BILL ANALYSIS
AB 1762
Page 1
Date of Hearing: March 23, 2010
ASSEMBLY COMMITTEE ON BUSINESS AND PROFESSIONS
Mary Hayashi, Chair
AB 1762 (Hayashi) - As Introduced: February 9, 2010
SUBJECT : Real estate.
SUMMARY : Redefines "advance fee" to exclude fees charged or
collected for advertising or promotion, for referral fees to
other real estate brokers or salespersons in connection with
mortgage loan origination, or fees associated with prepaid
rental listings.
EXISTING LAW :
1)Provides for the regulation and licensure of real estate
brokers and salespersons by the Department of Real Estate
(DRE).
2)Defines "advance fee" as a fee, regardless of the form,
claimed, demanded, charged, received, or collected by a
licensee from a principal before fully completing each and
every service the licensee contracted to perform, or
represented would be performed.
FISCAL EFFECT : Unknown. This bill is keyed non-fiscal.
COMMENTS :
Purpose of this bill . According to the author's office, recent
legislation [SB 94 (Calderon), Chapter 630, Statutes of 2009]
"prohibited persons from charging advance fees to borrowers in
connection with a loan modification. Loan modification
companies were increasingly charging homeowners thousands of
dollars in advance fees without following through on services.
"However, following the enactment of SB 94, DRE began receiving
numerous questions regarding the effect, scope, and
applicability of the bill. For example, the advance fee has
most commonly been an issue in loan modification or loan
brokerage contracts, but can apply to other arrangements such as
a Prepaid Rental Listing Service. Unfortunately, SB 94 can be
broadly interpreted to include a real estate listing agreement
or any contract involving progressive or 'fee for service'
AB 1762
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payment, as a prohibited advance fee, even though the
transactions are legitimate. AB 1762 resolves these unintended
consequences."
Background . SB 94 prohibited any person, including real estate
licensees and attorneys, from demanding or collecting advance
fees for loan modification or mortgage loan forbearance services
affecting residential dwellings with four units or less. Prior
to SB 94's enactment, attorneys and real estate brokers with
DRE-approved agreements were able to collect advance fees.
As of October 2009, DRE was investigating over 1,300 loan
modification complaints. DRE issued nearly 400 desist and
refrain orders and accusations against individuals for illegally
collecting advance fees for the prior year. Most of these cases
involved a person who fraudulently collected an advance fee in
exchange for a promise that the homeowner would receive a
sustainable loan modification. However, once the fee was paid,
little or nothing was done to get the borrower's loan modified.
Support . According to the sponsor, the California Association
of Realtors, "The bill is needed to make it clear that so-called
'fee for service' or 'cafeteria' real estate services contracts
are not advance fee arrangements requiring advance review.
These non-traditional marketing arrangements will become more
and more common as home buyers and sellers become increasingly
sophisticated and the marketplace continues to put downward
pressure on commission-based services?.It should be noted that
this legislation does not change the special prohibition on
advance charges for loan modification that was enacted last
year, nor does it change the substance of any of the
pre-existing exceptions to the rule such as tenant security
deposits or pass through fees."
The Orange County Association of Realtors state, "AB 1762 would
clarify the law established through SB 94, to make clear that
fee for service contracts, such as the listing agreement, do not
trigger the advance fee requirements."
Prior Legislation . SB 94 (Calderon), Chapter 630, Statutes of
2009, prohibited persons from charging advance fees to borrowers
in connection with a loan modification, and requires those who
wish to charge a fee for loan modification services to provide a
notice to borrowers regarding other options available to the
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borrower.
AB 2384 (Kuykendall), Chapter 469, Statutes of 1996, excluded
from the definition of "advance fee", the terms "security" and
"screening fee."
REGISTERED SUPPORT / OPPOSITION :
Support
California Association of Realtors (C.A.R.) (sponsor)
Orange County Association of Realtors
Opposition
None on file.
Analysis Prepared by : Joanna Gin / B. & P. / (916) 319-3301