BILL ANALYSIS �
SB 6
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Date of Hearing: June 14, 2011
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 6 (Ron Calderon and Vargas) - As Amended: April 11, 2011
SENATE VOTE : 39-0
SUBJECT : Real estate: appraisal and valuation.
SUMMARY : Updates California's Real Estate Law, Appraisal Law,
and Civil Code to reflect recent changes enacted at the federal
level pursuant to the Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank). Specifically, this bill :
1)Amends the Real Estate Law to provide that:
a) No real estate licensee shall knowingly or intentionally
misrepresent the value of real property; and,
b) No real estate licensee that offers or provides an
opinion of value of real property that is used as the basis
for an origination, refinancing, or modification of a
mortgage loan shall have an interest in that property,
within the meaning of federal regulations implementing
Dodd-Frank.
2)Amends the Appraisal Law to clarify that:
a) No person or entity acting in the capacity of an
appraisal management company (AMC) shall improperly
influence or attempt to improperly influence the
development, reporting, result, or review of any appraisal
through coercion, extortion, inducement, collusion,
bribery, intimidation, compensation, or instruction
(including a list of prohibited and allowable acts); and,
b) No person or entity preparing an appraisal or performing
appraisal management functions in connection with the
origination, modification, or refinancing of a mortgage
loan shall have a direct or indirect interest, financial or
otherwise, in the property or the transaction for which the
appraisal or appraisal management functions are performed.
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3)Amends the Civil Code to clarify that:
a) No person with an interest in a real estate transaction
involving a valuation shall improperly influence or attempt
to improperly influence the development, reporting, result,
or review of that valuation through coercion, extortion,
bribery, intimidation, compensation, or instruction
(including a list of prohibited and allowable acts); and,
b) "Valuation" means an estimate of the value of real
property in written or electronic form, other than one
produced solely by an automated valuation model or system.
This definition includes both appraisals and broker price
opinions (BPOs).
EXISTING LAW
1)Provides for the licensure and regulation of real estate
appraisers, and for the registration and regulation of AMCs by
the California Office of Real Estate Appraisers (OREA).
Licensed appraisers must comply with the federal Uniform
Standards for Professional Appraisal Practice (USPAP) and with
the Appraisal Law. Registered AMCs must comply with portions
of the Appraisal Law that were added by SB 237 (Calderon),
Chapter 173, Statutes of 2009. Among these rules is a
requirement that AMCs adhere to appraisal independence
standards patterned on the federal Home Valuation Code of
Conduct (HVCC).
2)Pursuant to the Real Estate Law, provides that it is a
violation of the Real Estate Law for a real estate licensee to
generate an inaccurate opinion of the value of residential
real property, requested in connection with a short sale, in
order to manipulate the lienholder (i.e., the lender) to
reject the proposed short sale or to acquire a financial or
business advantage, including a listing agreement, that
directly results from the inaccurate opinion of value.
3)Pursuant to the Appraisal Law, defines an appraisal as a
written statement independently and impartially prepared by a
qualified appraiser setting forth an opinion in a federally
related transaction as to the market value of an adequately
described property as of a specific date, supported by the
presentation and analysis of relevant market information.
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4)Pursuant to the Appraisal Law, provides that the term
"appraisal" does not include an opinion given by a real estate
licensee or engineer or land surveyor in the ordinary course
of his or her business in connection with a function for which
they are licensed, and states that such an opinion may not be
referred to as an appraisal. Although the Real Estate Law
does not expressly authorize real estate licensees to provide
opinions of real value of real property, this section of the
Appraisal law is commonly understood to authorize real estate
brokers to perform BPOs.
5)Pursuant to the Civil Code, provides that no person with an
interest in a real estate transaction involving an appraisal
shall improperly influence or attempt to improperly influence,
through coercion, extortion, or bribery, the development,
reporting, result, or review of a real estate appraisal sought
in connection with a mortgage loan.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author's office, "In
recent years, California enacted two bills intended to ensure
the integrity of the real property appraisal process. SB 223
(Machado), Chapter 291, Statutes of 2007 prohibited any person
with an interest in a real estate transaction from
inappropriately influencing, or attempting to inappropriately
influence, the development, reporting, result, or review of a
real estate appraisal sought in connection with a mortgage loan.
SB 237 (Calderon), Chapter 173, Statutes of 2009, plugged a
hole in California's appraisal regulatory scheme, by defining
the term "appraisal management company," requiring appraisal
management companies doing business in California to register
with California's Office of Real Estate Appraisers, and enacting
a set of allowable and prohibited actions by appraisal
management companies and the appraisers who work for them.
"At the same time California was changing its laws to ensure the
integrity of the real property appraisal process, federal
agencies were promulgating regulations with similar intent.
Until enactment of the Dodd-Frank in July 2010, California's
laws were more comprehensive, and more protective of consumers,
than the federal rules. Since enactment of Dodd-Frank, however,
California's rules have fallen behind some of those recently
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promulgated by federal regulators. Portions of state law are
also now inconsistent with federal regulations in certain
cases."
Background . Dodd-Frank, signed into law by President Obama in
July 2010, was a response to the mortgage crisis in the middle
of the last decade. Dodd-Frank made significant changes to the
American financial regulatory environment and affects all
federal financial regulatory agencies and almost every aspect of
the nation's financial services industry.
The Federal Reserve Board (FRB) has recently promulgated
regulations implementing Dodd-Frank. This bill updates state
law to conform to the following provisions of Dodd-Frank that
reform the mortgage business:
Defines real property valuations and protects those who perform
them from inappropriate influence. In its recently-promulgated
regulations implementing Dodd-Frank, FRB recognized that many
types of real property valuations, including, but not limited
to, appraisals, are being utilized in the current housing
environment. To address this observation, the FRB defined the
term "real property valuation" and enacted a series of rules
designed to ensure that no entity that prepares a real property
valuation is inappropriately influenced in connection with their
value conclusion.
This measure adopts the FRB's definition of a real property
valuation. In doing so, it broadens California's existing
prohibition against inappropriate influence of appraisers to
cover all types of real property valuations and those who
prepare them. This change will have the effect of protecting
real estate brokers that perform BPOs from inappropriate
influence, by covering them under the same rules that are
currently intended to protect appraisers from inappropriate
influence.
Revises and replaces the HVCC. The HVCC was an agreement
reached between Fannie Mae, Freddie Mac, and then- New York
State Attorney General Anthony Cuomo in 2008. One of the core
elements of the HVCC was the concept of appraiser independence.
In its recent regulations, the FRB enacted rules intended to
replace the HVCC. These rules have a similar intent as the
HVCC, but are written differently and accompanied by extensive
commentary never published in connection with the HVCC.
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California's existing laws pattern the HVCC. This measure
updates California's statutes to reflect the changes made by the
FRB to the HVCC, and remove the inconsistency between state law
and the recently-promulgated federal regulations.
Prohibits conflicts of interest in connection with mortgage loan
origination. In its recent regulations, the FRB also enacted a
provision intended to ensure that no entity that prepares a real
property valuation in connection with the origination of a
residential mortgage loan has a direct or indirect interest, as
defined, in the property or the transaction for which the
valuation is sought. The FRB included extensive commentary to
describe acceptable and prohibited interests.
This measure amends California's Appraisal Law to prohibit
appraisers and AMCs from providing opinions of value of real
property in connection with the origination, refinancing, or
modification of a mortgage loan if they have a direct or
indirect interest, financial or otherwise, in the property or
transaction for which the opinion of value was sought.
Expressly prohibits knowingly or intentionally misrepresenting
the value of real property. California's Real Estate Law
currently contains a narrow prohibition against knowingly or
intentionally misrepresenting the value of real property in
connection with a short sale. This bill broadens that
prohibition to apply to all real property valuations performed
by real estate licensees.
Support . The California Government Relations Subcommittee of
the Appraisal Institute, sponsor of this measure, states, "SB 6
is largely technical, to make sure that federal rules and state
rules align on important questions of inappropriate pressure on
appraisers and conflicts of interest in rendering real property
value conclusions. As the appraisal process has been implicated
to some degree in evaluations of the national financial crisis,
it is important that state and federal laws be consistent."
According to the American Society of Appraisers, "Appraisers
must be objective when making determinations of value, and when
their independence is threatened by undue influence, objectivity
comes into question. AMCs hold a dominant position in the real
estate industry. Many appraisers feel that position is subject
to abuse when they discuss potential assignments with AMCs. The
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federal Dodd-Frank law addresses the actions taken by AMCs when
they seek appraisers to accept assignments. SB 6 will follow
the provisions of Dodd-Frank and, by doing so, will provide more
guidance to both parties when arranging for an appraisal to be
performed."
Previous legislation .
SB 237 (Machado) Chapter 173, Statues of 2009, closes a loophole
in California's appraisal regulatory scheme by defining the term
"appraisal management company" and requiring management
companies doing business in California to register with OREA,
and enacting a set of allowable and prohibited actions for AMCs
and the appraisers who work for them.
SB 223 (Machado) Chapter 291, Statutes of 2007, prohibits any
person with an interest in a real estate transaction from
inappropriately influencing, or attempting to inappropriately
influence, a real property appraiser with the aim of convincing
the appraiser to alter his or her value conclusion.
REGISTERED SUPPORT / OPPOSITION :
Support
California Government Relations Subcommittee of the Appraisal
Institute (sponsor)
American Society of Appraisers
Opposition
None on file
Analysis Prepared by : Angela Mapp / B.,P. & C.P. / (916)
319-3301