BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Kevin de Le�n, Chair
AB 1730 (Wagner) - Mortgage loan modification.
Amended: June 5, 2014 Policy Vote: JUD 6-0; PS 6-1
Urgency: No Mandate: Yes
Hearing Date: August 14, 2014
Consultant: Jolie Onodera
SUSPENSE FILE. AS AMENDED.
Bill Summary: AB 1730 would enhance civil and criminal penalties
for violating the prohibitions against accepting advance fees
for loan modification services, as specified.
Specifically, this bill would enhance the penalty for violating
existing provisions of law related to unlawful activities in
conjunction with a mortgage loan modification from a misdemeanor
to an alternate felony/misdemeanor offense.
Fiscal Impact (as approved on August 14, 2014): Minor,
absorbable costs to the Attorney General (AG) and
non-reimbursable costs to prosecutors for new civil actions,
offset to a degree by fine revenues under the enhanced civil
penalty provisions of this measure.
Under 2011 Realignment Legislation, the state provided funding
to the counties to place offenders in county jail for specified
felonies ("1170(h) felonies") that previously would have
required a state prison sentence. Pursuant to Proposition 30
(2012), legislation enacted after September 30, 2012, that has
an overall effect of increasing the costs already borne by a
local agency for programs or levels of service mandated by the
2011 Realignment Legislation apply to local agencies only to the
extent that the state provides annual funding for the cost
increase. While Proposition 30 specifies that legislation
defining a new crime or changing the definition of an existing
crime is not subject to this provision, changing the penalty for
a crime is not specifically exempted and could potentially
require a subvention of funds from the state.
Background: Existing law provides that it is unlawful for any
person who negotiates, attempts to negotiate, arranges, attempts
to arrange, or otherwise offers to perform a mortgage loan
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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. (CC � 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. (CC � 2944.7(b))
Proposed Law: This bill enhances the civil and criminal
penalties for violations of the prohibition on accepting advance
fees for mortgage loan modification and related services, as
follows:
Increases the penalty for violations of CC � 2944.7(a),
currently punishable as a misdemeanor for up to one year in
county jail and/or a fine of up to $10,000, to be
punishable as either a misdemeanor, or a felony punishable
by imprisonment in the county jail for a term of either 16
months, 2 or 3 years (or state prison if the defendant has
a current or prior conviction for a serious or violent
felony).
Provides that a violation of CC � 2944.7 is subject to a
civil penalty of up to $20,000 for each violation in any
civil action brought by the AG, a district attorney, or
county counsel, pursuant to existing authority under the
Unfair Competition Law.
Provides that a violation of CC � 2944.7 is subject to
an additional civil penalty of up to $2,500 in any action
where the subject of the violation was a person over the
age of 65 or a person with a disability.
Provides that any action to enforce any cause of action
shall be commenced within four years after the cause of
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action accrued.
Related Legislation: AB 1072 (Wagner) 2014 would have created an
alternate felony/misdemeanor offense for violating existing
provisions of law related to unlawful activities in conjunction
with a mortgage loan modification, and specifically authorized a
violation of these sections, currently punishable as a
misdemeanor, to be punishable as either a misdemeanor, or a
felony punishable by imprisonment in the county jail for a term
of either 16 months, 2 or 3 years. This bill died in the
Assembly Committee on the Judiciary.
Staff Comments: By imposing lengthier jail terms for convictions
for violating the prohibitions against accepting advance fees
for loan modification services, this bill could increase costs
to local agencies for longer sentences served in county jail.
Under 2011 Realignment Legislation, the state provided funding
to the counties to place offenders in county jail for specified
felonies ("1170(h) felonies") that previously would have
required a state prison sentence.
Staff notes that because the crime of mortgage loan modification
fraud (CC � 2944.7(a)) under existing law is a misdemeanor, no
costs were provided to local agencies under 2011 Realignment
Legislation for this crime. Pursuant to Proposition 30 (2012),
legislation enacted after September 30, 2012, that has an
overall effect of increasing the costs already borne by a local
agency for programs or levels of service mandated by the 2011
Realignment Legislation apply to local agencies only to the
extent that the state provides annual funding for the cost
increase. Although Proposition 30 specifies that legislation
defining a new crime or changing the definition of an existing
crime is not subject to this provision, changing the penalty for
a crime is not specifically exempted and could potentially
require a subvention of funds from the state.
While it is unknown how many cases would potentially be impacted
by this measure, assuming even two annual convictions are
charged as a felony and serve jail terms an average of 12 months
longer (given the difference in sentencing terms of up to one
year for a misdemeanor vs. up to three years under this bill),
would result in annual costs of $73,000 (General Fund) assuming
an average daily jail rate of $100.
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The enhanced civil penalties proposed in this measure are
estimated to result in absorbable costs to the AG and local
prosecutors related to new civil actions potentially brought
forward, offset to a degree by fine revenues resulting from the
new civil penalty assessment of up to $20,000 per violation.
Recommended Amendments: To reduce potential state costs, the
author may wish to consider an amendment to remove the enhanced
felony jail penalty proposed in this measure.
Committee amendments remove the felony penalty provision from
the bill.