BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 764|
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THIRD READING
Bill No: AB 764
Author: Nava (D), et al
Amended: 7/23/09 in Senate
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 7-3, 7/9/09
AYES: Calderon, Correa, Florez, Kehoe, Liu, Lowenthal,
Padilla
NOES: Cogdill, Cox, Runner
NO VOTE RECORDED: Harman, Price
SENATE JUDICIARY COMMITTEE : 4-1, 7/14/09
AYES: Corbett, Harman, Florez, Leno
NOES: Walters
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 48-29, 6/2/09 - See last page for vote
SUBJECT : Real estate brokers
SOURCE : Author
DIGEST : This bill prohibits any person who performs loan
modification services to claim, charge, receive, or collect
a fee paid for by the borrower for loan modification
agreements until the terms of the loan have been modified.
The violation of those restrictions will be a public
offense and subject the violator to a fine, imprisonment,
or both.
CONTINUED
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ANALYSIS : Existing law prohibits real estate licensees
from charging a borrower an advance fee in connection with
a residential real estate loan, before the borrower becomes
obligated on the loan.
Existing law allows licensed real estate brokers to charge
borrowers an advance fee for helping negotiate a loan
modification on a borrower's behalf, as long as the
broker's fee agreement has been reviewed by the Department
of Real Estate (DRE), and DRE has no objections to it.
Existing law regulates the activities of foreclosure
consultants, which are defined as one who makes any
solicitation, representation, or offer to any owner of a
property on which a notice of default has been recorded, to
perform any of the following services for compensation:
1. Stop or postpone a foreclosure sale, or save the owner's
residence from foreclosure.
2. Obtain any forbearance from any beneficiary or
mortgagee.
3. Help the owner exercise his/her right of reinstatement,
or extend the period within which the owner may
reinstate his/her mortgage obligation.
4. Obtain any waiver of an acceleration clause in any
mortgage, as specified.
5. Help the owner obtain a loan or advance of funds.
6. Avoid or ameliorate the impairment of the owner's
credit, resulting from the recordation of a notice of
default or the conduct of a foreclosure sale.
7. Help the owner obtain remaining proceeds from a
foreclosure sale of the owner's residence.
Existing law exempts certain individuals and businesses
from the foreclosure consultant law, including: persons
licensed to practice law; a licensed real estate broker, as
specified; a licensed accountant; a licensed finance
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lender, as specified; a licensed depository institution; a
licensed escrow agent or other licensed person authorized
to conduct a title or escrow business; and licensed
residential mortgage lenders or servicers.
Existing law makes it a violation of law for a foreclosure
consultant to do any of the following, and subject
violators to a fine of not more than $10,000, imprisonment
in the county jail or in state prison for up to one year,
or by both a fine and imprisonment:
1. Claim, demand, charge, collect, or receive any
compensation until after the foreclosure consultant has
fully performed each and every service he/she contracted
to perform or represented that he/she would perform.
2. Claim, demand, charge, collect, or receive any fee,
interest, or any other compensation for any reason which
exceeds 10 percent per annum of the amount of any loan
the foreclosure consultant may make to the property
owner.
3. Take any wage assignment, any lien of any type on real
or personal property, or other security to secure the
payment of compensation.
4. Receive any consideration from any third party in
connection with services rendered to an owner, unless
that consideration is fully disclosed to the owner.
5. Acquire any interest in a residence in foreclosure from
an owner with whom the foreclosure consultant has
contracted, as specified.
6. Take any power of attorney from any owner for any
purpose (effective July 1, 2009).
7. Induce or attempt to induce any owner to enter into a
contract that is not in compliance with the foreclosure
consultant law.
This bill:
1. Provides that it is unlawful for a licensed real estate
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broker to claim, demand, charge, receive, or collect a
fee paid for by the borrower for a loan modification
agreement until the terms of that loan have been
modified.
2. Defines "loan modification agreement" as a contract 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 residential real
property containing four or fewer dwelling units.
3. Provides that a licensed real estate broker who performs
a loan modification service for a fee paid for by the
borrower shall provide the following statement, in not
less than 14-point bold type, prior to entering into a
loan modification agreement with the borrower:
It is not necessary to pay a third party to arrange
for a loan modification from your mortgage lender or
servicer. You may call your lender directly to ask
for a change in your loan terms. Nonprofit housing
counseling agencies also offer these and other forms
of borrower assistance free of charge. A list of
nonprofit housing counseling agencies approved by the
United States Department of Housing and Urban
Development (HUD) is available from your local HUD
office or by visiting www.hud.gov.
4. Requires the licensed real estate broker to provide
their license number, and provide that if the loan
modification agreement is offered or negotiated in one
of the foreign languages set forth in Section 1632 of
the Civil Code, a translated copy of the above statement
and the license number must be provided to the borrower
in that language.
5. Provides that the above provisions do not prohibit the
acceptance or receipt of a fee by specified financial
institutions, and that the provisions would not apply to
charges made by title insurers and controlled escrow
companies.
6. Requires a licensed real estate broker who performs loan
modification services to notify the DRE in writing on a
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specified form within 30 days from first performing a
loan modification agreement. The broker must also
notify the department, in writing, within 30 days from
the last performance of a loan modification agreement by
that broker. This provision is not subject to the
January 1, 2013 sunset.
7. Provides that a violation of the above restrictions is
punishable by a fine not exceeding $20,000, by
imprisonment not to exceed 12 months, or both, or if by
a corporation, the violation is punishable by a fine not
exceeding $60,000.
8. Limits the above provisions to mortgages or deeds of
trust secured by residential real property containing
four or fewer dwelling units, and, except as specified,
sunset the above provisions on January 1, 2013.
9. Revises the exemptions from the prohibition on real
estate licensees charging an advance fee in connection
with a residential real estate loan, before the borrower
becomes obligated on the loan, and increase the penalty
for violation of that prohibition.
10.Provides, until January 1, 2013, provide that,
notwithstanding any other provision of law, it shall be
unlawful for any person who performs loan modification
services, as specified, to claim, demand, charge,
receive, or collect a fee paid for by the borrower for
loan modification agreements until the terms of that
loan have been modified.
11.Defines "loan modification agreement," and requires a
person who performs a loan modification service to
provide the above statutory form notice prior to
entering into a loan modification agreement with the
borrowers, and requires a translated copy of the
agreement to be provided if the agreement is negotiated
in one of the languages set forth in Section 1632.
12.Provides that a violation of the above provisions by a
person is punishable by a fine not exceeding $20,000, 12
months imprisonment, or both, or if by a corporation,
punishable by a fine not to exceed $60,000.
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13.States that nothing shall preclude a person or their
agent from collecting principal, interest, or other
charges under the terms of a loan, as specified, or
accepting payment from a federal agency, as specified.
This bill also applies the above provisions to mortgages
or deeds of trust containing four or fewer dwelling
units.
14.Provides that it shall constitute cause for the
imposition of discipline of an attorney to engage in any
conduct prohibited by the above provisions.
Existing law allows licensed real estate brokers to charge
borrowers an advance fee for helping negotiate a loan
modification on a borrower's behalf, as long as the
broker's fee agreement has been reviewed by the DRE, and
DRE has no objections to it.
Existing law provides that any person using, disseminating,
or publishing any matter which the commissioner has ordered
not to be used, published, or disseminated shall be guilty
of a misdemeanors and punishable by a fine not exceeding
$1,000, imprisonment not exceeding six months, or both.
This bill:
1. Provides that the above actions are punishable by a fine
not exceeding $2,500, or imprisonment in the county jail
not to exceed 12 months, or both.
2. States that the commissioner shall require that any or
all materials used in obtaining advanced fee agreements,
as specified, be submitted within at least 10 calendar
days before they are used.
3. Prohibits advertisements used in obtaining advance fee
agreements from employing words, letters, initials,
symbols, or other devices that are so similar to those
used by a governmental agency, nonprofit or charitable
institution, or senior organization that they could have
the capacity or tendency to mislead the public. This
bill also provides examples of misleading materials.
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Existing law provides that certain persons are exempt from
regulation under certain provisions of the Real Estate Law
dealing with real estate loans.
This bill further exempts from those provisions specified
nonprofit organizations that have been approved by the
United States Department of Housing and Urban Development
to provide counseling services, when those services are
provided at no cost and in connection with residential
mortgage loan modifications.
Background
On March 24, 2009, the Senate Judiciary Committee held an
informational hearing that focused on the serious problem
of foreclosure related scams facing delinquent homeowners.
Many of those scams involve a promise to renegotiate a
delinquent borrower's loan in exchange for a significant
up-front fee. In arresting three members of a foreclosure
fraud ring in Southern California last November, the
Attorney General's office reported:
The arrests came after an investigation into First Gov,
also operating as Foreclosure Prevention Services,
uncovered that the company was soliciting hundreds of
homeowners with mail flyers offering to help them stop
the foreclosure process on their homes. The scammers
falsely told homeowners that they would renegotiate
their mortgages, reduce monthly payments, and transfer
any delinquent loan amounts to the renegotiated
principle [sic]. The company demanded an up-front fee,
ranging from $1,500 to $5,000, to participate in the
loan-modification program. The company also told the
victims to stop any mortgage payments or communications
with their lender, claiming they would interfere with
the company's effort to negotiate the loan
modification.
When victims complained that they were still receiving
delinquency or foreclosure notices from their lenders,
fraud-ring members told the victims that the mortgage
loans had been renegotiated, but the lenders needed a
"good faith" payment to secure the new accounts.
Homeowners made payments to accounts under business
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names such as "Reinstatement Department" or "Resolution
Department" that made it appear as if the payment had
been applied toward the loan. Bank records indicate
that more than $700,000 was stolen from homeowners who
fell victim to this scheme.
The Attorney General reported the arrest of two women
earlier this year that ran a similar foreclosure scam ring.
The Attorney General noted:
The two women operated a company called Foreclosure
Freedom, which sent hundreds of fliers to Californians
promising help in stopping the foreclosure of their
homes. The fliers read: "FINAL NOTICE - Respond only
to this notice immediately." This is similar to [the]
First Gov scam, which the Attorney General stopped late
last year.
When homeowners called the number on the flyer, they
were told their mortgages could be renegotiated to a
lower monthly payment. Victims, however, were required
to pay thousands of dollars in up-front fees and were
instructed not to contact their lenders. Victims were
assured the company had "private lenders and
specialists exclusive to their company who are very
experienced in the options and methods used to
renegotiate home loans," yet neither of the women who
operated the company had real estate licenses, legal
training, or any experience in the home mortgage
market. Investigators found no evidence of any
successful loan modifications and most of the victims
were either forced into bankruptcy or lost their homes
to foreclosure.
In addition to the above instances, nearly all the
witnesses (both consumer advocates and law enforcement) in
this committee's hearing earlier this year expressed the
need for a prohibition on advance fees. Accordingly, this
bill would generally prohibit any person from collecting an
advance fee for a loan modification until the terms of the
loan have been modified, and make other changes to
provisions in existing law regarding the collection of
advance fees.
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FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 8/19/09)
AARP
ACORN
California Alliance for Retired Americans
California Labor Federation
California Reinvestment Coalition
CALPIRG
Center for Responsible Lending
Congress of California Seniors
Consumer Action
Consumer Federation of California
Consumer's Union
Consumers for Auto Reliability and Safety
Los Angeles mayor Antonio Villaraigosa
Older women's League of California
Privacy Rights clearinghouse
State Bar of California
ARGUMENTS IN SUPPORT : According to the author's office,
first and foremost, all homeowners in fear of facing
foreclosure or already in the process can receive help for
free either through their lender or through an approved
Housing and Urban Development (HUD) counseling agency.
Homeowners do not need to pay a dime for a loan
modification. Unfortunately, many loan modification
companies are charging homeowners $1000 to $4000 for little
to no work. In most cases, companies ask for the money
upfront and lure homeowners in with false promises and
guarantees. Currently, the DRE is investigating over 750
complaints of fraudulent loan modification companies.
Licensed real estate brokers are collecting an advance fee
without even knowing if a loan can actually be modified.
This bill will eliminate this issue and require a licensed
real estate broker to actually look at the complexities of
the loan and then determine whether or not it can be
modified and then modify the loan before a payment is
received.
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ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Beall, Blumenfield, Brownley,
Caballero, Charles Calderon, Carter, Chesbro, Coto,
Davis, De La Torre, De Leon, Eng, Evans, Feuer, Fong,
Fuentes, Furutani, Galgiani, Hall, Hayashi, Hernandez,
Hill, Huffman, Jones, Krekorian, Lieu, Bonnie Lowenthal,
Ma, Mendoza, Monning, Nava, John A. Perez, V. Manuel
Perez, Portantino, Price, Ruskin, Salas, Saldana,
Skinner, Solorio, Swanson, Torlakson, Torres, Torrico,
Yamada, Bass
NOES: Adams, Anderson, Bill Berryhill, Tom Berryhill,
Blakeslee, Conway, Cook, DeVore, Duvall, Emmerson,
Fletcher, Fuller, Gaines, Garrick, Gilmore, Hagman,
Harkey, Jeffries, Knight, Logue, Miller, Nestande,
Niello, Nielsen, Silva, Smyth, Audra Strickland, Tran,
Villines
NO VOTE RECORDED: Block, Buchanan, Huber
JJA:do 8/19/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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