BILL NUMBER: AB 1603 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY APRIL 17, 2012
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 amended, 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
prohibit a mortgage servicer, as defined, of
from obtaining 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 unless there is a
reasonable basis to believe that the borrower has failed to comply
with contract requirements to maintain hazard, flood, or homeowner's
insurance . The bill would require a mortgage servicer
to make reasonable efforts to continue or reestablish the borrower's
insurance with respect to the property , if a
borrower's existing hazard, flood, or homeowner's insurance policy is
paid through an escrow account, that the mortgage
servicer advance payments to continue the borrower's existing policy
, as specified , prior to arranging for force-placed
insurance .
The bill would require a mortgage servicer to provide written
notice notices , as specified, to a
borrower prior to arranging for obtaining
force-placed insurance. The bill would specify the
circumstances, manner, and limitations under which a mortgage
servicer may arrange for obtain
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 ,
district attorney, or city attorney 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 , district attorney, or city
attorney to include a claim for costs, including reasonable
attorney's fees and expenses. The bill would further authorize the
Attorney General , district attorney, or city
attorney 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 obtained 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.
2946.1. (a) A mortgage servicer shall not obtain force-placed
insurance unless there is a reasonable basis to believe the borrower
has failed to comply with the mortgage loan requirement to maintain
hazard, flood, or homeowner's insurance.
(b) If the borrower's existing hazard, flood, or homeowner's
insurance policy is paid through an escrow account, then the mortgage
servicer shall advance payments to continue the borrower's existing
policy, unless the borrower or insurance company cancels the existing
policy.
2946.2. A mortgage servicer shall not be deemed to have a
reasonable basis for obtaining force-placed insurance unless the
requirements of this article have been met.
2946.3. (a) A mortgage servicer shall not impose any charge on a
borrower for force-placed insurance unless the mortgage servicer has
met all of the following conditions:
(1) The mortgage servicer has sent, by first-class mail, a copy of
the written notice as described in subdivision (b) to the borrower.
(2) If the mortgage servicer has not received from the borrower
written confirmation of hazard, flood, or homeowner's insurance
coverage for the property securing the mortgage loan, the mortgage
servicer has sent, by first-class mail, a second copy of the written
notice described in subdivision (b), at least 30 days after the
mailing of the first notice.
(3) The mortgage servicer has not received from the borrower
written confirmation of hazard, flood, or homeowner's insurance
coverage for the property securing the mortgage loan within 15 days
from the date that the second notice was sent by the mortgage
servicer.
(b) The written notice required by subdivision (a) shall contain
all of the following:
(1) A reminder of the borrower's obligation to maintain hazard,
flood, or homeowner's insurance on the property securing the mortgage
loan.
(2) A statement that the mortgage servicer does not have evidence
of insurance coverage for the property.
(3) A clear and conspicuous statement of the procedures by which
the borrower may demonstrate that the borrower has existing insurance
coverage for the property.
(4) A statement that the mortgage servicer may obtain insurance
coverage for the property at the borrower's expense if the borrower
does not provide a demonstration of the borrower's existing coverage
in a timely manner.
(5) A statement that the cost of the insurance coverage may be
significantly higher than the cost of the borrower's previous
coverage.
(6) For first lien loans on a mortgage servicer's primary
servicing system, a statement that, if the borrower desires to
maintain his or her existing policies, the mortgage servicer will
offer an escrow account and advance the premium due on the existing
policy or policies if the borrower does all of the following:
(A) Accepts the offer of the escrow account.
(B) Provides a copy of the most recent invoice from the existing
carrier.
(C) Agrees in writing to reimburse the escrow advances through
regular escrow payments.
(D) Agrees to an escrow account to both repay the advanced premium
and to pay for the future premiums necessary to maintain any
required insurance policy.
(E) Agrees that the mortgage servicer shall manage the escrow
account in accordance with the loan documents and with state and
federal law.
(7) A statement, in the case of single interest coverage, that the
coverage may only protect the mortgage holder's interest and not the
borrower's interest.
2946.4. A mortgage servicer shall accept any reasonable form of
written communication from a borrower or the borrower's insurance
agent of existing insurance coverage, which shall include the
existing insurance policy number along with the identity of, and
contact information for, the insurance company or agent.
2946.5. A mortgage servicer shall not obtain hazard, flood, or
homeowner's insurance for a mortgaged property, or require a borrower
to obtain or maintain that insurance, in excess of the greater of
the replacement value, the last known amount of the coverage, or the
outstanding loan balance, unless requested by the borrower in
writing.
2946.6. Within 15 days of the receipt by a mortgage servicer of
evidence of a borrower's insurance coverage, the mortgage servicer
shall terminate any force-placed insurance and refund to the borrower
all force-placed insurance premiums paid by the borrower during any
period during which the borrower's insurance coverage and the
force-placed insurance coverage were both in effect, and any related
fees charged to the borrower's account with respect to the
force-placed insurance during that period.
2946.7. A mortgage servicer shall not obtain force-placed
insurance from an affiliated entity or any entity in which the
mortgage servicer has an ownership interest.
2946.8. (a) A mortgage servicer shall not split fees, or give or
accept any referral fees or anything else of value, in connection
with obtaining force-placed insurance.
(b) A mortgage servicer shall pay to the borrower the amount of
any funds that the mortgage servicer receives as a result of
obtaining force-placed insurance in violation of this section.
2946.9. Any force-placed insurance policy shall be placed with an
insurer admitted to do business in this state.
2946.10. No provision of this article shall be construed as
prohibiting a mortgage servicer from providing simultaneous or
concurrent notice of a lack of flood insurance pursuant to Section
102(e) of the federal Flood Disaster Protection Act of 1973.
2946.11. (a) A borrower may bring a civil action against a
mortgage servicer that violates this article with respect to that
borrower.
(b) If the borrower prevails in the civil action, the borrower
shall be awarded attorney's fees and the greater of actual damages or
five thousand dollars ($5,000).
2946.7. 2946.12. (a) In addition to
the remedy provided in Section 2946.6
2046.11 , the Attorney General , a district attorney, or a
city attorney may bring an action for injunctive relief, and
for restitution , or disgorgement,
or damages, as appropriate, on behalf of
injured borrowers, and may include a claim for
costs, including reasonable attorney's fees and
expenses costs of investigation .
(b) In addition to the remedies provided in subdivision (a) and in
Section 2946.6 2946.11 , the Attorney
General , a district attorney, or a city attorney
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 , district attorney's, or city attorney's
evidence and to present evidence on his or her own behalf. If a
hearing is not timely requested, the Attorney General ,
district attorney, or city attorney may impose the penalty
proposed without a hearing.