BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2011-2012 Regular Session
SB 980 (Vargas)
As Introduced
Hearing Date: April 24, 2012
Fiscal: Yes
Urgency: No
NR
SUBJECT
Mortgage Loans
DESCRIPTION
Existing law prohibits any person who negotiates a loan
modification from charging the borrower an upfront fee. This
provision sunsets January 1, 2013, and this bill would extend
that sunset date another four years to January 1, 2017.
BACKGROUND
In 2009, the Legislature passed and the Governor signed SB 94
(Calderon, Chapter 630, Statutes of 2009) which prohibited
persons until January 1, 2013 from charging advance fees to
borrowers in connection with a loan modification, and required
those who wish to charge a fee upon the completion of loan
modification services to first provide a specified notice to
borrowers regarding other options available to the borrower.
SB 94 was enacted in response to the problem of
foreclosure-related scams facing delinquent homeowners. Many of
the scams involved a promise to renegotiate a delinquent
borrower's loan in exchange for a significant upfront fee. The
homeowners were often instructed to not communicate with their
lenders, and to stop making mortgage payments. Often, the
services related to the loan modification were not performed,
and many borrowers lost their homes.
The State Bar, the Department of Real Estate (DRE) and the
California Attorney General have acted on thousands of
complaints and taken enforcement action against hundreds of
(more)
SB 980 (Vargas)
Page 2 of ?
foreclosure scammers. Since the enactment of SB 94, the Federal
Trade Commission (FTC) has enacted the Mortgage Assistance
Relief Services (MARS) rule, which governs loan modification
practices and disclosures by real estate licensees.
This bill would extend the provisions of SB 94 until January 1,
2017. This bill would make no substantive changes to those
provisions.
SB 980 (Vargas)
Page 3 of ?
CHANGES TO EXISTING LAW
Existing law prohibits any person who solicits customers for the
purpose of helping negotiate a mortgage loan modification or
other form of mortgage loan forbearance for a fee or other
compensation, or otherwise offers to perform these services for
a borrower for a fee or other compensation, from doing any of
the following (Bus. & Prof. Secs. 6106.3; 10085.6(a); Civil Code
Sec. 2944.7(a).):
claiming, demanding, charging, collecting, or receiving any
compensation until after the person has fully performed each
and every service the person contracted to perform or
represented that he or she would perform;
taking any wage assignment, any lien of any type on real or
personal property, or any other security to secure the payment
of compensation; or
taking any power of attorney from the borrower for any
purpose.
Existing law requires any person who solicits customers for the
purpose of helping negotiate a mortgage loan modification or
other form of mortgage loan forbearance for a fee or other
compensation, or who otherwise offers to perform these services
for a borrower for a fee or other compensation, to provide the
following notice to the borrower, as a separate statement prior
to entering into any fee agreement with the borrower (Bus. &
Prof. Sec. 10147.6(a).):
It is not necessary to pay a third party to arrange for a
loan modification or other form of forbearance from your
mortgage lender or servicer. You may call your lender
directly to ask for a change in your loan terms. Nonprofit
housing counseling agencies also offer these and other
forms of borrower assistance free of charge. A list of
nonprofit housing counseling agencies approved by the
United States Department of Housing and Urban Development
(HUD) is available from your local HUD office or by
visiting www.hud.gov.
Existing law provides that a violation of the above advance fee
provisions and notice requirements is a public offense,
punishable by a fine not exceeding $10,000 for a natural person
or $50,000 for a corporation, or by imprisonment in a county
jail for up to one year, or by both a fine and imprisonment.
These penalties are cumulative to any other remedies or
penalties provided by law. (Bus. & Prof. Sec. 10085.6(b).)
SB 980 (Vargas)
Page 4 of ?
Existing law authorizes the DRE to enforce violations of the
sections of the Civil Code relating to mortgages (Civ. Code Sec.
2920 et seq.) by real estate licensees, and include identical
advance fee, notice, and penalties for licensees under the Real
Estate Law. (Bus. & Prof. Sec. 10177.)
Existing law provides that the state law provisions described
above will sunset on January 1, 2013. (Bus. & Prof. Sec.
6106.3(b), 10085.6(d); Civ. Code Sec. 2944.7(e).)
Existing federal law prohibits a Mortgage Assistance Relief
Services (MARS) provider in from misrepresenting any material
aspect of mortgage assistance relief, requires disclosures as
specified, and provides penalties for violations. (C.F.R. Sec.
322.3(b)(2010); C.F.R. Sec. 322.4(a)-(c)(2010).)
This bill would extend the sunset date on the state law
provisions described above to January 1, 2017.
COMMENT
1.Stated need for the bill
In support of this bill, the author writes:
SB 980 proposes to extend the sunset date on the provision 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. ? 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 loan modification advance fee ban
provision of this bill. Because of that 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.
2.Disciplinary action under SB 94
SB 980 (Vargas)
Page 5 of ?
Since the enactment of SB 94 in October of 2011, the State Bar
alone has received over 8,600 complaints alleging misconduct in
loan modification matters. These complaints have resulted in
investigations against nearly 800 attorneys. Over 110 attorneys
have been disciplined, 50 cases are pending before the State Bar
Court, and 50 attorneys are awaiting discipline by the Supreme
Court. Additionally, the Department of Real Estate has filed
over 1,100 administrative actions and issued more than 300
desist and refrain orders. Nearly 100 real estate licenses have
been surrendered or revoked, and another 20 have been suspended.
California's Attorney General has also taken action against
approximately 90 alleged scammers in nearly a dozen civil
actions and seven criminal actions.
3.The provisions of SB 94 apply to real estate licensees and
attorneys
Like SB 94, the MARS rule prohibits advance fees to real estate
licensees, but it differs in that the rule requires more
disclosure to consumers. Under the MARS rule, when consumers
accept a written offer from the mortgage relief company, they
must be provided with a written document from the lender or
servicer describing the changes to the mortgage if the consumer
accepts the offer. The mortgage relief company must also remind
consumers of their right to reject the offer without any charge.
Generally speaking, where state and federal law overlap, the
more protective provisions govern. The MARS rule covers more
real-estate related services and includes more prohibitions and
mandatory disclosures for real estate licensees than SB 94. The
MARS rule is broader, and therefore more protective in many ways
than SB 94.
However, unlike SB 94 which applies equally to all persons, the
MARS rule does not prevent attorneys from collecting advance
fees. The amount and degree of discipline administered against
attorneys by the California State Bar since the enactment of SB
94 indicates that SB 94's application to attorneys is
appropriate. (See Comment 2.) This bill would ensure that the
same exacting standards continue to be applied to attorneys as
well as real estate licensees until January 1, 2017.
Support : Center for Responsible Lending; Western Center on Law
and Poverty
SB 980 (Vargas)
Page 6 of ?
Opposition : None Known
HISTORY
Source : Author
Related Pending Legislation : AB 1950 (Davis) would delete the
sunset date on SB 94 entirely.
Prior Legislation : SB 94 (Calderon, Chapter 630, Statutes of
2009) (See Background)
Prior Vote : Senate Banking & Financial Institutions Committee
(Ayes 6, Noes 0)
**************