BILL ANALYSIS �
SB 980
Page 1
Date of Hearing: July 3, 2012
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 980 (Vargas) - As Introduced: January 23, 2012
PROPOSED CONSENT
SENATE VOTE : 39-0
SUBJECT : Mortgage Loans
KEY ISSUE : SHOULD THE EXISTING SUNSET ON THE BAR AGAINST
UP-FRONT FEES FOR NEGOTIATING MORTGAGE LOAN MODIFICATIONS BE
EXTENDED UNTIL 2017?
FISCAL EFFECT : As currently in print this bill is keyed
fiscal.
SYNOPSIS
Existing law prohibits any person who negotiates a loan
modification from charging the borrower an upfront fee. This
provision sunsets January 1, 2013. This bill would extend that
sunset date another four years to January 1, 2017.
SUMMARY : Maintains existing law prohibiting certain
pre-performance fees for negotiating mortgage loan
modifications. Specifically, this bill would extend the sunset
date on the state law provisions described above to January 1,
2017.
EXISTING LAW :
1)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)):
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
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represented that he or she would perform;
b) 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
c) taking any power of attorney from the borrower for any
purpose.
2)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.
3)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).)
4)Authorizes the Department of Real Estate (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.)
5)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).)
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6)Prohibits a Mortgage Assistance Relief Services (MARS)
provider 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).)
COMMENTS : 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 DRE and the California Attorney General have
reportedly acted on thousands of complaints and taken
enforcement action against hundreds 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.
Disciplinary action under SB 94. 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
DRE has filed over 1,100 administrative actions and issued more
than 300 desist and refrain orders. Nearly 100 real estate
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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.
Existing law applies 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.
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. 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.
REGISTERED SUPPORT / OPPOSITION :
Support
AFSCME
California Bankers Association
California Mortgage Bankers Association
California Public Interest Research Group
Consumer Federation of California
Center for Responsible Lending
Western Center on Law and Poverty
Opposition
None on File
SB 980
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Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334