BILL NUMBER: AB 1603	INTRODUCED
	BILL TEXT


INTRODUCED BY   Assembly Members Feuer and Eng
   (Coauthors: Assembly Members Dickinson and Skinner)

                        FEBRUARY 6, 2012

   An act to add Article 1.7 (commencing with Section 2946) to
Chapter 2 of Title 14 of Part 4 of Division 3 of the Civil Code,
relating to mortgages.



	LEGISLATIVE COUNSEL'S DIGEST


   AB 1603, as introduced, Feuer. Mortgages and deeds of trust:
mortgage servicers: force-placed insurance.
   Existing law generally regulates mortgages and deeds of trust,
including, among other things, recording mortgages and deeds of
trust, disclosures in connection with mortgages and deeds of trust,
and foreclosure procedures for mortgages and deeds of trust.
   This bill would regulate the arranging by a mortgage servicer, as
defined, of a replacement policy of hazard, flood, or homeowner's
insurance, collectively defined as "force-placed insurance," with
respect to a residential property securing a mortgage loan, when a
borrower has failed to make payments on hazard, flood, or homeowner's
insurance sufficient to satisfy the terms of the mortgage loan
agreement. The bill would require a mortgage servicer to make
reasonable efforts to continue or reestablish the borrower's
insurance with respect to the property, as specified, prior to
arranging for force-placed insurance.
   The bill would require a mortgage servicer to provide written
notice, as specified, to a borrower prior to arranging for
force-placed insurance. The bill would specify the circumstances,
manner, and limitations under which a mortgage servicer may arrange
for force-placed insurance, and when a borrower is entitled to a
refund from the mortgage servicer in connection with that insurance.
   The bill would authorize a borrower to bring a civil action in
connection with the mortgage servicer's violation of the provisions
of the bill. The bill would authorize the Attorney General to bring
an action for injunctive relief, and for restitution, disgorgement,
or damages, as appropriate, for the affected borrowers. The bill
would also authorize the Attorney General to include a claim for
costs, including reasonable attorney's fees and expenses. The bill
would further authorize the Attorney General to levy a civil penalty
not exceeding $10,000 against any mortgage servicer who violates the
provisions of the bill, and would establish notice and hearing
procedures for persons subject to the civil penalty.
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  Article 1.7 (commencing with Section 2946) is added to
Chapter 2 of Title 14 of Part 4 of Division 3 of the Civil Code, to
read:

      Article 1.7.  Force-Placed Insurance


   2946.  As used in this article, the following definitions shall
apply:
   (a) "Force-placed insurance" means a policy of hazard, flood, or
homeowner's insurance that is purchased on behalf of a borrower by a
mortgage servicer with respect to real property securing a mortgage
loan serviced by the mortgage servicer after the borrower has failed
to make payments on hazard, flood, or homeowner's insurance for that
property.
   (b) "Mortgage servicer" means a person that is an approved
servicer for the Federal Housing Administration, Veterans
Administration, Farmers Home Administration, Government National
Mortgage Association, Federal National Mortgage Association, or
Federal Home Loan Mortgage Corporation, and directly services or
offers to service mortgage loans.
   (c) "Mortgage loan" means a federally related mortgage loan as
defined in Section 3500.2 of Title 24 of the Code of Federal
Regulations, or a loan made to finance construction of a one-to-four
family dwelling.
   2946.1.  (a) If a mortgage servicer is aware that a borrower has
failed to make a premium payment to maintain hazard, flood, or
homeowner's insurance coverage sufficient to satisfy the terms of the
mortgage loan agreement, the mortgage servicer shall take reasonable
actions to continue or reestablish that insurance coverage.
   (b) A mortgage servicer may require a borrower to provide updated
premium payment information to enable the mortgage servicer to
continue or reestablish insurance coverage described in subdivision
(a).
   2946.2.  A mortgage servicer shall not arrange for force-placed
insurance if the mortgage servicer knows or has reason to know that
the borrower has insurance coverage sufficient to satisfy the terms
of the mortgage loan agreement.
   2946.3.  If a mortgage servicer satisfies the requirements of
Section 2946.1 and is not able to continue or reestablish the
borrower's hazard, flood, or homeowner's insurance, the mortgage
servicer may arrange for force-placed insurance covering the
mortgaged property. Prior to arranging for force-placed insurance,
the mortgage servicer shall provide written notice to the borrower,
including a clear and conspicuous statement, of all of the following:

   (a) Procedures for the borrower to, within a reasonable period of
time specified in the notice, demonstrate to the mortgage servicer
that the borrower has insurance coverage sufficient to satisfy the
requirements set forth in the mortgage loan agreement.
   (b) Procedures by which the mortgage servicer shall terminate the
force-placed insurance and refund to the borrower any insurance
premiums and related fees paid by or charged to the borrower.
   2946.4.  A mortgage servicer shall provide the borrower with a
refund of unearned premiums paid by the borrower or charged to the
borrower for force-placed insurance arranged by the mortgage servicer
if the borrower provides reasonable proof that the borrower has
obtained insurance coverage sufficient to satisfy the terms of the
mortgage loan agreement.
   2946.5.  (a) A mortgage servicer who arranges for force-placed
insurance in accordance with this chapter shall obtain that insurance
coverage at a commercially reasonable rate.
   (b) A mortgage servicer shall not arrange for force-placed
insurance, or require a borrower to obtain or maintain insurance
coverage, in excess of the replacement cost of the improvements on
the mortgaged property.
   (c) A mortgage servicer shall not arrange for force-placed
insurance with an affiliated entity or any entity in which the
mortgage servicer has an ownership interest.
   (d) A mortgage servicer shall not split fees, give, or accept any
referral fees or anything else of value in connection with arranging
for force-placed insurance.
   (e) A mortgage servicer shall pay to the borrower the amount of
any funds that the mortgage servicer receives as a result of
arranging for force-placed insurance in violation of this section.
   2946.6.  A borrower may bring a civil action against a mortgage
servicer that violates this article with respect to that borrower.
   2946.7.  (a) In addition to the remedy provided in Section 2946.6,
the Attorney General may bring an action for injunctive relief, and
for restitution, disgorgement, or damages, as appropriate, on behalf
of injured borrowers, and may include a claim for costs, including
reasonable attorney's fees and expenses.
   (b) In addition to the remedies provided in subdivision (a) and in
Section 2946.6, the Attorney General may levy a civil penalty not
exceeding ten thousand dollars ($10,000) against any mortgage
servicer who violates this article.
   (c) Before a civil penalty is levied, the person charged with the
violation shall be given a written notice of the nature of the
violation and the amount of the proposed penalty, and shall have the
right to request a hearing within 20 days after receiving notice of
the proposed penalty. A notice of the proposed penalty that is sent
by certified mail to the last known address of the person charged
shall be considered to have been received even if delivery is refused
or the notice is not accepted at that address. If a hearing is
requested, notice of the time and place of the hearing shall be given
at least 10 days before the date set for the hearing. At the
hearing, the person shall be given an opportunity to review the
Attorney General's evidence and to present evidence on his or her own
behalf. If a hearing is not timely requested, the Attorney General
may impose the penalty proposed without a hearing.