California Legislature—2013–14 Regular Session

Assembly Bill No. 1730

Introduced by Assembly Member Wagner

February 14, 2014

An act to amend Section 2944.7 of, and to add Sections 2944.8, 2944.9, and 2944.10 to, the Civil Code, relating to mortgages.

LEGISLATIVE COUNSEL’S DIGEST

AB 1730, as introduced, Wagner. Mortgage loan modification.

Existing law, applicable to residential mortgages, prohibits a person who negotiates, arranges, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation from, among other things, demanding or receiving any compensation until every service that the person contracted to perform or represented that he or she would perform is accomplished. Existing law makes a violation of these provisions by a natural person a misdemeanor punishable by a specified fine or imprisonment, or both.

This bill would authorize a violation of these provisions to be punished as a felony with imprisonment, as specified. By changing the definition of a crime, the bill would impose a state-mandated local program.

This bill would also prohibit any person who engages in mortgage loan modification from accepting payment for services in advance of the loan modification approval. The bill would assess civil penalties for various related violations and would authorize designated state and local government officials to commence civil actions to recover those penalties. The bill would specify the manner of distribution of penalties recovered and would establish the Mortgage Loan Modification Fraud Account in the General Fund for deposit of funds payable to the state, to be available for expenditure upon appropriation by the Legislature.

This bill would, in addition to the civil penalties described above, authorize further civil penalties for unlawful or fraudulent mortgage modifications perpetrated against a senior citizen or disabled person, as defined, and provide criteria for the assessment of these additional penalties. The bill would authorize a court to order the offender to pay restitution to the senior citizen or disabled person, as specified.

This bill would also authorize the court to provide injunctive relief, and would provide that a person who intentionally violates an injunction prohibiting offering loan modification services for a fee under these provisions is subject to civil penalties. The bill would authorize designated state and local government officials to commence civil actions to recover those penalties, and would specify the manner of distribution of penalties recovered.

This bill would impose a 4-year statute of limitations for actions brought pursuant to these provisions.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

SECTION 1.  

Section 2944.7 of the Civil Code is amended to
read:

2944.7.  

(a) Notwithstanding any other begin delete provision of end delete law, it
shall be 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:

(1) 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 or she
would perform.

(2) Take any wage assignment, any lien of any type on real or
personal property, or other security to secure the payment of
compensation.

(3) Take any power of attorney from the borrower for any
purpose.

(b) A violation of this section by a natural person is begin delete a public
offense end delete punishable by a fine not exceeding ten thousand dollars
($10,000), by imprisonment in the county jail for a term not to
exceed one year, begin delete or end delete begin insert end insert begin insert or imprisonment pursuant to subdivision (h)
of Section 1170 of the Penal Code, or end insert by both that fine and
imprisonment, or if by a business entity, the violation is punishable
by a fine not exceeding fifty thousand dollars ($50,000). These
penalties are cumulative to any other remedies or penalties
provided by law.

begin insert

(c) Any person who engages, has engaged, or proposes to
engage in the mortgage loan modification business who accepts
a payment for the service in advance of the approval of the loan
modification shall be liable for a civil penalty not to exceed twenty
thousand dollars ($20,000) for each violation, which shall be
assessed and recovered in a civil action brought in the name of
the people of the State of California by the Attorney General, by
any district attorney, by any county counsel authorized by
agreement with the district attorney in actions involving violation
of a county ordinance, by any city attorney of a city having a
population in excess of 750,000, by any city attorney of any city
and county, or, with the consent of the district attorney, by a city
prosecutor in any city having a full-time city prosecutor, in any
court of competent jurisdiction.

end insert begin insert

(d) A violation of this section shall be deemed a fraud upon the
contracting parties and upon the state. A party described in
subdivision (c) shall file a civil action for each individual violation
of this section and shall recover the costs of investigation and
prosecution. In assessing the amount of the civil penalty, the court
shall consider any one or more of the relevant circumstances
presented by any of the parties to the case, including, but not
limited to, the following:

end insert begin insert

(1) The nature and seriousness of the misconduct, the number
of violations.

end insert begin insert

(2) The persistence of the misconduct.

end insert begin insert

(3) The length of time over which the misconduct occurred.

end insert begin insert

(4) The willfulness of the defendant’s misconduct.

end insert begin insert

(5) The defendant’s assets, liabilities, and net worth.

end insert begin insert

(6) The amount taken from each complaining witness by the
defendant individual.

end insert begin insert

(e) If the action is brought by the Attorney General, one-half of
the penalty collected shall be paid to the treasurer of the county
in which the judgment was entered and one-half to the Mortgage
Loan Modification Fraud Account, established by this section
within the General Fund. If the action is brought by a district
attorney or county counsel, the penalty collected shall be paid to
the treasurer of the county in which the judgment was entered. If
the action is brought by a city attorney or city prosecutor, one-half
of the penalty collected shall be paid to the treasurer of the city
in which the judgment was entered, and one-half to the treasurer
of the county in which the judgment was entered. The funds
described above shall be for the exclusive use by the Attorney
General, the district attorney, the county counsel, and the city
attorney for the enforcement of consumer protection laws.

end insert begin insert

(f) The Mortgage Loan Modification Fraud Account is hereby
created as an account within the General Fund in the State
Treasury. The portion of penalties that is payable to the General
Fund or to the Treasurer recovered by the Attorney General from
an action or settlement of a claim made by the Attorney General
pursuant to this chapter shall be deposited into this account.
Moneys in this account, upon appropriation by the Legislature,
shall be used by the Attorney General to support investigations
and prosecutions of California’s mortgage loan modification fraud,
including implementation of judgments obtained from these
prosecutions or investigations and other activities which are in
furtherance of this chapter.

end insert begin insert

(g) (1) If the action is brought at the request of a board within
the Department of Consumer Affairs or a local consumer affairs
agency, the court shall determine the reasonable expenses incurred
by the board or local agency in the investigation and prosecution
of the action and approve reimbursement of those expenses at the
court’s discretion.

end insert begin insert

(2) Before any penalty collected is paid out pursuant to
subdivision (c), the amount of any reasonable expenses incurred
by the board within the Department of Consumer Affairs or a local
consumer affairs agency shall be paid to the Treasurer for deposit
in the special fund of that board. If the board within the
Department of Consumer Affairs or a local consumer affairs
agency has no such special fund, the moneys shall be paid to the
Treasurer. The amount of any reasonable expenses incurred by a
local consumer affairs agency shall be paid to the general fund of
the municipality or county that funds that local agency.

end insert begin insert

(h) If the action is brought by the city attorney of the city and
county of San Francisco, the entire amount of the penalty collected
shall be paid to the treasurer of the city and county in which the
judgment was entered for the exclusive use by the city attorney for
the enforcement of consumer protection laws.

end insert begin delete

(c)

end delete

begin insert (i) end insert  Nothing in this section precludes a person, or an agent acting
on that person’s behalf, who offers loan modification or other loan
forbearance services for a loan owned or serviced by that person,
from doing any of the following:

(1) Collecting principal, interest, or other charges under the
terms of a loan, before the loan is modified, including charges to
establish a new payment schedule for a nondelinquent loan, after
the borrower reduces the unpaid principal balance of that loan for
the express purpose of lowering the monthly payment due under
the terms of the loan.

(2) Collecting principal, interest, or other charges under the
terms of a loan, after the loan is modified.

(3) Accepting payment from a federal agency in connection
with the federal Making Home Affordable Plan or other federal
plan intended to help borrowers refinance or modify their loans
or otherwise avoid foreclosures.

begin delete

(d)

end delete

begin insert (j) end insert  This section shall apply only to mortgages and deeds of trust
secured by residential real property containing four or fewer
dwelling units.

SEC. 2.  

Section 2944.8 is added to the Civil Code, to read:

2944.8.  

(a) In addition to any liability for a civil penalty
pursuant to Section 2944.7, if a person violates this chapter with
respect to a victim who is a senior citizen or a disabled person, the
violator may be liable for a civil penalty not to exceed two thousand
five hundred dollars ($2,500) for each violation, which may be
assessed and recovered in a civil action.

(b) Subject to subdivision (e), any civil penalty shall be paid as
prescribed by subdivisions (b) and (c) of Section 2944.7.

(c) As used in this section, the following terms have the
following meanings:

(1) “Disabled person” means a person who has a physical or
mental impairment that substantially limits one or more major life
activities.

(2) “Major life activities” means functions that include caring
for one’s self, performing manual tasks, walking, seeing, hearing,
speaking, breathing, learning, and working.

(3) “Physical or mental impairment” means any of the following:

(A) A physiological disorder or condition, cosmetic
disfigurement, or anatomical loss substantially affecting one or
more of the following body systems: neurological, musculoskeletal,
special sense organs, respiratory, including speech organs,
cardiovascular, reproductive, digestive, genitourinary, hemic and
lymphatic, skin, or endocrine.

(B) A mental or psychological disorder, including intellectual
disability, organic brain syndrome, emotional or mental illness,
and specific learning disabilities.

(C) Diseases and conditions including orthopedic, visual, speech
and hearing impairment, cerebral palsy, epilepsy, muscular
dystrophy, multiple sclerosis, cancer, heart disease, diabetes,
intellectual disability, and emotional illness.

(4) “Senior citizen” means a person who is 65 years of age or
older.

(d) In determining whether to impose a civil penalty pursuant
to subdivision (a) and the amount thereof, the court shall consider,
in addition to any other appropriate factors, the extent to which
one or more of the following factors are present:

(1) Whether the defendant knew or should have known that his
or her conduct was directed to one or more senior citizens or
disabled persons.

(2) Whether the defendant’s conduct caused one or more senior
citizens or disabled persons to suffer any of the following: loss or
encumbrance of a primary residence, principal employment, or
source of income, substantial loss of property set aside for
retirement, or for personal or family care and maintenance, or
substantial loss of payments received under a pension or retirement
plan or a government benefits program, or assets essential to the
health or welfare of the senior citizen or disabled person.

(3) Whether one or more senior citizens or disabled persons are
substantially more vulnerable than other members of the public to
the defendant’s conduct because of age, poor health or infirmity,
impaired understanding, restricted mobility, or disability, and
actually suffered substantial physical, emotional, or economic
damage resulting from the defendant’s conduct.

(e) A court of competent jurisdiction hearing an action pursuant
to this section may make orders and judgments as necessary to
restore to a senior citizen or disabled person money or property,
real or personal, that may have been acquired by means of a
violation of this chapter. Restitution ordered pursuant to this
subdivision shall be given priority over recovery of a civil penalty
imposed by the court pursuant to subdivision (a), but shall not be
given priority over a civil penalty imposed pursuant to subdivision
(c) of Section 2944.7. If the court determines that full restitution
cannot be made to those senior citizens or disabled persons, either
at the time of judgment or by a future date determined by the court,
then restitution under this subdivision shall be made on a pro rata
basis depending on the amount of loss.

SEC. 3.  

Section 2944.9 is added to the Civil Code, to read:

2944.9.  

(a) In addition to any civil penalty imposed, the court
is authorized to provide injunctive relief in response to a violation
of Sections 2944.7 or Sections 2944.8

(b) Any person who intentionally violates any injunction
prohibiting offering loan modification services for a fee issued
pursuant to Section 2944.7 shall be liable for a civil penalty not
to exceed ten thousand dollars ($10,000) for each violation. Where
the conduct constituting a violation is of a continuing nature, each
day of that conduct is a separate and distinct violation. In
determining the amount of the civil penalty, the court shall consider
all relevant circumstances, including:

(1) The extent of the harm caused by the conduct constituting
a violation.

(2) The nature and persistence of that conduct.

(3) The length of time over which the conduct occurred.

(4) The assets, liabilities, and net worth of the person, whether
corporate or individual.

(5) Any corrective action taken by the defendant.

(c) The civil penalty prescribed by this section shall be assessed
and recovered in a civil action brought in any county in which the
violation occurs or where the injunction was issued in the name
of the people of the State of California by the Attorney General
or by any district attorney, any county counsel authorized by
agreement with the district attorney in actions involving violation
of a county ordinance, or any city attorney in any court of
competent jurisdiction within his or her jurisdiction without regard
to the county from which the original injunction was issued. An
action brought pursuant to this section to recover civil penalties
shall take precedence over all civil matters on the calendar of the
court, except those matters to which equal or greater precedence
on the calendar is granted by law.

(d) If an action is brought by the Attorney General, one-half of
the penalty collected pursuant to this section shall be paid to the
treasurer of the county in which the judgment was entered, and
one-half to the Treasurer. If brought by a district attorney or county
counsel the entire amount of the penalty collected shall be paid to
the treasurer of the county in which the judgment is entered. If
brought by a city attorney or city prosecutor, one-half of the penalty
shall be paid to the treasurer of the county in which the judgment
was entered and one-half to the city, except that if the action was
brought by a city attorney of a city and county the entire amount
of the penalty collected shall be paid to the treasurer of the city
and county in which the judgment is entered.

(e) If the action is brought at the request of a board within the
Department of Consumer Affairs or a local consumer affairs
agency, the court shall determine the reasonable expenses incurred
by the board or local agency in the investigation and prosecution
of the action.

Before any penalty collected is paid out pursuant to subdivision
(c), the amount of the reasonable expenses incurred by the board
shall be paid to the Treasurer for deposit in the special fund of the
board described above. If the board has no such special fund, the
moneys shall be paid to the Treasurer. The amount of the
reasonable expenses incurred by a local consumer affairs agency
shall be paid to the general fund of the municipality or county
which funds the local agency.

SEC. 4.  

Section 2944.10 is added to the Civil Code, to read:

2944.10.  

Any action to enforce any cause of action pursuant
to Section 2944.7, 2944.8, or 2944.9, shall be commenced within
four years after the cause of action accrued. No cause of action
barred under existing law on the effective date of this section shall
be revived by its enactment.

SEC. 5.  

No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of
the Government Code, or changes the definition of a crime within
the meaning of Section 6 of Article XIII B of the California
Constitution.