BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 1950 (Davis) - Prohibited business practices: enforcement.
Amended: August 6, 2012 Policy Vote: Judiciary 4-0
Urgency: No Mandate: Yes
Hearing Date: August 16, 2012
Consultant: Jolie Onodera
SUSPENSE FILE.
Bill Summary: AB 1950 would remove the January 1, 2013, sunset
date on the prohibition from unlawfully performing mortgage loan
modification or loan forbearance services. This bill would
extend the statute of limitations period for prosecution of
certain real estate-related misdemeanors, as specified, and
would provide that it is unlawful to act as a mortgage loan
originator without being licensed.
Fiscal Impact:
Ongoing court costs for increased misdemeanor filings
potentially in excess of $100,000 (General Fund) per year,
offset to a degree by fine revenue.
Potential non-reimbursable local enforcement and
incarceration costs, offset to a degree by fine revenue.
While the impact of this bill independently on local jails
could be minor, the cumulative effect of increasing the
number of misdemeanors filed could create General Fund cost
pressure on capital outlay, staffing, programming, the
courts, and other resources in the context of recently
enacted 2011 Public Safety Realignment.
Background: This bill is part of the Attorney General's package
of mortgage fraud reform termed the "California Homeowner Bill
of Rights." This bill seeks to enable more thorough
investigations and prosecutions of mortgage-related crime. In
May 2011, the Attorney General announced the creation of the
Mortgage Fraud Strike Force whose purpose is to monitor and
prosecute violations related to all steps in the mortgage
process. The Attorney General has indicated the one-year statute
of limitations on various mortgage-related crimes has inhibited
a number of prosecutions due to the protracted nature of the
foreclosure process and the delayed discovery of illegal
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activity.
Existing law, until January 1, 2013, prohibits any person, real
estate licensee, or attorney who negotiates, attempts to
negotiate, arranges, attempts to arrange, or otherwise offers to
perform a mortgage loan modification or other form of mortgage
loan forbearances for a fee or other compensation paid by the
borrower to do any of the following:
Claim, demand, charge, collect, or receive any
compensation until after the person or licensee has fully
performed each and every service he or she contracted to
perform or represented that he or she would perform.
Take any wage assignment, any lien of any type on
real or personal property, or any other security to
secure the payment of compensation.
Take any power of attorney from the borrower for any
purpose.
A violation of the above provision is a misdemeanor, punishable
by a fine not exceeding $10,000 ($50,000 if the party violating
the law is a corporation), imprisonment in the county jail for
up to one year, or by both a fine and imprisonment, and provides
that those penalties are cumulative to any other remedies or
penalties provided by law.
Existing law generally applies a one year statute of limitations
to the prosecution of violations of California laws not
punishable by death or imprisonment in the state prison or
pursuant to subdivision (h) of PC section 1170.
Proposed Law: This bill seeks to expand protections related to
mortgage fraud. Specifically, this bill:
Deletes the January 1, 2013, sunset date on the
prohibition against charging up-front fees, thereby
extending the prohibition indefinitely.
Deletes the January 1, 2013, sunset date on Business and
Professions Code section 10085.6 and Civil Code section
2944.7 which apply to real estate licensees and other
persons, thereby extending these provisions indefinitely.
Extends the statute of limitations from one year to
three years after discovery of the offense or completion of
the offense, whichever is later, for prosecution of
misdemeanor violations of the following:
o Prohibition against the practice of law by
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unlicensed or disbarred persons.
o Prohibition against collecting up-front fees
in connection with offers to help borrowers obtain
mortgage loan modifications or forbearance.
o Prohibition against the practice of real
estate by unlicensed persons.
o Requirement for real estate licensees to
provide a specified notice to borrowers before
entering into a fee agreement in connection with
offers to help obtain mortgage loan modifications or
forbearance.
o General requirement to provide a specified
notice to borrowers before entering into a fee
agreement with them in mortgage loan transactions.
o General prohibition against collecting
up-front fees in connection with offers to help
borrowers obtain mortgage loan modifications or
forbearance.
Provides that it is unlawful to act as a mortgage loan
originator without being licensed.
Related Legislation: SB 980 (Vargas) 2012 would extend the
sunset date on the provisions of SB 94 from January 1, 2013, to
January 1, 2017. This bill has been referred to the Assembly
Committee on Appropriations.
SB 94 (Calderon) Chapter 630/2009 prohibits, until January 1,
2013, any person who, for a fee, assists a borrower in obtaining
a loan modification from charging compensation before a service
is completed.
Staff Comments: The provisions of this bill will likely result
in an increased number of misdemeanor court filings that
otherwise would not have occurred under existing law in the
absence of the removal of the sunset date and the extension of
the statute of limitations from one to three years for specified
offenses. It is unknown how many additional filings will result
due to the provisions of this bill. The Judicial Council would
incur costs for increased misdemeanor filings of approximately
$120,500 (General Fund) statewide for 250 new misdemeanors filed
annually, offset to a degree by fine revenue. This estimate
equates to less than five misdemeanor filings per county per
year. To the extent the actual number of annual filings per
county is greater, associated costs to the courts could be
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significantly higher.
The creation of new, or the extension of existing, misdemeanors
has historically been analyzed by this Committee to result in
non-reimbursable state mandated costs for local law enforcement
and incarceration. Staff notes, however, that the potential for
an increased number of misdemeanor convictions taken
cumulatively could increase the statewide adult jail population
to a degree that could potentially impact the flexibility of
counties to manage their jail populations recently increased
under the 2011 Public Safety Realignment. While the provisions
of this bill could be minor, the cumulative effect of all
additional misdemeanors could create unknown General Fund cost
pressure on capital outlay, staffing, programming, the courts,
and other resources.