BILL ANALYSIS �
SB 980
Page 1
Date of Hearing: June 26, 2012
ASSEMBLY COMMITTEE ON BUSINESS, PROFESSIONS AND CONSUMER
PROTECTION
Mary Hayashi, Chair
SB 980 (Vargas) - As Introduced: January 23, 2012
SENATE VOTE : 39-0
SUBJECT : Mortgage loans.
SUMMARY : Extends the sunset date on the state's prohibition
against the collection of up-front fees in connection with
mortgage loan modifications and other forms of mortgage loan
forbearance, from January 1, 2013, to January 1, 2017.
EXISTING LAW
1)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; and,
c) Take any power of attorney from the borrower for any
purpose.
2)Applies the prohibition described in 1), above, only to
mortgages and deeds of trust secured by residential real
property containing four or fewer dwelling units, and applies
the prohibition only until January 1, 2013.
3)Provides that a violation of the prohibition described in 1),
above, is a misdemeanor, punishable by a fine not exceeding
$10,000 ($50,000 if the party violating the law is a
SB 980
Page 2
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.
FISCAL EFFECT : Unknown
COMMENTS :
Purpose of this bill . According to the author, "SB 980 proposes
to extend the sunset date on the 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 loan modification advance fee ban
provision of the 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. The
author of SB 980 is concerned that failure to extend the sunset
date on SB 94 will re-open the door to unscrupulous individuals
and businesses bent on duping borrowers into paying unnecessary
fees."
Background . In 2009, the Legislature passed and the Governor
signed SB 94 (Calderon), Chapter 630, Statutes of 2009, which
was an urgency measure prohibiting persons from charging advance
fees to borrowers in connection with a loan modification, and
SB 980
Page 3
requiring 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.
These provisions sunset on January 1, 2013.
SB 94 was enacted in response to widespread problems of
foreclosure-related scams taking advantage of delinquent
homeowners. Many of these scams involved a promise to
renegotiate a delinquent borrower's loan in exchange for a
significant up-front fee. 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.
Since enactment of SB 94, the State Bar, the Department of Real
Estate (DRE), and the State Attorney General have taken a
significant number of enforcement actions against unscrupulous
providers of loan modification services.
The State Bar has received more than 8,600 complaints alleging
misconduct in loan modification matters by attorneys, and has
conducted approximately 6,250 investigations against about 800
attorneys. Roughly 2,500 of those complaints have resulted in
some form of disbarment of, resignation from the Bar by, or
discipline against an attorney. Another 450 cases are pending
before the State Bar Court. About 700 complaints are still
under investigation by the Bar or in the early stages of a
pending disciplinary action. All told, approximately 110
attorneys have been disciplined, 50 attorneys are awaiting
discipline by the Supreme Court, and another 50 attorneys' cases
are pending before the State Bar Court.
DRE has filed more than 1,100 administrative actions against
loan modification scammers. It has issued more than 300 desist
and refrain orders, revoked or accepted the surrender of
approximately 100 licensees, and suspended the licenses of
another 20 licensees.
The State Attorney General has filed approximately one dozen
civil cases, involving approximately 40 defendants, and seven
criminal cases involving more than 50 defendants. An additional
16 criminal investigations are pending.
After passage of SB 94, the Federal Trade Commission (FTC)
issued a rule in December 2010 governing mortgage assistance
SB 980
Page 4
relief services (MARS Rule). The FTC defines MARS as "any
service, plan, or program, offered or provided to the consumer
in exchange for consideration, that is represented, expressly or
by implication, to assist or attempt to assist the consumer in
negotiating a modification of a dwelling loan that reduces the
amount of interest, principal balance, monthly payments, or
fees; stopping, preventing, or postponing a foreclosure or
repossession; or, obtaining any of the following types of
relief: a forbearance or repayment plan; an extension of time to
cure a default, reinstate a loan, or redeem a property; a waiver
of an acceleration clause or balloon payment; or, a short sale,
deed in lieu of foreclosure, or any other disposition of the
property except a sale to a third party that is not the loan
holder."
Under the MARS Rule, any for-profit company that, in exchange
for a fee, offers to work on behalf of consumers to help them
obtain a mortgage loan modification or otherwise avoid
foreclosure must disclose certain information about their
proffered services to the consumer, must not make false or
misleading claims about their proffered services, must not
collect advance fees for those services, and must not provide
assistance or support to another person they know is engaged in
a violation of the MARS Rule.
The MARS Rule does not pre-empt California law; instead, it
overlays California law. Thus, California law in this area
governs when it is more protective of borrowers than the federal
MARS rule, and the MARS rule governs when it is more protective
of borrowers than California law. Because the MARS definition
of covered services is broader than the SB 94 definition of
these services, and because the list of required and prohibited
activities under the MARS Rule is longer than the list of
required and prohibited activities under SB 94, the FTC's MARS
Rule adds a layer of consumer protection to California law,
which supplements and adds to SB 94.
However, the FTC chose to apply its MARS Rule less stringently
to attorneys than it did to all other parties subject to the
MARS Rule. SB 94 treated real estate licensees, attorneys, and
unlicensed persons identically, because all three groups were
preying on unsophisticated homeowners. The FTC took a different
approach. Because of the way in which it is written, the MARS
Rule is more stringent than SB 94 as it pertains to real estate
licensees, and less stringent than SB 94 as it pertains to
SB 980
Page 5
attorneys. Thus, SB 94 governs the behavior of attorneys who
offer to help borrowers obtain loan modifications in California,
while the MARS Rule governs the behavior of real estate
licensees and unlicensed persons who offer to help borrowers
with those services. If SB 94 is allowed to sunset, the less
stringent provisions of the MARS Rule that apply to attorneys
will govern the behavior of attorneys in California.
According to the author, an extension of SB 94 is needed if
California wishes to continue applying uniform rules to all
persons who offer to assist borrowers in obtaining loan
modifications or other forms of mortgage loan forbearance for a
fee paid by the borrower. Absent any action to extend the
provisions of SB 94, attorneys will be able to collect advance
fees from borrowers in connection with offers to help avoid
foreclosure, effective January 1, 2013, but real estate
licensees and unlicensed persons will be prohibited from doing
so.
Support . The Western Center on Law and Poverty states,
"Prohibiting the up-front fees (for loan modification services)
has eliminated the worst forms of abuses, where the fees were
often nonrefundable and the homeowner was at the mercy of what
the negotiator might or might not do for them in the future. SB
980 will ensure that those protections stay in place."
Related legislation . AB 1950 (Davis) of 2012 extends the
provisions of SB 94 permanently and extends the statute of
limitations on loan modification and certain other real
estate-related offenses to four years, as specified. This bill
is pending in Senate Banking and Financial Institutions
Committee.
Previous legislation . SB 94 (Calderon), Chapter 630, Statutes
of 2009, enacts the provisions whose sunset date this bill would
extend, and makes other consumer-protection changes to the Real
Estate Law and Finance Lenders Law.
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County, and Municipal Employees
California Bankers Association
California Mortgage Bankers Association
SB 980
Page 6
California Public Interest Research Group
California Rural Legal Assistance Foundation
Center for Responsible Lending
Consumer Federation of California
Western Center on Law and Poverty
Opposition
None on file.
Analysis Prepared by : Angela Mapp / B.,P. & C.P. / (916)
319-3301