BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Hannah-Beth Jackson, Chair
2013-2014 Regular Session
SB 1051 (Galgiani)
As Introduced
Hearing Date: April 1, 2014
Fiscal: No
Urgency: No
RD
SUBJECT
Buyer's Choice Act
DESCRIPTION
Existing law, the Buyer's Choice Act, prohibits a seller from
imposing, as a condition of the sale of a foreclosed home, the
purchase of title insurance or escrow services from a particular
insurer or provider. The provisions of the Act will sunset on
January 1, 2015. This bill would extend the sunset date to
January 1, 2019.
BACKGROUND
In California, the nonjudicial foreclosure process begins with
the filing of a Notice of Default and concludes with a trustee's
sale where the property is sold to the highest bidder. If
there are no bids over and above the opening bid, the property
reverts back to the lender or servicer who placed that opening
bid (thus, becoming a bank owned property). Those lenders are
then left with an abundance of properties that may then be sold
or auctioned off at a later date.
In 2009, AB 957 (Galgiani, Ch. 264, Stats. of 2009) enacted the
Buyer's Choice Act, in order to prevent the seller (the
foreclosing lender or servicer) from requiring a buyer to
purchase title insurance or escrow services from a specific
company. In doing so, the bill partially codified a prohibition
in the federal Real Estate Settlement Procedures Act (RESPA)
that, with respect to federally related mortgage loans,
prohibits sellers from requiring a buyer to purchase title
insurance from a particular title company. In response to
(more)
SB 1051 (Galgiani)
Page 2 of ?
opposition concerns raised in earlier iterations of the bill, AB
957 included a sunset date of January 1, 2015 in order to allow
for the Legislature to revisit the policy issues. This bill
would now extend that sunset by four years, to January 1, 2019.
CHANGES TO EXISTING LAW
Existing federal law , the federal Real Estate Settlement
Procedures Act (RESPA), regulates transactions between buyers,
sellers, and mortgagees involving "settlement services"
(including title insurance and escrow services). That Act
generally requires that borrowers receive certain timely
disclosures relating to the costs of those settlement services,
and prohibits certain practices on the part of a mortgagee that
increase the costs of settlement services. (12 U.S.C. Sec. 2601
et seq.)
Existing federal law provides, under RESPA, that no seller of
property that will be purchased with the assistance of a
federally related mortgage loan shall require, directly or
indirectly, as a condition to selling the property, that title
insurance covering the property be purchased by the buyer from
any particular title company. Any seller who violates that
provision is liable to the buyer in an amount equal to three
times all charges made for such title insurance. (12 U.S.C.
Sec. 2608.)
Existing state law , the Escrow Law, provides for the licensing
of escrow agents by the Department of Corporations, and states
that any person subject to the Escrow Law who violates any
provision of RESPA, or any regulation promulgated thereunder,
violates the Escrow Law. (Fin. Code Sec. 17425.)
Existing state law , the Buyer's Choice Act, prohibits a seller
from directly or indirectly, as a condition of receiving offers
or selling residential real property to a buyer, requiring the
buyer to purchase title insurance or escrow services in
connection with the sale of that property from a company chosen
by the seller. (Civ. Code Sec. 1103.22(a).)
Existing state law , the Buyer's Choice Act, defines "seller" as
a mortgagee or beneficiary under a deed of trust who acquired
title to residential real property improved by four or fewer
SB 1051 (Galgiani)
Page 3 of ?
dwelling units at a foreclosure sale, including a trustee,
agent, officer, or other employee of any such mortgagee or
beneficiary. (Civ. Code Sec. 1103.22(b)(2).)
Existing state law , the Buyer's Choice Act, states that a seller
who violates this Act shall be liable to a buyer in an amount
equal to three times all charges made for the title insurance or
escrow service. In addition, any person who violates this
section shall be deemed to have violated his or her license law
and shall be subject to discipline by his or her licensing
entity. (Civ. Code Sec. 1103.22(c).)
Existing state law , the Buyer's Choice Act, provides that a
transaction shall not be invalidated solely because of the
failure of any person to comply with any provision of the Act.
Existing state law , the Buyer's Choice Act, will sunset on
January 1, 2015 unless a later enacted statute deletes or
extends that date.
This bill would extend the above sunset date to January 1, 2019.
COMMENT
1. Stated need for the bill
According to the author:
Since the last major bout of foreclosures during the downturn
of the 1990's, a practice was developed in the foreclosure
market that was having significant consequences to many
groups, including home buyers.
The Buyer's Choice Act was put in place to prevent certain
business arrangements that may involve unlawful referral fees
to third-party risk management companies. The Buyer's choice
act enables homebuyers to have more freedom of choice.
This bill, SB 1051 (Galgiani), would extend the sunset date of
[t]he Buyer's Choice Act from January 1, 2015 to January 1,
2019.
The sponsor of this bill, the Escrow Institute of California
adds, that "[t]he real estate marketplace has shown some
important improvements over the last year, but not enough to let
the consumer protections in the Buyer's Choice Act sunset on
January 1, 2015. Until such time as we see a sustainable trend
SB 1051 (Galgiani)
Page 4 of ?
and overall rebound in the number of new or resale homes
increase over the number of distressed sales (bank-owned
properties, short sales, and foreclosure auctions) then we feel
the provisions of AB 957 should be extended."
2. Buyer's Choice Act protections are still needed despite
general improvements in the housing market
This bill seeks to extend the sunset date of the Buyer's Choice
Act (Act) to January 1, 2019. That Act currently prohibits a
seller from requiring the buyer, as a condition of the sale of a
foreclosed home, to purchase title insurance or escrow services
from a particular insurer or provider.
When the Act was first implemented in 2009 by AB 957 (Galgiani,
Ch. 264, Stats. 2009), the author argued that banks and the
Housing and Urban Development Department were "increasingly
requiring the use of specific service providers when they are
the seller of residential property, regardless of who pays for
the service," a practice that was prohibited by RESPA with
respect to title insurance providers. The author further argued
that this practice directly impacted local businesses "which
offer the best resources and solutions for relieving the current
housing crisis [and] are being shut out of the Real Estate Owned
(REO) market. Instead of local businesses assisting homeowners
and expediting the transfer of foreclosed properties to
purchasers, they're literally on the outside with no way to get
in. Excluding local businesses from competition for services,
eliminates local job creation that stimulates local economies
and violates anti-competition and anti-trust laws."
Although the real estate market has made significant strides
towards recovery in recent years, recovery is far from complete,
and, as noted by the author, "California still rates high in the
number of foreclosed properties . . . ." Committee staff notes
that information provided by the author from RealtyTrac, a
housing data provider, demonstrates that while the number of
foreclosures in California have largely been on a downward trend
since 2010, in January of this year, foreclosure rates actually
increased 57 percent from a year ago. (See RealtyTrac, January
2014 Foreclosure Market Report available at
[Feb. 13, 2014].)
Thus, if the provisions of the bill were allowed to expire while
foreclosures still pose a significant problem for California's
housing market, the same problems leading up to the passage of
SB 1051 (Galgiani)
Page 5 of ?
AB 957 could presumably reemerge. As such, it is arguably
appropriate to retain these protections for buyers beyond the
current sunset of January 1, 2015 and revisit this issue in the
future, during a more stabilized housing market.
Support : None Known
Opposition : None Known
HISTORY
Source : Escrow Institute of California
Related Pending Legislation : None Known
Prior Legislation : AB 957 (Galgiani, Ch. 264, Stats. 2009) See
Background.
**************