BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
AB 1950 (Davis) Hearing Date: June 27,
2012
As Amended: May 21, 2012
Fiscal: Yes
Urgency: No
SUMMARY Would delete the sunset date on two provisions of a
2009 bill that prohibited collecting up-front fees in connection
with offers to help borrowers obtain mortgage loan modifications
or other forms of mortgage loan forbearance; extend the statute
of limitations from one year to three years on specified, real
estate-related misdemeanors; and make a technical and clarifying
change to the Real Estate Law.
DESCRIPTION
1. Would delete the January 1, 2013 sunset dates on Business
and Professions Code Section 10085.6 (relating to acts by
real estate licensees) and Civil Code Section 2944.6
(relating to acts by other persons), which provide that,
notwithstanding any other provision of law, and only with
respect to mortgages and deeds of trust secured by
residential real property containing for or fewer dwelling
units, it is unlawful for any person who negotiates,
attempts to negotiate, arranges, attempts to arrange, or
otherwise offers to perform a mortgage loan modification or
other form of mortgage loan forbearance for a fee or other
compensation paid by the borrower, to do any of the
following:
a. Claim, demand, charge, collect, or receive any
compensation until after the person has fully performed
each and every service the person contracted to perform
or represented that he, she, or it would perform.
b. Take any wage assignment, any lien of any type on
real or personal property, or other security to secure
the payment of compensation.
c. Take any power of attorney from the borrower for any
AB 1950 (Davis), Page 2
purpose.
2. Would extend the statute of limitations from one year to
three years for prosecution of misdemeanor violations of all
of the following:
a. Business and Professions Code Sections 6126
(prohibition against the practice of law by unlicensed or
disbarred persons);
b. Business and Professions Code Section 10085.6
(prohibition against collecting up-front fees in
connection with offers to help borrowers obtain mortgage
loan modifications or other forms of mortgage loan
forbearance);
c. Business and Professions Code Section 10139
(prohibition against the practice of real estate by
unlicensed persons);
d. Business and Professions Code Section 10147.6
(requirement for real estate licensees to provide a
specified notice to borrowers before entering into a fee
agreement with them in connection with offers to help
obtain mortgage loan modifications or other forms of
mortgage loan forbearance);
e. Civil Code Section 2944.6 (general prohibition
against collecting up-front fees in connection with
offers to help borrowers obtain mortgage loan
modifications or other forms of mortgage loan
forbearance); and,
f. Civil Code Section 2944.7 (general requirement to
provide a specified notice to borrowers before entering
into a fee agreement with them in connection with offers
to help obtain mortgage loan modifications or other forms
of mortgage loan forbearance).
3. Would clarify that it is a violation of the Real Estate Law
for any person to engage in the business of, act in the
capacity of, advertise as, or assume to act as a mortgage
loan originator within this state without holding a real
estate license or a mortgage loan originator license
endorsement.
AB 1950 (Davis), Page 3
EXISTING LAW
4. Until January 1, 2013, pursuant to Business and Professions
Code Section 10085.6 and Civil Code Section 2944.6, provides
that, notwithstanding any other provision of law, it is
unlawful for any person who negotiates, attempts to
negotiate, arranges, attempts to arrange, or otherwise
offers to perform a mortgage loan modification or other form
of mortgage loan forbearance for a fee or other compensation
paid by the borrower, to do any of the following:
a. Claim, demand, charge, collect, or receive any
compensation until after the person has fully performed
each and every service the person contracted to perform
or represented that he, she, or it would perform.
b. Take any wage assignment, any lien of any type on
real or personal property, or other security to secure
the payment of compensation.
c. Take any power of attorney from the borrower for any
purpose.
5. Applies the prohibition described in Number 1 above only to
mortgages and deeds of trust secured by residential real
property containing for or fewer dwelling units.
6. Until January 1, 2013, provides that a violation of Civil
Code Section 2944.6 by an attorney constitutes cause for the
imposition of discipline of that attorney by the State Bar
(Business and Professions Code Section 6106.3).
7. Pursuant to Business and Professions Code Section 10085.6
and Civil Code Section 2944.6, provides that a violation of
the prohibition described in Number 1 above is a
misdemeanor, punishable by a fine not exceeding $10,000
($50,000 if the party violating the law is a corporation),
imprisonment in a 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.
8. Provides that no individual may engage in business as a
mortgage loan originator without first obtaining and
maintaining a real estate license and obtaining and
maintaining a real estate license endorsement pursuant to
AB 1950 (Davis), Page 4
specified provisions of the Real Estate Law (Business and
Professions Code Section 10166.02).
9. Generally applies a one year statute of limitations to the
prosecution of misdemeanor violations of California laws not
punishable by death or imprisonment (Penal Code Section
802).
COMMENTS
1. Purpose: This bill is sponsored by Attorney General Harris
"to give the Attorney General's office and local district
attorneys the opportunity to prosecute mortgage-related
crimes, by extending the statute of limitations on crimes
relating to loan modification scams and selling real estate
without a license."
2. Background and Discussion: This bill has three provisions,
each of which is discussed separately below.
Provision Deleting the Sunset Date on Portions of SB 94
(Calderon), Chapter 630, Statutes of 2009: AB 1950 proposes
to extend the sunset date on two provisions of a 2009
urgency bill (SB 94, Calderon, Chapter 630, Statutes of
2009), which cracked down against unscrupulous individuals
and businesses, who were preying on troubled borrowers by
charging them up-front, often nonrefundable fees, under the
guise of helping the borrowers obtain loan modifications or
other forms of mortgage forbearance from their lenders.
All too frequently, these fees were charged for services that
were never provided, leaving thousands of troubled borrowers
worse off than they had been before seeking help. SB 94
addressed that problem, by prohibiting those who sought to
charge borrowers a fee for helping negotiate a loan
modification or other form of mortgage loan forbearance from
collecting their fee until they performed all agreed-upon
services. SB 94 also required those who sought to charge
for these services to clearly inform their potential
customers that similar services were available, free of
charge, from non-profit housing counseling agencies.
Although early versions of SB 94 lacked a sunset date, the
Schwarzenegger Administration requested that a January 1,
2013 sunset date be added to the three loan modification
advance fee ban provision of the bill. Because of that
AB 1950 (Davis), Page 5
sunset date, the needed protections added to California law
by SB 94 will sunset at the end of 2012, unless the
Legislature acts to extend them.
AB 1950 proposes to delete the sunset date on two of the three
provisions of SB 94 that will sunset on January 1, 2013
(Business and Professions Code Section 10085.6, relating to
real estate licensees, and Civil Code Section 2944.6,
relating to other persons). AB 1950 does not propose to
delete the sunset date on Business and Professions Code
Section 6106.3, which authorizes the State Bar to discipline
attorneys who violate Civil Code Sections 2944.6 and 2944.7.
A separate measure pending before the Legislature (SB 980,
Vargas), proposes to extend the sunset date on all three
provisions to January 1, 2017.
Provision Extending the Statute of Limitations on Certain Real
Estate-Related Misdemeanors : In May 2011, the Attorney
General's Office established a Mortgage Fraud Strike Force
to investigate and prosecute civil and criminal violations
of California's mortgage and foreclosure laws. To be
effective, the Strike Force needs adequate time to
investigate and prepare prosecutions. The AG feels limited
in her ability to take the necessary time for these
investigations and preparations, because misdemeanor
violations of California laws that protect homeowners in the
foreclosure process are currently subject to a one-year
statute of limitations. She also observes that, because the
foreclosure process is typically protracted, victims often
do not discover law violations, nor refer their cases to the
AG's office or the local district attorney's (DA's) office,
in time for the AG or DA to prosecute that case before the
one-year statute of limitations expires. The list of
misdemeanors whose statutes of limitations would be extended
to three years are listed on Page 1 of this analysis.
Provision Clarifying the Real Estate Law: The AG is seeking a
clarifying amendment, to make it clear that no any person
may engage in the business of, act in the capacity of,
advertise as, or assume to act as a mortgage loan originator
within this state without being appropriately licensed.
This clarification is not new law, as the Real Estate Law
already provides that no individual may engage in business
as a mortgage loan originator without first obtaining and
maintaining a real estate license and mortgage loan
originator license endorsement (Business and Professions
AB 1950 (Davis), Page 6
Code Section 10166.02). However, the AG believes that this
change will make it easier to prosecute mortgage-related
fraud.
3. Summary of Arguments in Support: Attorney General Harris,
the California District Attorneys Association, several
mortgage industry trade associations, the California Chamber
of Commerce, Consumer Attorneys of California, Los Angeles
County Democratic Party, Alameda County Board of
Supervisors, PICO California, the National Asian American
Coalition, and several groups representing organized labor
support the bill for the reasons summarized above.
4. Summary of Arguments in Opposition: None received.
5. Amendments:
a. A technical amendment is required to the provision
of this bill that proposes to clarify the Real Estate
Law. Without amendment, this provision will weaken the
provisions of the Real Estate Law that govern mortgage
loan origination licensing, an outcome that is not the
intent of the author or sponsor. Page 4, line 18, strike
"without being so licensed or"
6. Prior and Related Legislation:
a. SB 94 (Calderon), Chapter 630, Statutes of 2009:
Enacted the provisions whose sunset date this bill would
extend by four years. Also required any person who
negotiates, attempts to negotiate, arranges, attempts to
arrange, or who otherwise offers to perform residential
mortgage loan modifications or other forms of mortgage
loan forbearance for a fee paid by a borrower to provide
a specified statement to the borrower, translated into
the language used to solicit the borrower, informing the
borrower that similar services are available free of
charge. Made other consumer-friendly changes to the Real
Estate Law and Finance Lenders Law.
b. SB 980 (Vargas), 2011-2012 Legislative Session:
Would extend the sunset date on the state's prohibition
against collecting up-front fees in connection with
mortgage loan modifications and other forms of mortgage
loan forbearance, from January 1, 2013 to January 1,
2017. Pending in the Assembly Business, Professions &
AB 1950 (Davis), Page 7
Consumer Protection Committee.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
Attorney General Kamala Harris (sponsor)
Alameda County Board of Supervisors
American Federation of State, County and Municipal Employees,
AFL-CIO
California Bankers Association
California Chamber of Commerce
California District Attorneys Association
California Independent Bankers
California Land Title Association
California Mortgage Association
California Mortgage Bankers Association
California Nurses Association
California Professional Firefighters
Consumer Attorneys of California
Los Angeles County Democratic Party
National Asian American Coalition
PICO California
United Trustees Association
Opposition
None received
Consultant: Eileen Newhall (916) 651-4102