BILL NUMBER: AB 1603 AMENDED
BILL TEXT
AMENDED IN ASSEMBLY MAY 25, 2012
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 prohibit a mortgage servicer, as defined, 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, 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, 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.
The bill would require a mortgage servicer to provide written
notices, as specified, to a borrower prior to obtaining force-placed
insurance. The bill would specify the circumstances, manner, and
limitations under which a mortgage servicer may 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 ask the court 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 obtained by a mortgage servicer with
respect to real property securing a mortgage loan serviced by the
mortgage servicer.
(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) 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 mortgageholder'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).
2946.12. (a) In addition to the remedy provided in Section
2046.11, the Attorney General, a district attorney, or a city
attorney may bring an action for injunctive relief, and for
restitution or disgorgement, as appropriate, and may include a claim
for reasonable attorney's fees and costs of investigation.
(b) In addition to the remedies provided in subdivision (a) and in
Section 2946.11, the Attorney General, a district attorney, or a
city attorney may ask the court to 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.