BILL ANALYSIS
AB 764
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 764 (Nava, Bass, Feuer)
As Amended July 23, 2009
Majority vote
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|ASSEMBLY: |46-28|(June 3, 2009) |SENATE: |22-16|(September 1, |
| | | | | |2009) |
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Original Committee Reference: B. & F.
SUMMARY : 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. Specifically, this bill :
1)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.
2)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.
3)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 Civil Code Section 1632, a translated
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copy of the above statement and the license number must be
provided to the borrower in that language.
4)Requires a licensed real estate broker who performs loan
modification services to notify the Department of Real Estate
(DRE) in writing on a specified form within 30 days from first
performing a loan modification agreement. The broker must
also notify DRE, 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.
5)Provides that a violation 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.
6)Limits the provisions to mortgages or deeds of trust secured
by residential real property containing four or fewer dwelling
units, and, except as specified, sunsets on January 1, 2013.
7)Provides 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.
8)Specifies 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. Applies the above provisions to
mortgages or deeds of trust containing four or fewer dwelling
units.
9)Provides that it shall constitute cause for the imposition of
discipline of an attorney to engage in any conduct prohibited
by the above provisions.
10)Requires the Commissioner of DRE (Commissioner) to determine
the form of advance fee agreements and loan modifications
agreements and mandates the submission of the advance fee
agreement and loan modification agreement materials prior to
their use for approval.
11)Prohibits advertisements used in obtaining advance fee
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agreements or loan modification agreements from using words,
letters, initials, symbols, or other devices that are similar
to those used by a governmental agency or nonprofit entity.
12)Increases the fine for publishing advertisements discussed in
11) above without approval from the Commissioner from $1,000
to $2,500.
13)Exempts specified nonprofit organizations that have been
approved by the United States (U.S.) Department of Housing and
Urban Development (HUD) to provide counseling services, when
those services are provided at no cost and in connection with
residential mortgage loan modifications under certain
provisions of the Real Estate Law dealing with real estate
loans. (Business & Professions Code Section 10133.1.)
The Senate amendments :
1)Provide that attorneys can not charge a fee until a loan is
modified and provide the homeowner with a notice stating the
following services can be free with a sunset date of January
1, 2013.
2)Clarify that the bill only applies to residential real
property containing four or fewer dwelling units.
3)Increase violations in the Civil Code 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. [Business and Professions Code, Section 10085]
2)Allows the Commissioner to determine the form of the advance
fee agreements, and all material used in soliciting
prospective owners and sellers. [Business and Professions
Code, Section 10085]
3)Prohibits any person from claiming, demanding, charging,
receiving, collecting, or contracting for an advance fee for
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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.
[Business and Professions Code Section 10085.5]
4)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.
[Business. & Professions Code Sec. 10085.)
5)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:
a) Stop or postpone a foreclosure sale, or save the owner's
residence from foreclosure;
b) Obtain any forbearance from any beneficiary or
mortgagee;
c) Help the owner exercise his or her right of
reinstatement, or extend the period within which the owner
may reinstate his or her mortgage obligation;
d) Obtain any waiver of an acceleration clause in any
mortgage, as specified;
e) Help the owner obtain a loan or advance of funds;
f) 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; or,
g) Help the owner obtain remaining proceeds from a
foreclosure sale of the owner's residence. (Civil Code
Section 2945 et seq.)
6)Exempts certain individuals and businesses from the
foreclosure consultant law, including: persons licensed to
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practice law; a licensed real estate broker, as specified; a
licensed accountant; a licensed finance 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. (Civil Code Section 2945.1(b).)
AS PASSED BY THE ASSEMBLY , this bill only pertained to licensed
real estate brokers and required a specific approval process by
the DRE.
FISCAL EFFECT : DRE indicates that, since it is already
approving most agreements used by mortgage brokers for loan
modifications services, new costs will be minor and absorbable.
Costs are supported by license fees charged to the industry.
COMMENTS :
Need for this bill : The author believes, first and foremost,
all homeowners in fear of facing foreclosure can receive help
for free either through their lender or through an approved U.S.
HUD counseling agency. Homeowners do not need to pay a dime for
a loan modification. Unfortunately, many loan modification
companies are charging homeowners $1,000 to $4,000 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 800 complaints of
fraudulent loan modification companies. DRE does have a process
in place to handle advance fees. For example, a licensed real
estate broker is supposed to fill out an advance fee agreement
for approval by the DRE before accepting advance fees, and once
a real estate broker receives an advance fee, this money is put
into a trust account. Although, a process is in place for the
acceptance of advance fees under the DRE, the question remains,
why is it ever necessary to collect an advance fee for modifying
a loan? First, most often, licensed real estate brokers are
collecting an advance fee without even knowing if a loan can
actually be modified. AB 764 will eliminate this issue and
require any person to actually look at the complexities of the
loan and then determine whether or not it can be modified before
taking any money rather than putting homeowners through false
promises.
In addition, a number of loan modification companies are
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advertising that the upfront fee is non-refundable. AB 764 will
eliminate this concern. Second, President Barack Obama, among
others announced that consumers should not pay an upfront fee
for modifying a loan.
California continues to rate very high with the number of
foreclosures filed. This problem makes the state more
susceptible to foreclosure scams. Homeowners are desperate to
save their home and willing to go in further debt by paying an
advance fee to modify their home. California needs action to
curb further abuse and prevent these scam artists from finding
ways to make money off a very sad situation.
Illegitimate loan modification companies have also evolved into
no-up front loan modification groups to get by the restrictions
that currently exist under the business and professions code.
Under existing law, licensed real estate brokers do not need to
go through DRE for approval if they do not collect an advance
fee. The bill addresses these concerns and requires results
before a payment is received. AB 764 also puts in place a
notification requirement to allow the DRE to maintain oversight
over licensed real estate brokers who provide loan modification
services. As stated before, homeowners get loan modification
services free through a HUD approved counseling agency or their
lender. In reality, a homeowner has the same capability and
opportunity as a licensed real estate broker when it comes to
modifying their own home loan.
Advertising : This bill contains provisions prohibiting
advertising from using words, letters, initials, symbols, or
other devices that are similar to those used by a governmental
agency or nonprofit entity. A main resource for these "loan
modification consultants" is through advertising which all too
often is misleading. A lot of the time the advertising looks
like it is government approved through the use of logos or
wording which lures homeowners into believing the company is
government sponsored. The Federal Trade Commission (FTC)
recently surveyed online and print advertising for mortgage
foreclosure rescue operations nationwide and identified
approximately 71 distinct companies running suspicious ads. On
the civil enforcement side, the FTC filed five new cases to halt
the illegal practices of individuals and companies offering loan
modification or foreclosure scams - including one company that
spent $9 million dollars on TV and radio ads in less than one
year. Recently, in hope of further addressing fraudulent
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advertising, the Chair of the Assembly Banking and Finance
Committee wrote a letter to the Chair of the FTC, Jon Leibowitz
asking him to investigate all advertising related to loan
modifications and also wrote a letter to California Attorney
General, Jerry Brown, asking that he place an injunction on all
loan modification advertising. In addition, Attorney General
Brown made an announcement warning the public that scam artists
have "sunk to a new low" and have used the forged letterhead of
major lenders to con worried Californians into paying thousands
of dollars for non-existent loan modification services.
Advance fees vs. foreclosure consultants : There is an
assumption that current law already prohibits the acceptance of
advance fees in relation to loan modifications. This is not the
case. Homeowners are approached before they have defaulted on
their home and after a notice of default has been recorded.
Under existing law, foreclosure consultants can not come into
the picture until after a notice of default has been recorded on
a home. If there is an outstanding notice of default, an
advance fee cannot be accepted rather a person is paid for the
work completed. The law does not prohibit the acceptance of an
advance fee if there is no outstanding notice of default. In
addition, a foreclosure consultant does not include any of the
following: a person licensed to practice law; a licensed
prorater; a licensed real estate broker, as specified; a
licensed accountant; a person or his or her agent acting under
express authority of or written approval from HUD or other
federal department or agency; a person who holds or is owed an
obligation secured by a lien on any residence in foreclosure,
when the person performs services in connection with that
obligation or lien; a licensed finance lender, as specified; a
licensed depository institution; a licensed escrow agent or
other licensed person authorized to conduct a title or escrow
business; and, a licensed residential mortgage lender or
servicer.
Other states and federal level 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 seven to nine 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
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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), 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 scam. A
key part of the announcement emphasized borrowers should never
pay any up-front fees for loan modifications.
Currently, the Federal Bureau of Investigation has targeted
2,100 companies suspected of defrauding troubles homeowners with
"rescue scams." This number is up 400% from the caseload five
years ago.
Treasury's Financial Crimes Enforcement Network also conducted
recent studies on mortgage fraud that found that between July
2002 and June 2008, depository institutions filed nearly 180,000
mortgage fraud suspicious activity reports, with those involved
in mortgage fraud often involved in other types of crime as
well.
California Attorney General Jerry Brown has made a number of
arrests in regards to those involved in foreclosure scams.
The Illinois Attorney General announced the initiation of more
than 20 cases targeting mortgage fraud, including a case against
one company targeting a Latino community with radio ads.
Illinois, Maryland, Minnesota along with California are carrying
legislation in hopes of stopping loan modification scams.
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, allows
compensation after a person has performed each and every service
the person contracted to perform or represented that he or she
would perform. Provides a specified notice to borrowers
regarding other options available to the borrower.
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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 California 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.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0002475