BILL ANALYSIS
AB 941
Page 1
ASSEMBLY THIRD READING
AB 941 (Torrico)
As Amended April 30, 2007
Majority vote
BANKING & FINANCE 7-1
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|Ayes:|Lieu, Coto, Houston, |
| |Mendoza, Parra, Swanson, |
| |Torrico |
| | |
|-----+--------------------------|
|Nays:|Gaines |
| | |
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SUMMARY : Authorizes a real estate broker and lender to provide
the borrower with the option to receive specific documents
connected with a loan in an electronic format, paper format, or
both. Specifically, this bill :
1)Authorizes the borrower to receive the federal Real Estate
Settlement Procedures Act of 1974 (RESPA) and the federal
Truth in Lending Act (TILA) in electronic format, paper
format, or both.
2)Defines "electronic format" as information held in a record
created, generated, sent, communicated, received, or stored by
electronic means.
3)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 to 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;
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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;
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;
ii) An area of potential flooding that is shown on a map
as an area that would be inundated if a dam fails;
iii) A designated wildland fire area that may contain
significant risk of forest fire and hazards; or,
iv) An earthquake fault zone.
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;
e) Requires a notice of the existence of any widow security
bars and any safety release mechanisms on the bars;
f) A notice that the property complies with California law
relating to smoke detectors;
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; and,
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.
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;
b) Their relationship and duties as the agent of the
seller, agency of the buyer or agent of both seller and
buyer;
c) Notice of the rate or amount of the real estate agent's
commission; and,
d) A notice provided to the seller and buyer of the selling
price within one month after the close of escrow.
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;
b) A disclosure to the borrower of the amount financed,
finance charges, annual percentage rate, 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;
c) A notice provided by RESPA that provides detailed
information on settlement and escrow and it itemizes cost
so that borrowers can shop around for settlement/escrow
services. RESPA also ensures that a buyer receives an
informational booklet from the 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
disclosure statement;
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; and,
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e) A notice to the borrower if the servicing of the loan is
transferred.
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.
5)Requires every real estate broker, within three business days
after receipt of a completed written loan application or
before the 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
Business and Professions Code Section 10241. When so
executed, an exact copy thereof shall be delivered to the
borrower at the time of its execution.
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 TILA. 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
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applicable disclosures required by TILA as acknowledged by the
borrower.
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.
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.
FISCAL EFFECT : None
COMMENTS : During the mortgage loan process, a borrower is
overwhelmed with a pile of loan documents. This bill encourages
mortgage brokers and lenders to offer specified loan documents
in electronic format.
The author 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.
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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.
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.
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Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0000544