BILL ANALYSIS
AB 2325
Page 1
Date of Hearing: April 19, 2010
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
AB 2325 (Lieu) - As Amended: April 8, 2010
SUBJECT : Mortgage foreclosure consultants: loan audits.
SUMMARY : Provides that foreclosure consultant services include
the audit of any obligation secured by a lien on a residence in
foreclosure. Specifically, this bill :
1)Requires a foreclosure consultant who provides an audit of any
obligation secured by a lien on a residence in foreclosure to
register with the Department of Justice (DOJ).
EXISTING LAW
1)Defines "foreclosure consultant" as any person who makes any
solicitation, representation, or offer to any owner to perform
for compensation or who, for compensation, performs any
service which the person in any manner represents will in any
manner do any of the following:
a) Stop or postpone the foreclosure sale;
b) Obtain any forbearance from any beneficiary or
mortgagee;
c) Assist the owner to exercise the right of reinstatement
provided in Section 2924c;
d) Obtain any extension of the period within which the
owner may reinstate his or her obligation;
e) Obtain any waiver of an acceleration clause contained in
any promissory note or contract secured by a deed of trust
or mortgage on a residence in foreclosure or contained that
deed of trust or mortgage;
f) Assist the owner to obtain a loan or advance of funds;
g) Avoid or ameliorate the impairment of the owner's credit
resulting from the recording of a notice of default or the
conduct of a foreclosure sale;
AB 2325
Page 2
h) Save the owner's residence from foreclosure; or,
i) Assist the owner in obtaining from the beneficiary,
mortgagee, trustee under a power of sale, or counsel for
the beneficiary, mortgagee, or trustee, the remaining
proceeds from the foreclosure sale of the owner's
residence. [Civil Code, Section 2945-2945.11]
2)Defines "residence in foreclosure" as residential real
property consisting of one- to four-family dwelling units, one
of which the owner occupies as his or her principal place of
residence, and against which there is an outstanding notice of
default. [Civil Code Section 2945.1]
3)Requires a foreclosure consultant to register with, and obtain
a certificate from the DOJ to provide foreclosure consultant
services.
a) Makes it a crime to perform foreclosure consultant
services without being registered with the DOJ. [Civil
Code Section 2945.45]
4)Prohibits foreclosure consultants from claiming, demanding,
charging, collecting, or receiving any compensation before
fully performing the services which the foreclosure consultant
was contracted to perform. [Civil Code Section 2945.4]
5)Allows the homeowner to cancel the contract with the
foreclosure consultant until midnight on the fifth business
day. [Civil Code Section 2945.2.]
6)Requires that every contract be in writing and fully disclose
the exact nature of the foreclosure consultant's services and
the total amount and terms of compensation. Requires further
than the contract be accompanied by a notice of the right of
cancellation. [Civil Code Section 2945.3.]
7)Requires that the contract shall be written in the same
language as principally used by the foreclosure consultant to
describe his or services or to negotiate the contract. [Civil
Code Section 2945.3 (c).]
8)Limits the manner, amount, and form of compensation that the
foreclosure consultant may claim or demand, and generally
AB 2325
Page 3
prohibits the foreclosure consultant from acquiring any
interest in the residence subject to foreclosure. [Civil Code
Section 2945.4 (a)-(e).]
9)Prohibits a foreclosure consultant from taking any power of
attorney from an owner for any purpose, except to inspect
documents as provided by law. [Civil Code Section 2945.4]
FISCAL EFFECT : Unknown
COMMENTS :
This bill stems from an advisory that went out in February,
2010, by the California Attorney General along with the
California Department of Real Estate (DRE) and the State Bar of
California. The advisory warned consumers to avoid companies
advertising to provide forensic loan audits. The loan
modification industry has evolved into providing forensic loan
audits in which homeowners pay up-front fees for a forensic
review of their lender's practices, but are provided no actual
foreclosure relief.
Individuals and businesses who offer forensic loan audits use
inflated and misleading claims to convince homeowners to pay
up-front fees for services that produce no actual foreclosure
relief. Homeowners are encouraged to pay for an audit of their
mortgage loan file to determine their lender's compliance with
state and federal mortgage-lending laws. This audit is pitched
to homeowners as a tool they can use to gain leverage and speed
up the loan-modification process.
Those who offer forensic loan audits portray that the audit is a
comprehensive review of all documentation, legal paperwork,
transaction data, and other evidence pertaining to a real estate
loan that has already been funded in the near, or distant past,
as well as, identifies any illegalities performed by the lender,
their broker, or other parties in conjunction with the loan.
In truth, there is no evidence or statistical data to support
claims that forensic loan audits-even if performed by a
licensed, legitimate and trained auditor, mortgage professional
or lawyer-will help homeowners obtain loan modifications or
provide any other foreclosure relief.
AB 2324 does provide additional clarity that this type of
AB 2325
Page 4
behavior will not be tolerated but whether or not this bill will
sway scammers from portraying themselves in this manner is
another issue. The foreclosure crisis brought an influx of bad
apples who wanted to get rich quick at the expense of desperate
homeowners. The first and most prevalent scams were seen over
the past 3 years related to collecting advance fees for loan
modifications for little to no work completed. It seems the
scamming industry has now evolved into providing forensic loan
audit services. The upside with this new breed is the fact that
current law is very clear by stating advance fees cannot be
collected whether you are a foreclosure consultant, real estate
broker or attorney. Forensic loan audits are not defined under
current law but these scammers offer the simple service of
merely looking at your loan papers for fraudulent behavior. It
seems those who want to scam homeowners will continue to evolve
by changing the types of services provided and the names of
these services. Homeowners need to continue to be very wary of
any person or business who is trying to offer them any solutions
to homeownership especially if requesting an up-front fee.
By law, all individuals and businesses offering
mortgage-foreclosure consulting, loan-modification and
foreclosure-assistance services must register with Attorney
General's office and post a $100,000 bond. It is also illegal
for loan-modification consultants and businesses to charge
up-front fees for their services. Foreclosure consultants are
prohibited by law from collecting money before services are
performed
The Attorney General has shut down more than 30 fraudulent
foreclosure-relief companies and has brought criminal charges
and obtained lengthy prison sentences for dozens of deceptive
loan-modification consultants.
In 2009, the DRE investigated more than 2,000 complaints
involving loan-modification scams. Nearly 350 individuals and
companies received a Desist and Refrain Order to stop illegal
activity.
According to the author, "AB 2325 provides greater protections
for vulnerable homeowners by stipulating that foreclosure
consultant services include the audit of any obligation secured
by a lien on a residence in foreclosure. AB 2325 also requires
a foreclosure consultant to register with the DOJ to provide a
AB 2325
Page 5
forensic loan audit. With record unemployment persisting and
foreclosures continuing to devastate our economy, we need to be
as vigilant as we can and adapt the law to account for new scams
designed to rip of homeowners. AB 2325 does this by
strengthening current law to address a new scam. It will ensure
people offering a forensic loan service to a homeowner comply
with existing consumer protection requirements, including a ban
on advance fees. This will result in fewer homeowners falling
victim to this phony scam."
Overall, homeowners should not be paying up-front fees at all
whether it is for an audit or a loan modification.
RECOMMENDED AMENDMENTS:
On page 4, line 18, delete "including" and delete lines 19-20
and insert "."
On page 5, below line 13, insert
"(9) Arranging or attempting to arrange an audit of any
obligation secured by a lien on a residence in foreclosure."
PREVIOUS LEGISLATION:
AB 180 (Bass & Lieu) Statues of 2008, Chapter 278) prohibits a
foreclosure consultant from entering specified pre-foreclosure
agreements with a homeowner, allows a homeowner to cancel within
five days of signing a contract with a foreclosure consultant,
and requires the foreclosure consultant to maintain a surety
bond. Measure includes translation provisions to allow owners
to request a completed copy of the contract if any language
described in Civil Code Section 1632 (Spanish, Chinese, Tagalog,
Vietnamese, and Korean).
SB 1277 (Ackerman) Chapter 177, Statutes of 2004 made minor and
technical changes to the civil code related to foreclosure
consultants.
REGISTERED SUPPORT / OPPOSITION :
Support
AB 2325
Page 6
None on file.
Opposition
None on file.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081