BILL ANALYSIS �
SENATE COMMITTEE ON PUBLIC SAFETY
Senator Loni Hancock, Chair A
2013-2014 Regular Session B
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AB 1730 (Wagner) 0
As Amended June 5, 2014
Hearing date: June 24, 2014
Civil Code
JRD:sl
MORTGAGE LOAN MODIFICATION
HISTORY
Source: Author
Prior Legislation: AB 1072 (Wagner) - 2014, died in the Assembly
Support: Taxpayers for Improving Public Safety
Opposition:None known
Assembly Floor Vote: Ayes 73 - Noes 0
KEY ISSUE
SHOULD THE EXISTING CIVIL AND CRIMINAL PENALTIES FOR VIOLATING THE
PROHIBITIONS AGAINST ACCEPTING ADVANCE FEES FOR LOAN MODIFICATION
SERVICES BE ENHANCED?
PURPOSE
The purpose of this legislation is to enhance civil and criminal
penalties for violations of the existing prohibitions with
respect to advance fees for loan modification services, as
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specified.
Existing law provides that 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 of 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. (Civil Code �
2944.7(a).)
Existing law provides that a violation of the foregoing by a
natural person is punishable by a fine not exceeding $10,000, by
imprisonment in the county jail for a term not to exceed one
year, or by both that fine and imprisonment, or if by a business
entity, the violation is punishable by a fine not exceeding
$50,000. These penalties are cumulative to any other remedies
or penalties provided by law. (Civil Code � 2944.7(b).)
Existing law provides that any person who engages, has engaged,
or proposes to engage in unfair competition shall be liable for
a civil penalty not to exceed $2,500 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. (Business and Professions Code � 17206.)
Existing law provides that in addition to the civil penalty
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otherwise available, a person who violates the loan modification
fee statute is liable for a civil penalty up to $2,500 for each
violation where the victim is over the age of 65 or a person
with a disability, which may be assessed and recovered in a
civil action by a public prosecutor. (Business and Professions
Code � 17206.1)
Existing law provides that any person who intentionally violates
any injunction prohibiting unfair competition, including the
mortgage loan modification fee statute, issued pursuant to
Section 17203 shall be liable for a civil penalty not to exceed
$6,000 for each violation. (Business and Professions Code �
17207.)
This bill provides that a violation of Civil Code section 2944.7
regarding advance fees for mortgage loan modification and
related services may be punished by imprisonment pursuant to
subdivision (h) of Section 1170 of the Penal Code, which
generally provides that a felony punishable pursuant to this
subdivision shall be punishable by imprisonment in a county jail
for the term described in the underlying offense.
This bill provides that a violation of section 2944.7 shall be
subject to a civil penalty up to $20,000 per violation in an
action by a public prosecutor pursuant to existing authority
under the Unfair Competition Law.
This bill provides that a violation of section 2944.7 shall be
subject to an additional civil penalty of up to $2500 in any
action where the subject of the violation was a person over the
age of 65 or a person with a disability.
This bill provides that any action to enforce any cause of
action pursuant to Section 2944.7 or 2944.8 shall be commenced
within four years after the cause of action accrued.
RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION
For the last several years, severe overcrowding in California's
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prisons has been the focus of evolving and expensive litigation
relating to conditions of confinement. On May 23, 2011, the
United States Supreme Court ordered California to reduce its
prison population to 137.5 percent of design capacity within two
years from the date of its ruling, subject to the right of the
state to seek modifications in appropriate circumstances.
Beginning in early 2007, Senate leadership initiated a policy to
hold legislative proposals which could further aggravate the
prison overcrowding crisis through new or expanded felony
prosecutions. Under the resulting policy, known as "ROCA"
(which stands for "Receivership/ Overcrowding Crisis
Aggravation"), the Committee held measures that created a new
felony, expanded the scope or penalty of an existing felony, or
otherwise increased the application of a felony in a manner
which could exacerbate the prison overcrowding crisis. Under
these principles, ROCA was applied as a content-neutral,
provisional measure necessary to ensure that the Legislature did
not erode progress towards reducing prison overcrowding by
passing legislation, which would increase the prison population.
In January of 2013, just over a year after the enactment of the
historic Public Safety Realignment Act of 2011, the State of
California filed court documents seeking to vacate or modify the
federal court order requiring the state to reduce its prison
population to 137.5 percent of design capacity. The State
submitted that the, ". . . population in the State's 33 prisons
has been reduced by over 24,000 inmates since October 2011 when
public safety realignment went into effect, by more than 36,000
inmates compared to the 2008 population . . . , and by nearly
42,000 inmates since 2006 . . . ." Plaintiffs opposed the
state's motion, arguing that, "California prisons, which
currently average 150% of capacity, and reach as high as 185% of
capacity at one prison, continue to deliver health care that is
constitutionally deficient." In an order dated January 29,
2013, the federal court granted the state a six-month extension
to achieve the 137.5 % inmate population cap by December 31,
2013.
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The Three-Judge Court then ordered, on April 11, 2013, the state
of California to "immediately take all steps necessary to comply
with this Court's . . . Order . . . requiring defendants to
reduce overall prison population to 137.5% design capacity by
December 31, 2013." On September 16, 2013, the State asked the
Court to extend that deadline to December 31, 2016. In
response, the Court extended the deadline first to January 27,
2014 and then February 24, 2014, and ordered the parties to
enter into a meet-and-confer process to "explore how defendants
can comply with this Court's June 20, 2013 Order, including
means and dates by which such compliance can be expedited or
accomplished and how this Court can ensure a durable solution to
the prison crowding problem."
The parties were not able to reach an agreement during the
meet-and-confer process. As a result, the Court ordered
briefing on the State's requested extension and, on February 10,
2014, issued an order extending the deadline to reduce the
in-state adult institution population to 137.5% design capacity
to February 28, 2016. The order requires the state to meet the
following interim and final population reduction benchmarks:
143% of design bed capacity by June 30, 2014;
141.5% of design bed capacity by February 28, 2015; and,
137.5% of design bed capacity by February 28, 2016.
If a benchmark is missed the Compliance Officer (a position
created by the February 10, 2016 order) can order the release of
inmates to bring the State into compliance with that benchmark.
In a status report to the Court dated May 15, 2014, the state
reported that as of May 14, 2014, 116,428 inmates were housed in
the State's 34 adult institutions, which amounts to 140.8% of
design bed capacity, and 8,650 inmates were housed in
out-of-state facilities.
The ongoing prison overcrowding litigation indicates that prison
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capacity and related issues concerning conditions of confinement
remain unresolved. While real gains in reducing the prison
population have been made, even greater reductions may be
required to meet the orders of the federal court. Therefore,
the Committee's consideration of ROCA bills -bills that may
impact the prison population - will be informed by the following
questions:
Whether a measure erodes realignment and impacts the
prison population;
Whether a measure addresses a crime which is directly
dangerous to the physical safety of others for which there
is no other reasonably appropriate sanction;
Whether a bill corrects a constitutional infirmity or
legislative drafting error;
Whether a measure proposes penalties which are
proportionate, and cannot be achieved through any other
reasonably appropriate remedy; and,
Whether a bill addresses a major area of public safety
or criminal activity for which there is no other
reasonable, appropriate remedy.
COMMENTS
1. Need for Legislation
This bill seeks to address the most significant issue
facing the legislature in dealing with criminal
activities, "how can sanctions for criminal conduct be
implemented without negatively impacting the
overcrowding problems of California's prisons and the
concomitant issues raised by the federal three judge
panel ordering reductions in inmate population." The
solution proposed in this legislation is elegant in
its simplicity in that it addresses the most important
aspect of crime, i.e., ending its profitability by
prospectively creating civil obstacles for individuals
who steal from the unwary and individuals facing
financial difficulties due to mortgage problems. The
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tangential result of the legislation is to communicate
to those that who would cheat seniors and others who
lack the sophistication to know that such schemes are
a fraud that there will be consequences which will
follow them even after any criminal commitment.
This legislation contains two specific and separate
sanctions. First, it creates a new criminal sanction
for mortgage loan modification fraud. Second, it
creates a civil fraud cause of action by which if the
perpetrators' ever obtain any assets, can be seized to
be used in order of priority to repay (1) the seniors
and disabled who have paid for loan modification
assistance and received no benefit; and (2) the
governmental agency which obtained both the criminal
conviction and the civil judgment and if sufficient,
fund future investigations and prosecutions.
2. Senate Bill 94 (Calderon), Chapter 630, Statutes of 2009
In 2009, SB 94 was signed into law to prohibit any person who
charges a borrowers fee for helping negotiate a loan
modification or other form of mortgage loan forbearance from
collecting their fee until they perform all agreed-upon
services. SB 94 also requires those who charge for these
services to clearly inform their potential customers that
similar services were available, free of charge, from non-profit
housing counseling agencies. SB 94 provides that a real estate
licensee or an attorney licensed through the state bar would
also be subject to disciplinary action based on a violation of
one of its new provisions. In 2012, the provisions in SB 94
were reconsidered in SB 980 (Vargas), Chapter 563, Statutes of
2012. In assessing the effectiveness of SB 94, the committee
analysis provided the following information:
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Since enactment of SB 94 on October 11, 2009, the
State Bar, DRE, and State Attorney General have taken
a significant number of enforcement actions against
unscrupulous providers of loan modification services.
In the time since SB 94's passage, the State Bar has
received over 8,600 complaints alleging misconduct in
loan modification matters by attorneys, and has
conducted approximately 6,250 investigations against
approximately 800 attorneys. Approximately 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.
Since enactment of SB 94, DRE has filed over 1,100
administrative actions against loan modification
scammers. It has issued over 300 desist and refrain
orders, revoked or accepted the surrender of
approximately 100 licensees, and suspended the
licenses of another 20 licensees.
Since enactment of SB 94, the State Attorney General
has filed approximately one dozen civil cases,
involving approximately 40 defendants, and seven
criminal cases involving over 50 defendants. An
additional 16 criminal investigations are pending.
(Sen. Com. on Banking and Financial Institutions,
Analysis of Senate Bill 980 (2011-2012 Reg. Sess.) as
introduced January 23, 2012.)
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3. Jail Overcrowding Concerns
A report by the Public Policy Institute of California found that
while realignment has led to an increase in jail populations,
overcrowding issues existed in county jails prior to
realignment. The report notes that 17 counties were operating
under court orders limiting the number of inmates in their
jails. In all, 13 counties, including some of the biggest (Los
Angeles, Orange, San Diego, and Sacramento), had average daily
populations that were larger than the number of beds their jails
were rated for. [Public Policy Institute of California, Capacity
Challenges in California's Jails (September 2012).]
Currently, a violation of the code section affected by this bill
is a misdemeanor punishable by up to a year in jail, and a fine
of up to $10,000 if committed by a natural person, and up to
$50,000 if committed by a corporation. This bill alternatively
allows the violation to be charged as a felony, with a
determinate sentencing term of 16 months, 2 or 3 years in county
jail. The increase in sentencing proposed by this bill has the
potential to exacerbate overcrowding issues faced by county
jails.
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