BILL ANALYSIS �
SB 6
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Date of Hearing: June 27, 2011
ASSEMBLY COMMITTEE ON BANKING AND FINANCE
Mike Eng, Chair
SB 6 (Calderon & Vargas) - As Amended: June 15, 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 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.
3)Amends the Civil Code to clarify that:
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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)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 (Business and Professions Code Section
11302).
2)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
any opinion returned by a real estate licensee, engineer, or
land surveyor may not be referred to as an appraiser (Business
and Professions Code Section 11302). Although the real estate
law does not expressly authorize real estate licensees to
provide opinions of real value of real property, Section 11302
is commonly understood to authorize real estate brokers to
perform so-called broker price opinions, or BPOs.
3)Provides that it is a violation of the Real Estate Law for a
real estate licensee to provide an opinion of the value of
residential real property in connection with a short sale, in
order to manipulate the lienholder (i.e., the lender) into
rejecting the proposed short sale or to acquire a financial or
business advantage, including a listing agreement, which
directly results from the inaccurate opinion of value
(Business and Professions Code Section 10177(m))
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4)Specifies that a violation of the federal Real Estate
Settlement Procedures Act (12 U.S.C. Sec. 2601 et seq.), the
federal Truth in Lending Act (15 U.S.C. Sec. 1601 et seq.),
the Federal Home Ownership Equity Protection Act (15 U.S.C.
Sec. 1639) or any regulation promulgated under any of the
federal acts cited is also a violation of the Real Estate Law.
(Business and Profession Code Section 10177(q))
5)Provides for the licensure and regulation of real estate
appraisers, and for the registration and regulation of
appraisal management companies (AMCs) by the California Office
of Real Estate Appraisers (OREA; Business and Professions Code
Section 11300 et seq.). Licensed appraisers are required to
comply with the federal Uniform Standards for Professional
Appraisal Practice and with the Appraisal Law. Registered
AMCs are required to comply with the portions of the Appraisal
Law, which 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; Business and
Professions Code Section 11345.4)
6)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 (Civil Code Section 1090.5). Civil Code Section
1090.5 includes a list of several acts that are prohibited,
and several acts that are allowable, pursuant to the section.
FISCAL EFFECT : None
COMMENTS :
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,
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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
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
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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.
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, 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.
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
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influence, a real property appraiser with the aim of convincing
the appraiser to alter his or her value conclusion.
REGISTERED SUPPORT / OPPOSITION :
Support
American Society of Appraisers
Appraisal Institute
Opposition
None on file.
Analysis Prepared by : Mark Farouk / B. & F. / (916) 319-3081