BILL ANALYSIS
AB 1720
Page 1
Date of Hearing: April 13, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
AB 1720 (Galgiani) - As Amended: March 25, 2010
SUBJECT : Buyer's Choice Act
KEY ISSUE : Should a seller of real property be required to
provide a buyer with a standard form that acknowledges the
buyer's existing rights under the Buyer's Choice Act, including
the right to choose a title insurer and escrow agent of the
buyer's choice?
FISCAL EFFECT : As currently in print this bill is keyed
fiscal.
SYNOPSIS
This non-controversial measure is a follow-up to the author's AB
957 (Chapter, Stats. of 2009), which created the Buyer's Choice
Act. That measure prohibited a seller of real property that was
acquired in foreclosure from requiring the buyer to use the
seller's choice of title insurer or escrow agent. However, a
buyer could elect to use a title insurer or escrow agent
recommended by the seller so long as the buyer first received a
written notice of the right to choose a title insurer or escrow
agent of the buyer's choice. According to the author, however,
some banks are using written notices that do not adequately
inform buyers about their right to make their own choice. As
such, this measure will ensure that buyers reap the benefit of
the Buyer's Choice Act by requiring a seller of real property to
provide the buyer with a standard form that expressly and
conspicuously acknowledges the buyer's rights under the Buyer's
Choice Act. This bill passed out of the Assembly Banking &
Finance Committee last week on an 11-0 vote. There is no known
opposition.
SUMMARY : Amends the Buyer's Choice Act to require the seller
of foreclosed residential real property to provide the buyer
with a standard form that conspicuously acknowledges the buyer's
existing right to choose his or her own title insurer or escrow
agent.
EXISTING LAW :
AB 1720
Page 2
1)Prohibits a seller of foreclosed real property with four or
fewer dwelling units upon it from requiring, as a condition of
sale, that the buyer of the property purchase title insurance
or escrow services from a particular title insurer or escrow
agent. Provides, however, that a buyer may agree to accept
the services of a title insurer or escrow agent recommended by
the seller if the buyer is first provided with a written
notice of his or her right to make an independent selection of
those services. (Civil Code Section 1103.22.)
2)Regulates, under the federal Real Estate Settlement Procedures
Act (RESPA), transactions between buyers, sellers, and
mortgagees involving "settlement services" (including title
insurance and escrow services). 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 USC Section 2601 et seq.)
3)Provides, under RESPA, that no seller of property that will be
purchased with the assistance of a federally related mortgage
loan shall require directly or indirectly, as a condition to
selling the property, that title insurance covering the
property be purchased by the buyer from any particular title
company. Specifies that any seller who violates this
provision shall be liable to the buyer in an amount equal to
three times all charges made for such title insurance. (12
USC Section 2608.)
4)Requires title insurers, controlled escrow companies, and
underwritten title companies who operate in this state to
obtain a certificate of authority or license, as specified.
(Insurance Code Sections 1621 and 1634.)
5)Makes it unlawful for any title insurer, underwritten title
company, or controlled escrow company to directly or
indirectly pay any commission, compensation, or other
consideration to any person as an inducement for the placement
or referral of title business. (Insurance Code Section
12404.)
6)Provides for the licensing and regulation of escrow agents who
operate in this state and expressly provides that any person
who violates any provision of RESPA, or any regulation
AB 1720
Page 3
promulgated thereunder, also violates the corresponding
provisions in state law. (Financial Code Section 17425.)
COMMENTS : This non-controversial measure is a follow-up to the
author's AB 957 (Chapter 264, Stats. of 2009) of last year.
That bill, which created the Buyer's Choice Act, prohibits a
seller of real property acquired in a foreclosure from requiring
the buyer to use a particular title insurer or escrow agent
selected by the seller. A buyer could agree to use a title
insurer or escrow agent recommended by the seller, but only if
the buyer was first provided with a written notice of his of her
right to make an independent selection. According to the
author, this measure will ensure that buyers obtain the benefit
of the Buyer's Choice Act by requiring the seller to provide the
buyer with a standard form expressly acknowledging the buyer's
right to choose a title insurer or escrow agent of the buyer's
choice.
Background: In support of last year's AB 957, the author argued
that one consequence of the foreclosure crisis was that banks
and other lending institutions were increasingly entering the
residential real estate market as sellers. The author claimed
that lending institutions were using their institutional
leverage to require that buyers use a particular title insurer
and escrow agent - even though the buyer is usually the one who
pays for the service. This practice, the author claimed, often
led to exclusion of smaller, local businesses from the title
insurance and escrow market. In support of this claim, the
author cited news reports of buyers in Northern California
forced by banks to use title and escrow companies in Southern
California, who allegedly charged higher fees than local
Northern California companies tended to charge. (See "Banks
Benefit form Foreclosure Opportunity," at
www.kcra.com/print/18912614/detail.html )
After extensive negotiations with a diverse group of lenders,
realtors, escrow agents, and title insurers, the author crafted
the Buyer's Choice Act, a piece of legislation that enjoyed
broad bipartisan support, was signed by the Governor, and took
effect as an urgency measure in October of 2009. The author
contends that the present measure will strengthen and clarify
last year's legislation by requiring the seller to provide
buyers with a form that expressly states the buyer's right to
select his or her own title and escrow services. As noted
above, last year's measure prohibited the seller from making the
AB 1720
Page 4
buyer use the seller's choice, but added a provision that
permitted the buyer to use a title insurer or escrow agent
recommended by the seller so long as the buyer received written
notice of his or her right to make an independent selection.
The author contends that some sellers are abusing this latter
provision by providing written notices that are misleading or
that fail to adequately alert the buyer to his or her rights
under the Buyer's Choice Act. This bill would require that the
seller meet the notice requirement by providing the buyer with a
separate form with specified language and in 14-point boldface
type.
ARGUMENTS IN SUPPORT : According to the author, this bill will
ensure that buyers of foreclosures realize the benefits of last
year's Buyer's Choice Act. Specifically, the author writes that
"prospective buyers of real estate-owned (REO) properties will
be required to sign a specific and uniform form. Signing this
form will show that they have been made aware of their legal
right to choose their own escrow and title company if they wish
to do so. This will . . . ensure that home buyers have the
choice of using local title and escrow companies. This will
better serve homebuyers and further protect competition for
services and local jobs."
REGISTERED SUPPORT / OPPOSITION :
Support
Escrow Institute of California (sponsor)
American Federation of State, County, and Municipal Employees
(AFSCME)
Opposition
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334