BILL ANALYSIS
AB 764
Page 1
Date of Hearing: April 28, 2009
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
AB 764 (Nava) - As Amended: April 20, 2009
SUBJECT : Real estate brokers.
SUMMARY : Prohibits any person from claiming, demanding,
charging, receiving, collecting or contracting for advance fees
for performing services for borrowers in connection with the
modification of the terms of a mortgage loan. Specifically,
this bill :
1)Prohibits any person from claiming, demanding, charging,
receiving, collecting or contracting for any fee for
performing services for borrowers in connection with the
modification of the terms of a mortgage loan, unless the
person is a licensed real estate broker.
2)Prohibits licensed real estate brokers from collecting advance
fees for modifying the terms of a mortgage loan.
3)Requires the commissioner to approve advance fee agreements
and loan modifications agreements prior to their use.
4)Prohibits advertisements used in obtaining advance fee
agreements or loan modifications agreements from using words,
letters, initials, symbols, or other devices that are similar
to those used by a governmental agency or nonprofit entity,
and increases the fine for publishing such advertisements
without the commissioner's approval from $1,000 to $2,500.
5)Defines "loan modification agreement" as a contract by a
licensed real estate broker for the performance of services
for a borrower in connection with the modification of the
terms of a loan secured directly or collaterally by a lien on
single-family residential real property.
6)Authorizes the commissioner to adopt rules and regulations to
implement provisions related to loan modification agreements.
7)Exempts licensed residential mortgage lenders from the fee
prohibition.
AB 764
Page 2
8)Increases the fines from $10,000 to $20,000 for an individual
and $50,000 to $60,000 for a corporation.
EXISTING LAW
1)Allows the commissioner to look at all materials used in
obtaining advance fee agreements, including but not limited to
the contract forms, letters or cards used to solicit
prospective sellers, and radio and television advertising be
submitted to him or her at least 10 calendar days before they
are used.
2)Allows the commissioner to determine the form of the advance
fee agreements, and all material used in soliciting
prospective owners and sellers.
3)Prohibits any person from claiming, demanding, charging,
receiving, collecting, or contracting for an advance fee for
soliciting lenders on behalf of borrowers or performing
services for borrowers in connection with loans to be secured
directly or collaterally by a lien on real property, before
the borrower becomes obligated to complete the loan or, for
performing any other activities for which a license is
required, unless the person is a licensed real estate.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "AB 764
is necessary to ensure homeowners seeking to modify their home
loans do not become victims of scam artists who are trying to
exploit those at their lowest point through exorbitant loan
modification fees when in reality, successful loan modifications
are completed for free through HUD-certified counseling agencies
and lenders."
Background - Advance Fees . Currently, a real estate broker may
charge an advance fee for a loan modification if they have
received DRE approval. With DRE approval, a real estate broker
may charge an advance fee as long as the fee is placed into a
trust account and will be refunded to the consumer if the loan
modification is not performed. This bill will eliminate real
estate broker's ability to charge advance fees for loan
AB 764
Page 3
modifications which would have the effect of requiring real
estate brokers to determine whether a loan modification is
possible, and actually perform the modification, prior to
receiving payment.
Background - Advertising . This bill prohibits advertisements
from using words, letters, initials, symbols, or other devices
that are similar to those used by a governmental agency or
nonprofit entity. Various forms of misleading advertising often
takes place with logos or wording which appear to be an attempt
to entice consumers with logos, titles, or references that
suggest they are government entities, or are approved or
sponsored by government entities, etc.
Under existing law, the commissioner may require 10 day advance
approval of advertisements and violations are subject to a
misdemeanor penalty of $1,000. This bill will clarify
provisions of existing law to make explicit reference to types
of misleading advertising and loan modifications where an
advance fee arrangements are involved, require the
commissioner's advance approval of advertisements, and increase
the misdemeanor penalty to $2,500.
Background - Federal Action . Earlier this year, President
Obama's Administration launched the Making Home Affordable
Program in an effort to stabilize the housing market and ensure
responsible homeowners can afford to stay in their homes by
assisting eligible homeowners with refinancing or modifying
their mortgages. It is estimated the plan will help up to 7 to
9 million families restructure or refinance their mortgages to
lower their monthly payments and make their mortgages affordable
now and in the future - an opportunity for relief that
unfortunately also brings greater opportunity for criminal
actors to prey upon consumers seeking assistance.
On April 6, 2009, President Obama's Administration along with
the U.S. Department of the Treasury, the U.S. Department of
Justice (DOJ), the Department of Housing and Urban Development
(HUD), the FTC, and the Attorney General of Illinois announced
an effort to coordinate information and resources across
agencies to maximize targeting and efficiency in fraud
investigations, alert financial institutions to emerging
schemes, step up enforcement actions and educate consumers to
help those in financial trouble avoid becoming the victims of a
loan modification or foreclosure rescue scams, and payment of
AB 764
Page 4
advance fees for loan modifications.
Related Legislation . SB 94 (Calderon) would prohibit persons
from charging advance fees to borrowers in connection with the
modification of the terms of the borrower's loan, require those
who wish to charge a fee for loan modification services (after
performing them) to provide a specified notice to borrowers
regarding other options available to the borrower, and prohibit
servicers from imposing any interest or charge for performing
services for borrowers in connection with loan modifications or
other forms of loan forbearance of forgiveness.
Previous Legislation . AB 1448 (Scott), Chapter 156, Statutes of
2008, increased the maximum fine for an unlicensed person acting
or advertising themselves as a real estate broker or a real
estate salesperson from $10,000 to $20,000 and for an unlicensed
corporation from $50,000 to $60,000.
AB 180 (Bass), Chapter 278, Statutes of 2008 added protections
to the foreclosure consultant law, effective July 1, 2009.
These protections include a requirement for foreclosure
consultants to register with the Department of Justice and
obtain a surety bond; increase the length of time an owner may
rescind a contract with a foreclosure consultant, and require
contracts with foreclosure consultants to be translated into
foreign languages in certain circumstances.
REGISTERED SUPPORT / OPPOSITION :
Support
None on file.
Opposition
California Association of Realtors
Analysis Prepared by : Ross Warren / B. & P. / (916) 319-3301