(Department of Real Estate Commissioner's Regulation 2904;
Business and Professions Code Sections 10176(a) and (g));
and;
e) A notice to the borrower if the servicing of the loan is
transferred. (Civil Code, Section 2937)
4)Requires every real estate broker who solicits borrowers or
lenders or negotiates loans or performs services for borrowers
or lenders to provide a disclosure to the borrower within
three business days after receipt of completed loan documents
that includes the following:
a) Estimated cost and expenses associated with making the
loan including appraisal fees, escrow fees, title changes,
notary fees, recording fees and credit investing fees;
b) Total commissions received for their services;
c) Any liens against the property and their approximate
amount;
d) Estimated fire insurance premiums;
e) Principle amount of loan and rate of interest;
f) A statement in 10-point bold typeface summarizing the
responsibility of the borrower to pay of the balloon
payment and pay monthly mortgage payments; and;
g) The rights of borrowers under the Housing Financial
Discrimination Act of 1977. (Health & Safety Code, Section
35800 et seq.)
5)Every real estate broker, within three business days after
receipt of a completed written loan application or before the
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borrower becomes obligated on the note, whichever is earlier,
cause to be delivered to the borrower a statement in writing,
containing all the information required by Section 10241.
When so executed, an exact copy thereof shall be delivered to
the borrower at the time of its execution. (Business and
Professions Code, Section 10240)
6)Prior to becoming obligated on the loan the borrower shall
acknowledge, in writing, receipt of the "good faith estimate"
and all applicable disclosures required by the Truth in
Lending Act. The real estate broker shall retain on file for
a period of three years a true and correct copy of the signed
acknowledgment and a true and correct copy of the "good faith
estimate" and all applicable disclosures required by the Truth
in Lending Act as acknowledged by the borrower. (Business and
Professions Code, Section 10240)
7)The lender shall provide to the borrower, prior to the
execution by the borrower of any mortgage payment instrument
authorized pursuant to this chapter, full and complete
disclosure, as specified by the secretary or the secretary's
designee, of the nature and effect of the mortgage payment
instrument, and all costs or savings attributed to the
mortgage instrument. (Civil Code, Section 1922)
8)Before the due date of the first monthly installment following
each change in the interest rate, notice shall be mailed to
the borrower of the following:
a) The base index;
b) The most recently published index at the date of the
change in the rate;
c) The interest rate in effect as a result of the change;
d) Any change in the monthly installment;
e) The amount of the unpaid principal balance; or;
f) If the interest scheduled to be paid on the due date
exceeds the amount of the installment, a statement to that
effect and the amount of the excess, and the address and
telephone number of the office of the lender to which
inquiries may be made. (Civil Code, Section 1922)
FISCAL EFFECT : Unknown
COMMENTS : According to the author, this bill will help protect
California's environment by saving paper. During the mortgage
loan process, a borrower is overwhelmed with a pile of loan
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documents. AB 941 attempts to solve this issue by requiring
brokers and lenders to offer an electronic format of all the
loan papers in lieu of paper.
The Author's office states:
As anyone who has ever bought a home knows,
obtaining a mortgage loan can be a very daunting
task. From finding the perfect rate to
negotiating the final closing cost, the process is
grueling. One of the most elements of the process
is the stack of paper that the borrower faces
right from the start.
For example, when searching for the best lean,
potential borrowers may apply to several different
lenders who in return, will send them an initial
stack of papers, including a fair estimate of what
the loan costs. Most of the documents are
typically for the borrower's benefits and since
final papers are the ones with the most accurate
information and signed for recording, many of the
hard copies are not necessary. These copies could
have been easily supplied in an electronic format,
thereby eliminating waste, cost and clutter.
Additionally, once the papers are signed, the
borrower is often given a duplicate copy for their
files. Years down the road when the borrower
wishes to revisit the terms of the loan, he or she
will need to filter through stacks of paper to
find what is needed. There should be no reason
that the same documents could be offered
electronic format rather than a ream of paper.
Eventually, all mortgage loans will have the
ability to be processed 100% electronically. In
the meantime, the borrower should have the option
to obtain certain documents electronically and use
only paper when necessary to truly process the
loan.
Several software companies have created technology which enables
the mortgage process to be electronic. Currently, Adobe Systems
Inc. recently released guidelines for the standardization of
electronically signed PDF documents in the mortgage process.
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The guidelines are intended to help standardize the
implementation of PDF and electronically signed PDF documents
across the mortgage bank industry. The guidelines aim to
provide mortgage professionals with the ability to replace
conventional pen-and-paper signatures with electronically signed
PDF documents. Adobe claims this will allow mortgagee
professional with the tool to be able to implement solutions to
process transactions more quickly and efficiently, significantly
reducing costs and errors associated with the manual data entry.
As written, this measure pertains to any document connected with
the loan process. This may be too broad since this would
encompass every document from the beginning to the end. The
loan process can take any where from one month to six and in the
meantime according to the bill all documents would need to be in
electronic format if this is what the borrower chooses. Would
the borrower receive the electronic format throughout the
process or at the close? Would the borrower have to sign a
disclosure stating they have chosen to accept electronic format
instead of paper? Why can't the borrower elect to have both
paper and electronic format? Do all real estate brokers and
lenders have the technology to offer electronic format?
SUGGESTED AMMENDMENTS :
Strike out lines 26-28 on page 3, and insert:
receive a copy of the statement required by this section in
electronic format, paper format or both. For purposes of
this subdivision,
Strike out lines 39-40 on page 3 and line 1 on page 4, and
insert:
give the borrower the option to receive a copy of
disclosures required by the Real Estate Settlement
Procedure Act of 1974, and Truth in Lending Act in
electronic format, paper format, or both. For purposes of
this section, "electronic format" means
REGISTERED SUPPORT / OPPOSITION :
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Support
None on file.
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081