BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 1720 (Galgiani) Hearing Date: June 16, 2010
As Amended: June 3, 2010
Fiscal: Yes
Urgency: No
VOTES: Asm. Floor.(04/29/10)74-0/Pass
Asm. Appr. (04/21/10)17-0/Pass
Asm. JUD. (04/13/10)10-0/Pass
Asm. B. & F. (04/05/10)11-0/Pass
SUMMARY Would amend the Buyer's Choice Act to add short sales,
require sellers to provide a specific disclosure form to
borrowers to describe their rights under the Buyer's Choice Act,
and prescribe specific actions which must be taken by buyers and
sellers in specific circumstances.
DIGEST
Existing federal law
1. Pursuant to the federal Real Estate Settlement Procedures
Act (RESPA), states that no seller of property that will be
purchased with the assistance of a federally-related
mortgage loan may 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 (12 USC Section 2608);
2. Provides that any seller who violates the aforementioned
provision is liable to the buyer in an amount equal to three
times all charges made for that title insurance.
Existing law
1. Pursuant to AB 957 (Galgiani), Chapter 264, Statutes of 2009,
provides for the Buyer's Choice Act, which makes it a violation
of law for a seller of bank-owned, residential real property to
condition the sale of that property on a buyer's choice of title
and escrow providers, if the buyer purchases those services. AB
AB 1720 (Galgiani), Page 2
957 also:
a. Expressly states a buyer may agree to accept the
services of a title insurer or escrow agent recommended by
the seller, if written notice of the right to make an
independent selection of those services is first provided by
the seller to the buyer;
b. Makes a violation of its provisions a violation of that
person's licensing law, and entitles the buyer to be paid an
amount from the seller that is equal to three times all
charges made for the title insurance or escrow services;
c. Provides that no transaction shall be invalidated solely
because of the failure of any person to comply with the bill;
d. Sunsets on January 1, 2015.
This bill
1. Would expand coverage of the Buyer's Choice Act to short
sales;
2. Would require sellers to provide a specific disclosure form
to buyers on properties subject to the Buyer's Choice Act,
informing the buyers of their rights under the Buyer's
Choice Act, and would require this form to be signed by the
buyer and sent to the seller, who would be required to
acknowledge its receipt;
3. Would prescribe specific rules for buyer's and sellers, as
follows:
a. If a buyer submits an offer without identifying
service providers or identifying or including costs, the
seller may accept the offer from the buyer and then
provide the Buyer's Choice Act notification, or the
seller may reject the offer or provide a counter offer,
or both;
b. If the seller accepts the offer, the buyer must
complete the Buyer's Choice Act notification and indicate
that he/she has selected his/her own service providers,
or that he/she will accept the seller's preferred service
providers;
AB 1720 (Galgiani), Page 3
c. If the buyer selects his or her own service
providers, the seller must either accept the buyer's
selection or negotiate by providing incentives to accept
the seller's providers.
COMMENTS
1. Purpose of the bill To ensure that buyers are made aware of
their rights under the Buyer's Choice Act.
2. Background Last year, in response to concerns raised by
escrow providers and realtors in her district,
Assemblymember Galgiani introduced AB 957. That measure,
which was enacted as an urgency statute, was intended to
address a practice among banks selling properties they had
taken back through foreclosure (so-called REO properties).
Commonly, these banks were selecting large, sometimes
geographically distant title and escrow providers, to
provide title and escrow services in connection with their
sales of REO properties. Use of these larger providers by
banks was causing significant economic hardship to smaller,
local escrow and title providers, who were unable to
successfully compete for REO business. In carrying AB 957,
Assemblymember Galgiani was trying to ensure that people who
purchased REO properties, and who paid for the title and
escrow services in connection with those purchases, could
choose whichever title and escrow providers they wished, and
were not forced to use the providers preferred by the banks
from whom they were purchasing the property.
As discussed below, Assemblymember Galgiani has introduced AB
1720 this year, out of concern that financial institutions,
and the asset management companies these institutions often
use, are failing to comply with the letter and spirit of AB
957. The author and her sponsor would like buyers of REO
properties to understand that: 1) they are entitled to
select whichever title and escrow providers they wish, if
they pay for those providers, but that 2) payment
arrangements for these providers, and the ultimate selection
of providers is negotiable between the parties.
The negotiability of these services has become an important
component of many REO transactions. Financial institutions
with large numbers of REO properties on their hands have
negotiated favorable terms with large title and escrow
providers. These financial institutions often offer to pay
AB 1720 (Galgiani), Page 4
for title and escrow services, if a buyer agrees to use the
services of the institution's preferred provider(s). That
practice is legal under the provisions of AB 957, as long as
the financial institution clearly informs the buyer that
they are entitled to select their own title and escrow
provider(s), if they pay for the services of that/those
providers. The question addressed by AB 1720 is how
borrowers should be informed of their rights, and of the
negotiability of title and escrow services and their costs.
3. Support The Escrow Institute of California (sponsor) and
author of AB 1720 believe that AB 957 is being manipulated
by banks and asset management companies. They assert that
these institutions have found a loophole in AB 957, which
they are using to gain an unfair advantage in the realty
market. This loophole defeats the primary purpose of AB
957, to prohibit a seller of residential property from
requiring or influencing a purchaser to use an escrow
service company or purchase title insurance chosen by the
seller.
According to the Escrow Institute, one of the most common
complaints and concerns expressed by consumers and industry
professionals about AB 957 is the lack of a common
disclosure form. Lack of this disclosure form has created
significant confusion and misunderstanding of the rights of
both sellers and buyers under the Act. By providing such a
disclosure form, AB 1720 will provide important consumer and
industry clarity.
According to the author, "Small businesses are the undisputed
heart of the American economy. Local businesses, which
offer the best resources and solutions for relieving the
current housing crisis, are being shut out of the REO
market. Instead of local businesses assisting homeowners
and expediting the transfer of foreclosed properties to
purchasers, they're literally on the outside with no way to
get in. Excluding local businesses from competition for
services, eliminates local job creation that stimulates
local economies and violates anti-competition and anti-trust
laws."
The California Association of Realtors supports the core concept
of AB 1720, that parties to a real estate contract ought to
be able to negotiate the terms of their transaction, and
AB 1720 (Galgiani), Page 5
that standard disclosures can help consumers understand and
exercise their rights. However, CAR does have several
concerns with the June 3, 2010 amendments to the bill.
First, CAR believes that it is inappropriate to attempt to
apply the same standardized disclosures for REO sales to
short sales. Second, the amendments leave ambiguity that
requires clarification. For example, while the term seller
is accurately defined in the body of the bill to mean a
foreclosing lender that took the property via foreclosure,
the required form does not adequately explain the limited
target of the bill.
CAR understands that additional amendments are under discussion
to clarify several aspects of the bill, including amendments
to: 1) provide a neutral, standardized disclosure that
selection of title and escrow services is subject to
negotiation by the parties, 2) clarify that transactions
subject to the bill are limited to resales of properties
acquired through foreclosure by the foreclosing lender, and
not to subsequent sales of that property, 3) encourage
negotiation of terms before an offer is accepted, but not in
such a way as to pick a winner and predispose a particular
result, 4) avoid micromanaging a transaction and safeguard
the intent of the parties, even if there is a technical
failure in wording. CAR's letter implies that they are
supportive of those amendments.
4. Opposition A coalition of ten lenders and title companies
is opposed to the bill, unless it is amended. They believe
that AB 1720 represents a step backwards, because it fails
to disclose to homebuyers that selecting their own title and
escrow companies may come at their own expense. By failing
to fully inform buyers that they may be required to bear the
cost of title and escrow services if they opt to use
providers of their own choosing, the coalition believes that
AB 1720 will create confusion for homebuyers. The coalition
proposes that language be added to the standardized form,
which makes it clear that if a buyer selects his or her own
title and escrow service providers, the seller may require
the buyer to pay the costs associated with the buyer's
selection.
The coalition also asserts that the amendments which appear on
page 4 of the bill (lines 6 through 23) go well beyond the
stated goal of the bill, and create unnecessary confusion
for buyers and sellers. The coalition would like this
AB 1720 (Galgiani), Page 6
language struck in its entirety.
The coalition would also like all references to short sales
removed from the bill. If the intent of the author is to
apply the Buyer's Choice Act to individuals who sell their
homes through short sales, the amendments are a solution in
search of a problem. Lenders that agree to short sales do
not control the sales, nor the service providers selected in
connection with those sales; they simply look at the bottom
line being offered by a potential purchaser. If the
language applies to homeowners who sell their homes, these
homeowners would be subject to treble damages for failure to
provide the standardized form to buyers. As non-real estate
professionals, individual homeowners will be unaware of the
notice provision, and will risk being sued for treble
damages.
Finally, the notification requirement in the standardized
disclosure form is incorrect, as it is currently drafted (it
would require sellers to notify themselves of real property
they acquire at a foreclosure sale).
5. Suggested Amendments Staff has worked closely with the
author, sponsor, and opponents, in an attempt to further the
author's intent, while removing outstanding opposition. The
amendments below include technical corrections to the June
3rd version of the bill (acceptable to all parties), strike
all references to short sales in the bill (acceptable to all
parties), specify the timing of providing the Buyer's Choice
Act notification (acceptable to all parties), and revise the
wording of the disclosure (not acceptable to all parties).
The remaining outstanding disagreement centers on the language
shown in italicized, bolded capital letters in the middle of
the agreement. The author prefers the language shown below,
while the opponents prefer alternate language, which is also
shown below for comparison purposes, immediately following
the language to which the author will agree.
The mockup that follows reflects suggested additions to the June
3rd version of the bill. Deletions from the existing bill
are not shown, to improve the clarity of what is being
suggested.
SECTION 1. Section 1103.22 of the Civil Code is amended to
AB 1720 (Galgiani), Page 7
read:
1103.22. (a) (1) A seller of residential real property
covered by this section shall not require, directly or
indirectly, as a condition of selling the property, that
title insurance covering the property or escrow service
provided in connection with the sale of the property be
purchased by the buyer from a particular title insurer or
escrow agent.
(2) This section does not prohibit a buyer from agreeing to
accept the services of a title insurer or an escrow agent
recommended by the seller, if written notice of the right to
make an independent selection of those services is first
provided by the seller to the buyer.
(3) A seller of residential real property covered by this
section shall provide the following notice to the buyer of
that property, prior to executing a contract of sale with
that buyer for that property. The notice shall be provided
by the seller to the buyer as a separate statement, in not
less than 14 point type.
CALIFORNIA "BUYER'S CHOICE ACT" NOTIFICATION
You are Entitled To Select Escrow and Title Service
Providers For This Transaction
Under the California "Buyer's Choice Act," no seller of
residential real property containing four or fewer dwelling
units shall require directly or indirectly, as a condition
to selling the property, that title insurance covering the
property or escrow services provided in connection with the
sale of the property be purchased by the buyer from any
particular title or escrow provider. The California "Buyer's
Choice Act" does not prohibit the buyer from agreeing to
accept the services of a title or escrow provider
recommended by the seller, if the California "Buyer's Choice
Act" notification is first provided by the seller to the
buyer. (Section 1103.20 of the Civil Code)
LANGUAGE PREFERRED BY THE AUTHOR:
THIS PROPERTY IS COVERED BY THE CALIFORNIA "BUYER'S CHOICE
ACT." AS A PURCHASER OF THIS PROPERTY, YOU HAVE THE RIGHT
TO SELECT THE TITLE AND ESCROW SERVICE PROVIDER(S) YOU WISH
TO USE TO COMPLETE THE PURCHASE OF THIS PROPERTY.
AB 1720 (Galgiani), Page 8
THE SELLER OF THIS PROPERTY HAS THE RIGHT TO RECOMMEND TITLE
AND ESCROW SERVICE PROVIDER(S) TO YOU, WHICH MAY BE
DIFFERENT THAN THE ONE(S) YOU HAVE SELECTED.
AS A PURCHASER OF THIS PROPERTY, YOU MAY ACCEPT THE SELLER'S
RECOMMENDED PROVIDER(S), OR MAY REJECT SUCH PROVIDER(S) AND
SELECT YOUR OWN.
THE CHOICE OF TITLE AND ESCROW PROVIDER(S) IS ULTIMATELY
YOURS AS THE PURCHASER. HOWEVER, THE CHOICE OF PROVIDER(S)
AND THEIR COST(S) ARE NEGOTIABLE.
LANGUAGE THAT WILL REMOVE OPPOSITION TO THE BILL:
THIS PROPERTY IS COVERED BY THE CALIFORNIA "BUYER'S CHOICE
ACT." AS A PURCHASER OF THIS PROPERTY, YOU HAVE THE RIGHT
TO SELECT THE TITLE AND ESCROW SERVICE PROVIDERS YOU WISH TO
USE. THE SELLER HAS THE RIGHT TO RECOMMEND TITLE AND ESCROW
SERVICE PROVIDERS TO YOU, AND MAY AGREE TO PAY FOR SOME
PORTION OF THE SERVICES OF ITS RECOMMENDED PROVIDER(S).
AS A PURCHASER OF THIS PROPERTY, YOU MAY ACCEPT THE SELLER'S
RECOMMENDED PROVIDER(S), OR MAY REJECT SUCH PROVIDER(S) AND
SELECT YOUR OWN. YOUR ELECTION TO USE YOUR OWN PROVIDER(S)
MAY RESULT IN YOUR PAYING FOR THESE SERVICES. THE CHOICE OF
TITLE AND ESCROW PROVIDER(S) IS ULTIMATELY YOURS AS THE
PURCHASER, BUT PAYMENT OF THE EXPENSE IS NEGOTIABLE AS
PROVIDED IN THE PURCHASE/SALE CONTRACT, AND THE SELECTION OF
PROVIDER MAY IMPACT THE COST TO YOU OF YOUR PURCHASE.
BUYER'S TITLE COMPANY CHOICE
_____________________________________
BUYER'S ESCROW COMPANY CHOICE
__________________________________
SELLER'S RECOMMENDED TITLE COMPANY
__________________________
SELLER'S RECOMMENDED ESCROW COMPANY _______________________
Date__________________________
Buyer_________________________
Buyer_________________________
(This form is to be signed by Buyer and
sent to the Seller)
AB 1720 (Galgiani), Page 9
*********************************************
RECEIPT ACKNOWLEDGED
SELLER:_________________________________ DATE:_____________
(A copy of the Seller's signed acknowledgment to be provided to
Buyer)
(b) This section applies to the sale of residential real
property improved by four or fewer dwelling units, which was
acquired by a mortgagee or beneficiary at a sale conducted
in accordance with Section 2924f, and which is being sold by
that mortgagee or beneficiary to a third party.
(c) For purposes of this section:
(1) "Escrow service" means service provided by a person
licensed pursuant to Division 6 (commencing with Section
17000) of the Financial Code, or exempt from licensing
pursuant to Section 17006 of the Financial Code.
(2) "Seller" means 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 such mortgagee or beneficiary.
(3) "Title insurance" means insurance offered by an insurer
admitted in this state to transact title insurance pursuant
to Chapter 1 (commencing with Section 12340) of Part 6 of
the Insurance Code.
(d) A seller who violates this section shall be liable to a
buyer in an amount equal to three times all charges made for
the title insurance or escrow service. In addition, any
person who violates this section shall be deemed to have
violated his or her license law and shall be subject to
discipline by his or her licensing entity.
(e) A transaction subject to this section shall not be
invalidated solely because of the failure of any person to
comply with any provision of this act.
POSITIONS
Support
Escrow Institute of California (sponsor)
American Federation of State, County and Municipal Employees
California Association of Realtors
AB 1720 (Galgiani), Page 10
Oppose
California Bankers Association
California Credit Union League
California Financial Services Association
California Independent Bankers Association
California Mortgage Association
California Mortgage Bankers Association
Fidelity National Financial
First American Corporation
LSI
National Title Insurance
Consultant: Eileen Newhall (916) 651-4102