BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 94|
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THIRD READING
Bill No: SB 94
Author: Calderon (D), et al
Amended: 4/28/09
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 7-2, 4/1/09
AYES: Calderon, Correa, Florez, Kehoe, Liu, Lowenthal,
Padilla
NOES: Runner, Cox
NO VOTE RECORDED: Harman, Vacancy
SENATE JUDICIARY COMMITTEE : 3-2, 4/21/09
AYES: Corbett, Florez, Leno
NOES: Harman, Walters
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : Mortgage loans
SOURCE : Author
DIGEST : This bill prohibits 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 (after performing them) to
provide a specified notice to borrowers regarding other
options available to the borrower. This bill additionally
prohibits servicers from imposing any interest or charge
for performing services for borrowers in connection with
loan modifications or other forms of loan forbearance or
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forgiveness, and
prohibits any California Finance Lender Law licensee from
making a false, deceptive, or misleading statement,
representation, or omission in connection with their
lending or brokering activities.
ANALYSIS : Existing law prohibits real estate licensees
from charging a borrower an advance fee in connection with
a residential real estate loan, before the borrower becomes
obligated on the loan.
Existing law allows licensed real estate brokers to charge
borrowers an advance fee for helping negotiate a loan
modification on a borrower's behalf, as long as the
broker's fee agreement has been reviewed by the Department
of Real Estate (DRE), and DRE has no objections to it.
Existing law regulates the activities of foreclosure
consultants, which are defined as one who makes any
solicitation, representation, or offer to any owner of a
property on which a notice of default has been recorded, to
perform specified services for compensation.
Existing law exempts certain individuals and businesses
from the foreclosure consultant law, including persons
licensed to practice law, a licensed real estate broker, as
specified, a licensed accountant, a licensed finance
lender, as specified, a licensed depository institution, a
licensed escrow agent or other licensed person authorized
to conduct a title or escrow business, and licensed
residential mortgage lenders or servicers.
Existing law makes it a violation of law for a foreclosure
consultant to do any of the following, and subjects
violators to a fine of not more than $10,000, imprisonment
in the county jail or in state prison for up to one year,
or by both a fine and imprisonment:
1. Claim, demand, charge, collect, or receive any
compensation until after the foreclosure consultant has
fully performed each and every service he/she contracted
to perform or represented that he/she would perform.
2. Claim, demand, charge, collect, or receive any fee,
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interest, or any other compensation for any reason which
exceeds 10 percent per annum of the amount of any loan
the foreclosure consultant may make to the property
owner.
3. Take any wage assignment, any lien of any type on real
or personal property, or other security to secure the
payment of compensation.
4. Receive any consideration from any third party in
connection with services rendered to an owner, unless
that consideration is fully disclosed to the owner.
5. Acquire any interest in a residence in foreclosure from
an owner with whom the foreclosure consultant has
contracted, as specified.
6. Take any power of attorney from any owner for any
purpose (effective July 1).
7. Induce or attempt to induce any owner to enter into a
contract that is not in compliance with the foreclosure
consultant law.
This bill:
1. Prohibits any person who solicits customers for the
purpose of helping negotiate a mortgage loan
modification or other form of mortgage loan forbearance
for a fee or other compensation, or otherwise offers to
perform these services for a borrower for a fee or other
compensation, from doing any of the following:
A. Claiming, demanding, charging, collecting, or
receiving any compensation until after the person has
fully performed each and every service the person
contracted to perform or represented that he/she
would perform.
B. Taking any wage assignment, any lien of any type
on real or personal property, or any other security
to secure the payment of compensation.
C. Taking any power of attorney from the borrower for
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any purpose.
2. Requires any person who solicits customers for the
purpose of helping negotiate a mortgage loan
modification or other form of mortgage loan forbearance
for a fee or other form of compensation, or who
otherwise offers to perform these services for a
borrower for a fee or other form of compensation, to
provide the following notice to the borrower, as a
separate statement, in not less than 14-point bold type,
prior to entering into any fee agreement with the
borrower:
"It is not necessary to pay a third party to arrange for
a loan modification or other form of forbearance from
your mortgage lender or servicer. You may call your
lender directly to ask for a change in your loan terms.
Nonprofit housing counseling agencies also offer these
and other forms of borrower assistance free of charge.
A list of nonprofit housing counseling agencies approved
by the United States Department of Housing and Urban
Development (HUD) is available from your local HUD
office or by visiting www.hud.gov."
3. Requires a translated copy of the above notice to be
provided to a borrower, if the loan modification or
other mortgage loan forbearance services are offered to
or negotiated with the borrower in one of the foreign
languages set forth in Section 1632 of the Civil Code
(Spanish, Korean, Vietnamese, Tagalog, and Chinese).
4. Provides that a violation of the above advance fee
provisions and notice requirements is a public offense,
punishable by a fine not exceeding $10,000 for a natural
person or $50,000 for a corporation, or by imprisonment
in a county jail for up to one year, or by both a fine
and imprisonment. Those penalties are cumulative to any
other remedies or penalties provided by law.
5. Authorizes DRE to enforce violations of the sections of
the Civil Code relating to mortgages (Section 2920 et
seq. of the Civil Code) by real estate licensees, and
include identical advance fee, notice, and penalties for
licensees under the Real Estate Law.
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6. Provides, under the Banking Law, Credit Union Law,
California Finance Lenders Law, and California
Residential Mortgage Lending Act, that no licensee shall
directly or indirectly charge, contract for, or receive
any interest or charge of any nature for performing
services for a borrower in connection with either of the
following:
A. The actual or attempted modification of the terms
of a residential mortgage loan.
B. The actual or attempted negotiation of another
form of forbearance or forgiveness in connection with
that loan.
7. Provides that, notwithstanding the above, no bank,
credit union, finance lender, finance broker,
residential mortgage lender, or residential mortgage
servicer licensee is prohibited from doing either of the
following:
A. Collecting interest or other charges pursuant to
the terms of a loan that has been modified.
B. Accepting payment from a federal agency in
connection with the federal Homeowner Affordability
and Stability Plan or other federal plans intended to
help reduce foreclosures.
8. Prohibits any California Finance Lender Law licensee
from making a false, deceptive, or misleading statement,
representation, or omission in connection with his or
her lending or brokering activities.
9. Makes technical changes to the foreclosure consultant
law, to more clearly describe the entities that are
exempt from that law.
Background
On March 24, 2009, the Senate Judiciary Committee held an
informational hearing that focused on the serious problem
of foreclosure related scams facing delinquent homeowners.
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Many of those scams involve a promise to renegotiate a
delinquent borrower's loan in exchange for a significant
up-front fee. In arresting three members of a foreclosure
fraud ring in Southern California last November, the
Attorney General's office reported:
The arrests came after an investigation into First Gov,
also operating as Foreclosure Prevention Services,
uncovered that the company was soliciting hundreds of
homeowners with mail flyers offering to help them stop
the foreclosure process on their homes. The scammers
falsely told homeowners that they would renegotiate their
mortgages, reduce monthly payments, and transfer any
delinquent loan amounts to the renegotiated principle
[sic]. The company demanded an up-front fee, ranging
from $1,500 to $5,000, to participate in the
loan-modification program. The company also told the
victims to stop any mortgage payments or communications
with their lender, claiming they would interfere with the
company's effort to negotiate the loan modification.
When victims complained that they were still receiving
delinquency or foreclosure notices from their lenders,
fraud-ring members told the victims that the mortgage
loans had been renegotiated, but the lenders needed a
"good faith" payment to secure the new accounts.
Homeowners made payments to accounts under business names
such as "Reinstatement Department" or "Resolution
Department" that made it appear as if the payment had
been applied toward the loan. Bank records indicate that
more than $700,000 was stolen from homeowners who fell
victim to this scheme.
The Attorney General reported the arrest of two women last
month who ran a similar foreclosure scam ring. The
Attorney General noted:
The two women operated a company called Foreclosure
Freedom, which sent hundreds of fliers to Californians
promising help in stopping the foreclosure of their
homes. The fliers read: "FINAL NOTICE - Respond only to
this notice immediately." This is similar to First Gov
scam, which the Attorney General stopped late last year.
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When homeowners called the number on the flyer, they were
told their mortgages could be renegotiated to a lower
monthly payment. Victims, however, were required to pay
thousands of dollars in up-front fees and were instructed
not to contact their lenders. Victims were assured the
company had "private lenders and specialists exclusive to
their company who are very experienced in the options and
methods used to renegotiate home loans," yet neither of
the women who operated the company had real estate
licenses, legal training, or any experience in the home
mortgage market. Investigators found no evidence of any
successful loan modifications and most of the victims
were either forced into bankruptcy or lost their homes to
foreclosure.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 5/18/09)
ByDesign Financial Solutions
California ACORN [Association of Community Organizations
for Reform Now]
California Association of Mortgage Brokers
Center for Responsible Lending
Coalition for Quality Credit Counseling
Consumer Credit Counseling Service of Orange County
Consumer Credit Counseling, Twin Cities
Consumers Union
Kamala D. Harris, San Francisco District Attorney
Los Angeles District Attorney's Office
Novadebt
OPPOSITION : (Verified 5/18/09)
California Association of Realtors
ARGUMENTS IN SUPPORT : The author's office notes that the
bill has four provisions. The first two provisions
regarding advance fees and multilingual borrower
notification "are a response to a cottage industry that has
sprung up to exploit borrowers who are having trouble
affording their mortgages, and are facing default, and
possible foreclosure, if they are unable to negotiate a
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loan modification or other form of mortgage loan
forbearance with their lender."
The third provision, a prohibition against loan
modification fees by servicers, "addresses two issues -
first, whether servicers may charge borrowers fees in
connection with the modification of loans they are
servicing (they may not under the provisions of this bill),
and second, whether servicers may act as foreclosure
consultants, and offer to help borrowers negotiate loan
modifications or other forms of mortgage loan forbearance
or forgiveness from other servicers (they may act in this
capacity under the provisions of the bill, but may not
charge for these services)."
The author's office notes that the final provision would
strengthen the California Finance Lenders Law by expressly
banning false, deceptive, or misleading statements,
representations, or omissions.
ARGUMENTS IN OPPOSITION : The California Association of
Realtors states that their opposition is based on the
complete prohibition on advance fees by real estate
licensees, and that they will withdraw their opposition if
an exemption is included for DRE-approved advance fee
contracts. The Association contends that it is appropriate
to charge an advance fee if a broker submits their fee
contract to the regulator, it is approved by DRE, and the
broker then complies with the disclosures and protections
of this bill.
JJA:mw 5/18/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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