BILL ANALYSIS �
SB 1051
Page 1
Date of Hearing: June 24, 2014
ASSEMBLY COMMITTEE ON JUDICIARY
Bob Wieckowski, Chair
SB 1051 (Galgiani) - As Amended: June 17, 2014
SENATE VOTE : 35-0
SUBJECT : Buyer's Choice Act
KEY ISSUE : Should the sunset provision in the Buyer's Choice
Act be removed, thus making permanent a statute that prohibits
the seller of a foreclosed property from forcing the buyer of
the property to use a title insurer or escrow company of the
seller's choice?
SYNOPSIS
This non-controversial bill removes the sunset provision in the
California Buyer's Choice Act, which is currently set to expire
on January 1, 2015. Removing the sunset will effectively make
the Act permanent. The Buyer's Choice Act was first enacted in
2009, partly in response to the state's foreclosure crisis. The
Act prohibits the seller (typically a bank or mortgagee) of a
foreclosed property from requiring the buyer to use a particular
title insurer or escrow agent as a condition of the sale. The
author believed then, as now, that the buyer - who is most
likely to pay for the insurance or service - should be free to
use the insurer or service of his or her choice. Federal law
already prohibits a buyer from compelling the seller to use a
particular title insurer if the property is purchased with a
federally-backed loan. The Buyer's Choice Act applies to both
title insurance and escrow services and to both federally-backed
and non-federally backed loans. The sunset date was included in
the original legislation, according to the legislative history,
so that the policy could "be reassessed and revisited." There
being no evidence that this policy has led to any unintended or
unwanted consequences, it seems appropriate to remove the sunset
and make the Buyer's Choice Act permanent. There is no
opposition to this measure.
SUMMARY : Removes the sunset on, and thus makes permanent, the
California Buyer's Choice Act, which generally prohibits a
seller of a foreclosed property from requiring the buyer to use
a particular title insurance or escrow company as a condition of
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the sale.
EXISTING LAW :
1)Prohibits, until January 1, 2015, a mortgagee or beneficiary
under a deed of trust who acquired title to residential real
property at a foreclosure sale from requiring, as a condition
of selling the property, that the buyer purchase title
insurance or escrow services in connection with the sale from
a particular title insurer or escrow agent. (Civil Code
Section 1103.22.)
2)Requires title insurers, controlled escrow companies, and
underwritten title companies who operate in this state to
obtain a certificate of authority or license, as specified.
(Insurance Code Sections 1621 and 1634.)
3)Makes it unlawful for any title insurer, underwritten title
company, or controlled escrow company to directly or
indirectly pay any commission, compensation, or other
consideration to any person as an inducement for the placement
or referral of title business. (Insurance Code Section
12404.)
4)Provides for the licensing and regulation of escrow agents who
operate in this state and expressly provides that any person
that violates any provision of the federal Real Estate
Settlement Procedures Act (RESPA), or any regulation
promulgated thereunder, also violates the corresponding
provisions in state law. (Financial Code Section 17425.)
5)Regulates, under RESPA, transactions between buyers, sellers,
and mortgagees involving "settlement services" (including
title insurance and escrow services). 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 increases the costs
of settlement services. (12 USC Section 2601 et seq.)
6)Provides, under RESPA, that no seller of property that will be
purchased with the assistance of a federally-backed 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. Specifies that any seller who violates this
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provision shall be liable to the buyer in an amount equal to
three times all charges made for such title insurance. (12
USC Section 2608.)
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
COMMENTS : In 2009 the author's AB 947 (Chapter 264, Statutes of
2009) enacted the Buyer's Choice Act. That measure addressed
one of the many adverse consequences of California's rising
number of home foreclosures. At that time, the author
contended, banks and other lending institutions acquired
foreclosed properties, entered the residential real estate
market as sellers, and used their institutional leverage to
require that the buyers use the bank's favored title insurers
and escrow services, even though the buyer is generally the one
who pays for that service. Accordingly, AB 947 - which passed
out of this Committee on a 10-0 vote - prohibited any seller who
has acquired title in a foreclosed residential property
(typically the mortgagee) from requiring the buyer to purchase
title insurance or escrow services chosen by the seller.
The Buyer's Choice Act supplemented provisions of the federal
Real Estate Settlement Procedures Act, or RESPA, which prohibits
a seller from requiring the buyer to use a particular title
insurer as a condition of the sale - regardless of whether or
not the property was acquired by foreclosure. Federal law also
provides that a seller who violates this provision is liable to
the buyer for an amount equal to three times the amount of all
title insurance charges. (12 USC 2601 et seq.) The Buyer's
Choice Act differs from federal law, however, in two ways:
first, it applies to title insurers and escrow agents, whereas
federal law only applies to the former; second, it applies to
both federally-backed and non-federally-backed loans, whereas
RESPA only applies to the former.
When the early versions of the original legislation was debated
in this and other policy committees in 2009, the California
Realtor's Association (CAR) expressed a number of concerns.
These concerns were apparently addressed in subsequent
amendments as it appears that CAR, along with other opponents,
eventually removed its opposition. However, these concerns were
addressed in part when the bill was heard by the Assembly
Banking & Finance Committee by adding the sunset provision, "so
that the policy may be reassessed and revisited." (Assembly
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Banking & Finance Committee, Analysis of AB 957, May 5, 2009.)
There being no evidence that the Buyer's Choice Act has led to
unwanted and unintended consequences, it appears appropriate to
remove the sunset and make the Buyer's Choice Act permanent.
ARGUMENTS IN SUPPORT : According to the author, this bill "seeks
to continue [The Buyer's Choice Act] to provide consumer
protection." 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."
REGISTERED SUPPORT / OPPOSITION :
Support
Escrow Institute of California (sponsor)
Opposition
None on file
Analysis Prepared by : Thomas Clark / JUD. / (916) 319-2334