BILL ANALYSIS
AB 1720
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Date of Hearing: April 5, 2010
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 1720 (Galgiani) - As Amended: March 25, 2010
SUBJECT : Buyer's Choice Act.
SUMMARY : Makes clarifying changes to the Buyer's Choice Act.
Specifically, this bill :
1)Creates the California "Buyer's Choice Act" notification form
to be provided by the seller who has acquired property at
foreclosure sale to the buyer.
2)Prohibits a seller from conditioning approval of the sale of
residential real property acquired at foreclosure sale on the
selection of title insurance and escrow services made by the
buyer specified on the form.
EXISTING STATE LAW
1)Specifies that the Department of Corporations (DOC) has the
authority to enforce licensees it finds to have violated any
provision of Real Estate Settlement Procedures Act (RESPA), as
amended (12 U.S.C. Sec. 2601 et seq.), or its regulations.
[Financial Code Section, 17425]
2)Establishes the Buyer's Choice Act which prohibits a seller of
residential real property improved by four of fewer dwelling
units from requiring directly or indirectly as a condition of
selling the property that title insurance or escrow services
be purchased by the buyer from a particular title insurer or
escrow agent. Sunsets on January 1, 2015. [Civil Code
Section, 1103.20 et seq.]
3)Defines "Seller" as a mortgagee or beneficiary under a deed of
trust who acquired title to residential real property improved
by four or fewer dwelling units at a foreclosure sale,
including a trustee, agent, officer, or other employee of any
mortgagee or beneficiary.
4)Provides a seller who violates the Buyer's Choice Act shall be
liable to a buyer in an amount equal to three times all
charges made for the title insurance or escrow services.
AB 1720
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EXISTING FEDERAL LAW
1)Authorizes federally-chartered financial institutions to
engage in the business of mortgage lending, brokering, and
servicing and governs the rules under which such activities
may be conducted under a wide variety of laws, including, but
not limited to, the Home Ownership and Equity Protection Act
(HOEPA), RESPA, Truth in Lending Act (TILA), Home Mortgage
Disclosure Act (HMDA), and regulations that interpret those
acts (most notably Regulation C, which interprets the Home
Mortgage Disclosure Act and Regulation Z, which interprets the
Truth in Lending Act).
2)Establishes RESPA, which regulates transactions between
buyers, sellers, and mortgagees involving "settlement
services" (including title insurance and escrow services).
This Act generally requires that borrowers receive certain
timely disclosures relating to the costs of those settlement
services, and prohibits certain practices on the part of a
mortgagee that increases the costs of settlement services.
(12 U.S.C Sec. 2601 et seq.)
3)Enacts section 9 of RESPA to prohibit a seller from requiring
the home buyer to use a particular title insurance company,
either directly or indirectly, as a condition of sale. Buyers
may sue a seller who violates this provision for an amount
equal to three times all charges made for the title insurance.
4)Authorizes under section 9 of RESPA that individuals have one
year to bring a private right of action to enforce violations.
Lawsuits may be brought in any federal district court in the
district in which the property is located or where the
violation is alleged to have occurred. U.S. Housing and Urban
Development, a State Attorney General or State Insurance
Commissioner may bring an injunctive action to enforce
violations within three years.
FISCAL EFFECT : Unknown
COMMENTS :
AB 1720 cleans up recently enacted legislation, AB 957, which
took effect in October 2009. This measure pertains to
residential real property acquired at foreclosure sale.
AB 1720
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Residential real property becomes bank-owned property, if at a
trustee's sale no one bids over and above the opening bid then
the property will revert back to the lender or servicer who
placed the opening bid. The lender then sells or auctions off
the property at a later date. AB 957 prohibits the seller from
conditioning the sale of residential real property acquired at
foreclosure sale on the basis of what title insurance or escrow
agent the buyer chooses. If a written notice is provided by the
seller stating the buyer's right to choose, the buyer could
continue to choose the seller's recommended title and escrow
services. AB 1720 creates a standard form that must be given by
the seller to the buyer when purchasing residential real
property acquired at foreclosure sale that explains the buyer's
right to choose their own title and escrow services.
This measure takes a step forward in ensuring buyers are aware
of their right to choose their own title and escrow services.
Although AB 957 requires a written notice to be provided by the
seller to the buyer; AB 957 was silent as to what should be
included in the written notice. The author has found that the
written notices provided still sway buyers to use the seller's
recommended title and escrow services. AB 1720 does not
prohibit sellers from offering to pay for the title and escrow
services if the buyer uses their recommended choices, nor does
the bill pertain to the issue of asset managers raised in the
author's letter. The author addressed this issue in a letter
written to Representative Dennis Cardoza on March 10, 2010 which
stated "banks and agencies are often represented by asset
managers that are not only independent of them, but are located
primarily out of state and do not hold either real estate or
businesses licenses in California. These asset managers hire
local realtors to sell the properties and are the only contact
with the owners of the foreclosed properties."
If enacted, AB 1720 would establish a standard form that must be
used with all transactions pertaining to residential real
property acquired at foreclosure sale. A standard form has the
potential to eliminate any confusion between the buyer and
seller as well as further clarify state and federal law
regarding these transactions.
The Buyer's Choice Act notification form may also be a necessary
tool to help both DOC and the Department of Real Estate enforce
the law. Up to this point, DOC and the DRE have not received
any formal complaints regarding sellers conditioning the sale of
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residential real property acquired at foreclosure sale on
whether the buyer uses their title and escrow services.
NEED FOR THE BILL: According to the Author, "The Buyers Choice
Act" AB 957 is currently being manipulated by banks and asset
management companies. These institutions have found a loophole
in the current law, which they are using to gain an unfair
advantage in the realty market which unduly, harms homebuyers
and local businesses alike. This loophole defeats the primary
purposes of AB 957, the loophole negatively affects the bill's
intent to prohibit a seller of residential property from
requiring or influencing the buyer to use an escrow service
company or purchase title insurance chosen by the seller."
According to the sponsor, the Escrow Institute of California,
"AB 1720 is a necessary bill to address some ambiguities in last
year's legislation that has created some confusion among the
various real estate professionals but more importantly among
buyer's of REO Bank Owned forecloses properties. We have
witnessed for too many examples of disclosure forms provided by
the REO Bank Owned Sellers that are sometimes unnecessarily
complex and therefore may be misleading to a buyer as to the law
and their options to choose their own settlement service
providers."
PREVIOUS LEGISLATION: AB 957 ((Galgiani) Chapter 264, Statutes
of 2009) established the Buyer's Choice Act which prohibits a
seller of residential real property from requiring the buyer to
purchase title insurance or escrow services while also
prohibiting a seller of residential real property from
disapproving the use of a title or escrow company chosen by a
buyer. A seller who violates these provisions would be liable
to the buyer for an amount equal to 3 times all charges made for
the title insurance or escrow services.
REGISTERED SUPPORT / OPPOSITION :
Support
Escrow Institute of California (Sponsor)
American Federation of State, County and Municipal Employees
(AFSCME)
Opposition
AB 1720
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None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081