BILL ANALYSIS �
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THIRD READING
Bill No: AB 1730
Author: Wagner (R)
Amended: 8/19/14 in Senate
Vote: 21
SENATE JUDICIARY COMMITTEE : 6-0, 6/17/14
AYES: Jackson, Corbett, Lara, Leno, Monning, Vidak
NO VOTE RECORDED: Anderson
SENATE PUBLIC SAFETY COMMITTEE : 6-1, 6/24/14
AYES: Hancock, Anderson, De Le�n, Knight, Liu, Mitchell
NOES: Steinberg
SENATE APPROPRIATIONS COMMITTEE : 5-0, 8/14/14
AYES: De Le�n, Hill, Lara, Padilla, Steinberg
NO VOTE RECORDED: Walters, Gaines
ASSEMBLY FLOOR : 73-0, 5/23/14 (Consent) - See last page for
vote
SUBJECT : Mortgage loan modification
SOURCE : Author
DIGEST : This bill authorizes a public prosecutor to assess a
$20,000 civil penalty against any person who negotiates a loan
modification charging the borrower an upfront fee, as well as a
$2,500 civil penalty if the victim is a disabled person or a
senior citizen. Authorizes a court to order an offender to pay
restitution to a victim, and enacts a four-year statute of
CONTINUED
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limitation for bringing an action.
ANALYSIS :
Existing law:
1.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:
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.
2.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:
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
represented that he/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.
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1.Provides that a violation of the advance fee prohibition 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.
This bill:
1.Provides that in addition to the penalties and remedies
provided by existing law, as specified, a person who violates
the advance fee prohibition be liable for a civil penalty not
to exceed $20,000 for each violation, which will be assessed
and recovered in a civil action brought in the name of the
people of the State of California by the Attorney General, or
by a public prosecutor, as specified.
2.Provides that, in addition to the new penalties, if a person
violates the advance fee prohibition with respect to a victim
who is a senior citizen or a disabled person, the violator may
be liable for an additional civil penalty not to exceed $2,500
for each violation. This bill defines a "disabled person" to
mean a person who has a physical or mental disability, as
specified, and defines a "senior citizen" to mean a person who
is 65 years of age or older. This bill also directs the court
to consider, among other things, specified factors in
determining whether to impose an additional civil penalty.
3.Provides that a court of competent jurisdiction 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 the
above advance fee prohibition.
4.Provides that any cause of action alleging a violation of the
above prohibitions shall be commenced within four years after
the cause of action accrued.
Background
On March 24, 2009, the Senate Judiciary Committee held an
informational hearing that focused on the serious problem of
foreclosure-related scams facing delinquent homeowners. Many of
those scams involved a promise to renegotiate a delinquent
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borrower's loan in exchange for a significant up-front fee. In
arresting three members of a foreclosure fraud ring in Southern
California in November 2009, the Attorney General's office
reported:
The arrests came after an investigation into First Gov,
also operating as Foreclosure Prevention Services,
uncovered that the company was soliciting hundreds of
homeowners with mail flyers offering to help them stop the
foreclosure process on their homes. The scammers falsely
told homeowners that they would renegotiate their
mortgages, reduce monthly payments, and transfer any
delinquent loan amounts to the renegotiated principle. The
company demanded an up-front fee, ranging from $1,500 to
$5,000, to participate in the loan-modification program.
The company also told the victims to stop any mortgage
payments or communications with their lender, claiming they
would interfere with the company's effort to negotiate the
loan modification.
When victims complained that they were still receiving
delinquency or foreclosure notices from their lenders,
fraud-ring members told the victims that the mortgage loans
had been renegotiated, but the lenders needed a "good
faith" payment to secure the new accounts. Homeowners made
payments to accounts under business names such as
"Reinstatement Department" or "Resolution Department" that
made it appear as if the payment had been applied toward
the loan. Bank records indicate that more than $700,000
was stolen from homeowners who fell victim to this scheme.
In response to this and similar incidents, the Legislature
passed and the Governor signed SB 94 (Calderon, Chapter 630,
Statutes of 2009) which prohibited, until January 1, 2013, any
person 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. Relying on the provisions of SB 94,
the State Bar, the Bureau of Real Estate, and the California
Attorney General have acted on thousands of complaints and taken
enforcement action against hundreds of foreclosure scammers.
About a year after the enactment of SB 94, the Federal Trade
Commission promulgated the Mortgage Assistance Relief Services
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rule that also, subject to certain exceptions, prohibits the
collection of advance fees by loan modification service
providers, and requires certain disclosures to be made to
consumers.
As enacted, the prohibitions in SB 94 were to sunset on January
1, 2013. This sunset date was extended to January 1, 2017, in
SB 980 (Vargas, Chapter 563, Statutes of 2012) and was extended
indefinitely by AB 1950 (Davis, Chapter 569, Statutes of 2012).
AB 1950 additionally made it unlawful to act as a mortgage loan
originator without being licensed, and extended the statute of
limitation period for prosecution of certain misdemeanors such
as running loan modification scams or selling real estate
without a license.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee, minor,
absorbable costs to the 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
bill.
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.
SUPPORT : (Verified 8/18/14)
Los Angeles County Board of Supervisors
Taxpayers for Improving Public Safety
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OPPOSITION : (Verified 8/18/14)
Department of Finance
ARGUMENTS IN SUPPORT : The author writes:
Mortgage loan modification fraud is a huge issue, especially
amongst unwitting senior citizens. Due to the deflation of real
property values, either (1) the liens securing the promissory
note(s) for principal residential property exceeds the value of
the parcel or (2) the loans which were made have resulted in
mortgage payments beyond the ability of the property owners to
pay. As a consequence, individuals desperate to save their
homes have paid what little money they may still have in advance
to individuals who claim to be able to save the home by
obtaining a loan modification. These individuals then take the
money, abandon the homeowners, and allow the property to be sold
at foreclosure.
Because this is a white collar crime and a misdemeanor, priority
for prosecution is low. District attorneys are finding that the
penalties for the statutory violation are not sufficient to
deter the crime as victims of fraud are potentially losing
hundreds of thousands of dollars in the aggregate, but the
offense is just a misdemeanor. There is a desire amongst
district attorneys to increase the criminal punishments as a
future deterrent to individuals engaging in this type of
behavior.
ASSEMBLY FLOOR : 73-0, 5/23/14
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Bocanegra, Bonta, Bradford, Brown, Buchanan, Ian Calderon,
Campos, Chau, Ch�vez, Chesbro, Conway, Cooley, Dababneh,
Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier,
Beth Gaines, Garcia, Gatto, Gomez, Gonzalez, Gordon, Gorell,
Gray, Grove, Hagman, Hall, Holden, Jones, Jones-Sawyer,
Levine, Linder, Logue, Lowenthal, Maienschein, Mansoor,
Medina, Mullin, Muratsuchi, Nazarian, Olsen, Pan, Patterson,
Perea, John A. P�rez, Quirk, Quirk-Silva, Rendon,
Ridley-Thomas, Rodriguez, Salas, Skinner, Stone, Ting, Wagner,
Waldron, Weber, Wieckowski, Wilk, Williams, Yamada, Atkins
NO VOTE RECORDED: Bonilla, Harkey, Roger Hern�ndez, Melendez,
Nestande, V. Manuel P�rez, Vacancy
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AL:e 8/19/14 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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