BILL ANALYSIS
SB 94
Page 1
SENATE THIRD READING
SB 94 (Ron Calderon)
As Amended July 23, 2009
2/3 vote. Urgency
SENATE VOTE :21-14
BANKING & FINANCE 9-1 JUDICIARY 8-2
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|Ayes:|Nava, Niello, Gaines, |Ayes:|Feuer, Brownley, Evans, |
| |Evans, Fong, Mendoza, | |Chesbro, |
| |Ruskin, Swanson | |De La Torre, Lieu, |
| | | |Monning, Niello |
|-----+--------------------------+-----+--------------------------|
|Nays:|Tran |Nays:|Tran, Knight |
| | | | |
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APPROPRIATIONS 13-3
---------------------------------
|Ayes:|De Leon, Ammiano, Charles |
| |Calderon, Coto, Davis, |
| |Fuentes, Hall, Harkey, |
| |John A. Perez, Skinner, |
| |Solorio, Torlakson, Hill |
| | |
|-----+---------------------------|
|Nays:|Conway, Miller, Audra |
| |Strickland |
| | |
---------------------------------
SUMMARY : 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 to provide a notice
to borrowers regarding other options available to the borrower.
Specifically, this bill :
1)Prohibits licensed real estate brokers, until January 1, 2013, who
negotiates, attempts to negotiate, arranges, attempts to arrange,
or otherwise offers to perform a mortgage loan modification or
other form of mortgage loan forbearance for a fee or other
compensation paid by the borrower in regards to mortgages and
deeds of trust secured by residential real property containing
four or fewer dwelling units to do any of the following:
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a) Claim, demand, charge, collect, or receive any compensation
until after the licensee has fully performed each and every
service the licensee contracted to perform or represented that
he/she/it would perform;
b) Take any wage assignment, any lien of any type on real or
personal property, or any other security to secure the payment
of compensation; or,
c) Take any power of attorney from the borrower for any
purpose.
2)Requires a licensed real estate broker who negotiates, attempts to
negotiate, arranges, attempts to arrange or otherwise offers to
perform a mortgage loan modification or other form of mortgage
loan forbearance for a fee or other form of compensation paid by
the borrower 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 ."
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).
3)Provides that a violation of the above fee provision and notice
requirements is a public offense, punishable by a fine not
exceeding $10,000 for a natural person or $50,000 for a business
entity, 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.
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4)Requires persons including attorneys (with no sunset date) who
negotiates, attempts to negotiate, arranges, attempts to arrange,
or otherwise offers to perform a mortgage loan modification or
other form of mortgage loan forbearance for a fee or other
compensation paid by the borrower to provide the following notice
to the borrower in regards to mortgages and deeds of trust secured
by residential real property containing four or fewer dwelling
units, 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 ."
a) 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).
b) Provides that a violation of the above notice requirement 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.
c) Specifies that the requirement in #4 above does not apply to
a person, or an agent acting on that person's behalf, offering
loan modification or other loan forbearance services for a loan
owned or serviced by that person.
5)Prohibits persons including attorneys, until January 1, 2013, who
negotiates, attempts to negotiate, arranges, attempts to arrange,
or otherwise offers to perform a mortgage loan modification or
other form of mortgage loan forbearance for a fee or other
compensation paid by the borrower to do any of the following:
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a) Claim, demand, charge, collect, or receive any compensation
until after the licensee has fully performed each and every
service the licensee contracted to perform or represented that
he/she would perform;
b) Take any wage assignment, any lien of any type on real or
personal property, or any other security to secure the payment
of compensation; or,
c) Take any power of attorney from the borrower for any
purpose.
6)Provides that a violation of the above fee requirement is a public
offense, punishable by a fine not exceeding $10,000 for a natural
person or $50,000 for a business entity, 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.
7)Explains that nothing in #5 above precludes a person, or an agent
acting on that person's behalf, who offers loan modification or
other loan forbearance services for a loan owned or serviced by
that person from collecting principal, interest, or other charges
under the terms of the loan, as specified.
8)Redefines the term "advance fee" to mean a fee, regardless of the
form, that is 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.
9)Clarifies that the real estate law does not apply to a
HUD-certified counseling organization or its employees, when the
organization or its employees provides counseling services at no
cost to a borrower, and in connection with the modification of the
terms of a loan secured directly or collaterally by a lien on
residential real property containing four or fewer dwelling units.
10)Authorizes the Department of Real Estate (DRE) to enforce
violations of the sections of the Civil Code relating to mortgages
[Section 2920 et seq. of the Civil Code].
11)Prohibits any California Finance Lender Law licensee from making
a materially false or misleading statement or representation to a
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borrower about the terms or conditions of that borrower's loan,
when making or brokering the loan.
12)Makes technical changes to the foreclosure consultant law, to
more clearly describe the entities that are exempt from that law.
13)Contains an urgency clause.
EXISTING LAW
1)Allows the Department of Real Estate Commissioner (Commissioner)
to look at all materials used in obtaining advance fee agreements,
including but not limited to the contract forms, letters or cards
used to solicit prospective sellers, and radio and television
advertising be submitted to him or her at least 10 calendar days
before they are used. [Business and Professions Code, Section
10085]
2)Allows the Commissioner to determine the form of the advance fee
agreements, and all material used in soliciting prospective owners
and sellers. [Business and Professions Code, Section 10085]
3)Prohibits any person from claiming, demanding, charging,
receiving, collecting, or contracting for an advance fee for
soliciting lenders on behalf of borrowers or performing services
for borrowers in connection with loans to be secured directly or
collaterally by a lien on real property, before the borrower
becomes obligated to complete the loan or, for performing any
other activities for which a license is required, unless the
person is a licensed real estate broker. [Business and
Professions Code Section 10085.5]
4)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
DRE, and DRE has no objections to it, and as long as the fee is
collected before a notice of default has been recorded.
5)Provides for the foreclosure consultant law, which defines a
foreclosure consultant 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 any of the following
services for compensation: [Civil Code Section 2945 et seq.]
a) Stop or postpone a foreclosure sale, or save the owner's
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residence from foreclosure;
b) Obtain any forbearance from any beneficiary or mortgagee;
c) Help the owner exercise his or her right of reinstatement, or
extend the period within which the owner may reinstate his or her
mortgage obligation;
d) Obtain any waiver of an acceleration clause in any mortgage,
as specified;
e) Help the owner obtain a loan or advance of funds;
f) Avoid or ameliorate the impairment of the owner's credit,
resulting from the recordation of a notice of default or the
conduct of a foreclosure sale; or,
g) Help the owner obtain remaining proceeds from a foreclosure
sale of the owner's residence.
6)Exempts the following individuals and businesses from the
foreclosure consultant law: a person licensed to practice law; a
licensed prorater; a licensed real estate broker, as specified; a
licensed accountant; a person or his or her agent acting under
express authority of or written approval from HUD or other federal
department or agency; a person who holds or is owed an obligation
secured by a lien on any residence in foreclosure, when the person
performs services in connection with that obligation or lien; 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, a licensed
residential mortgage lender or servicer.
FISCAL EFFECT : According the Assembly Appropriations Committee, DRE
and DOC indicate that regulatory costs resulting from the bill would
be minor and absorbable.
COMMENTS : A number of loan modification companies are charging
homeowners $1,000 to $4,000 for little to no work. In most cases,
companies ask for the money upfront and lure homeowners in with
false promises and guarantees. This bill attempts to solve the
issue of these "loan modification specialists" charging absurd fees
for little to no work completed. SB 94 also carries a beneficial
notice requirement that any person including attorneys who negotiate
or attempt to negotiate loan modifications must provide the borrower
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with a notice showing them that the services provided can be free
through a number of other resources.
Currently, the DRE is investigating over 800 complaints of
fraudulent loan modification companies. California continues to
rate very high with the number of foreclosures filed. This problem
makes the state more susceptible to foreclosure scams. Homeowners
are desperate to save their home and willing to go in further debt
by paying a fee before the person has even showed any substantive
results. It goes without saying, when a borrower gives a "loan
modification specialist," money the borrower wants the end result to
be a loan modification. California needs legislative action to curb
further abuse and prevent these scam artists from finding ways to
make money off a very sad situation.
Federal action: Earlier this year, President Obama's Administration
launched the Making Home Affordable Program in an effort to
stabilize the housing market and ensure responsible homeowners can
afford to stay in their homes by assisting eligible homeowners with
refinancing or modifying their mortgages. It is estimated the plan
will help up to seven to nine million families restructure or
refinance their mortgages to lower their monthly payments and make
their mortgages affordable now and in the future - an opportunity
for relief that unfortunately also brings greater opportunity for
criminal actors to prey upon consumers seeking assistance.
In addition, on April 6, 2009, President Obama's Administration
along with the U.S. Department of the Treasury, the U.S. Department
of Justice (DOJ), HUD, the Federal Trade Commission (FTC), and the
Attorney General of Illinois announced an effort to coordinate
information and resources across agencies to maximize targeting and
efficiency in fraud investigations, alert financial institutions to
emerging schemes, step up enforcement actions and educate consumers
to help those in financial trouble avoid becoming the victims of a
loan modification or foreclosure rescue scam. A key part of the
announcement emphasized borrowers should never pay any up-front fees
for loan modifications.
Related legislation: AB 764 (Nava, Bass, Feuer) would prohibit
persons from charging fees to borrowers in connection with the
modification of the terms of the borrower's loan until the terms of
the loan have been modified and would require those who wish to
charge a fee for loan modification services to provide a specified
notice to borrowers regarding other options available to the
borrower.
SB 94
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Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0002335