BILL ANALYSIS
SB 239
Page 1
SENATE THIRD READING
SB 239 (Pavley)
As Amended May 5, 2009
Majority vote
SENATE VOTE :39-0
PUBLIC SAFETY 7-0 APPROPRIATIONS 15-0
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|Ayes:|Arambula, Hagman, |Ayes:|De Leon, Nielsen, |
| |Ammiano, Furutani, | |Ammiano, |
| |Gilmore, Hill, Ma | |Charles Calderon, Coto, |
| | | |Davis, Duvall, Fuentes, |
| | | |Hall, Harkey, Miller, |
| | | |John A. Perez, Skinner, |
| | | |Audra Strickland, |
| | | |Torlakson |
| | | | |
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SUMMARY : Creates a new alternate misdemeanor/felony for the
offense of mortgage fraud, as specified. Specifically, this
bill :
1)Creates the offense of "mortgage fraud," a public offense
punishable by imprisonment in the state prison or in a county
jail for not more than one year.
2)Contains legislative findings and declarations, including, but
not limited to, the following:
a) California is one of the leading states in the incidence
of mortgage fraud;
b) The harms associated with mortgage fraud include
foreclosures that disproportionately affect low-income
borrowers, the deterioration of neighborhoods stricken by
foreclosures and plummeting property values, the
proliferation of fraudulent loan modification scams aimed
at defrauding desperate borrowers, etc.;
c) While perpetrators of mortgage fraud are currently
subject to prosecution under general felony theft statutes,
the only California statute specifically dedicated to
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mortgage fraud treats the crime as a misdemeanor; and,
d) Time is of the essence in the investigative stage of
real estate fraud-related cases, which are dependent on the
timely acquisition of documents held by parties to real
estate transactions such as mortgage brokers, title and
escrow companies, and lenders. The current statutory
scheme hampers the ability of law enforcement to
efficiently gather those documents and determine whether
crimes have occurred.
3)States legislative intent in enacting this bill to accomplish
the following:
a) Encourage and facilitate a shift of prosecution of
mortgage fraud cases to prosecution under one specifically
dedicated felony mortgage fraud statute that carries the
same penalties as the currently utilized general felony
theft statutes;
b) Facilitate the tracking of mortgage fraud cases, which
will assist law enforcement in accessing federal funds for
the purpose of combating mortgage fraud to the extent they
are available; and,
c) Provide an efficient method to obtain necessary
documents from real estate record holders in fraud-related
cases.
4)Provides that a person commits mortgage fraud if, with the
intent to defraud, the person commits specified acts,
including but not limited to deliberately making any
misstatement, misrepresentation, or omission during the
mortgage lending process with the intention that it be relied
on by a mortgage lender, borrower, or any other party to the
mortgage lending process.
5)Allows a judge to issue an ex parte order for the production
of all relevant records held by any real estate record holder,
providing the ex parte application specifies with
particularity the records to be produced, which shall relate
to a party or parties in the criminal investigation.
EXISTING LAW :
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1)Defines "grand theft" as an alternate misdemeanor/felony where
the value of the property, labor, or services involved in the
theft exceeds $400. Specifies exceptions to the $400
threshold for certain types of property, such as avocados and
shellfish.
2)Describes various forms of fraud, such as the obtaining of
property, labor, or services by means of false or misleading
statements.
3)Specifies that fraud is committed under specified
circumstances, including but not limited to:
where a person causes or procures others to report falsely of
his or her wealth or mercantile character, and thereby obtains
credit, and thereby fraudulently gets possession of money or
property, or obtains the labor or service of another.
4)Makes it a public offense to make a false statement in
writing, with the intent that it be relied upon, respecting
the financial condition or ability to pay for the purpose of
procuring in any form the payment of cash, the making of a
loan or the extension of credit and other specified
transactions.
5)States that a person who makes any of the false financial
statements or other written statements as specified is guilty
of an alternate felony/misdemeanor punishable by a fine not
exceeding $5,000 or by imprisonment in the state prison or by
both such fine and imprisonment, or by a fine not exceeding
$2,500 or by imprisonment in the county jail not exceeding one
year, or by both such fine and imprisonment.
6)States that an order for escrow or title records shall be
issued by a judge only upon an ex parte application by a peace
officer showing specific and articulable facts that there are
reasonable grounds to believe that the records or information
sought are relevant and material to an ongoing investigation
of a felony violation of money laundering or of any felony
subject to the enhancement set forth in the statute regarding
multiple felonies involving fraud or embezzlement.
FISCAL EFFECT : According to the Assembly Appropriations
Committee analysis:
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1)Unknown, likely minor costs for increased state incarceration.
The proposed penalty for the stand-alone offense is the same
as prescribed under current law, and in 2007 and 2008, no one
was incarcerated in state prison for fraud under the existing
section.
2)Unknown, likely minor non-reimbursable local incarceration
costs.
COMMENTS : According to the author, "The author is seeking these
changes on behalf of the California District Attorneys
Association, in an effort to enhance California's efforts to
fight mortgage fraud. The bill is part of a nationwide movement
to address one of the most tragic by-products of California's
economic downturn - the proliferation of fraud for profit
actions that have brought significant financial harm to
distressed borrowers and the nation's financial markets. The
nation's foreclosure crisis has uncovered an all too widespread
practice of mortgage brokers using false information to obtain
loans for borrowers, who are in turn often misled about the
terms of those loans. Reports of mortgage fraud nationwide rose
by more than 1,400% between 2000 and 2008.
"In 2002, California ranked 30th among the states in the
incidence of mortgage fraud. Over the next six years, mortgage
fraud reports have skyrocketed and California is now ranked
eighth in the nation. California currently ranks eighth in the
nation in a population-adjusted measure of suspected mortgage
fraud. Among the 56 Federal Bureau of Investigation (FBI)
regions in the country, Los Angeles, San Francisco, and
Sacramento ranked first, third and seventh respectively in
mortgage fraud complaints.
"[I]t is crucial that California law is strengthened to assist
law enforcement in the handling of mortgage fraud cases.
Dishonest mortgage brokers often prey on the most vulnerable
people in our society. They have abused elderly, low-income and
non-English speaking borrowers, deceiving them into taking out
expensive sub-prime loans they cannot afford. A separate and
revised mortgage fraud statute is needed to send a clear signal
to mortgage brokers who defraud homeowners about the penalties
for these crimes. It will also enhance the ability of law
enforcement to make efficient determinations as to whether
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mortgage loan crimes have occurred, and if so, to prosecute
those crimes."
Please see the policy committee for a full discussion of this
bill.
Analysis Prepared by : Kathleen Ragan / PUB. S. / (916)
319-3744
FN: 0001886