People may disagree about the who, what, and why of the mortgage meltdown, but the California Legislature is determined to act decisively.  A little over a month ago, California enacted SB 1137, dealing with contacts between lenders and borrowers prior to foreclosure, the duty to maintain foreclosed properties, and other matters.  UTA members are working overtime to understand and implement the bill, which leaves many technical questions unanswered.  At the same time, the Legislature is considering further regulation of mortgage products, and mortgage lenders.

As this column is written, less than two weeks remain in the 2007-2008 two-year session of the California Legislature, and it is difficult to discern amidst the chaos exactly which bills will survive.  Clearly, many bad ideas were killed in the Legislature, but many remain alive and may go to Governor Schwarzenegger for signature.  Listed below are major proposals which may be enacted, meaning that they have neither passed already nor failed passage…the outcome will be reported at the UTA conference in the fall and in future issues of UTA Quarterly.

• AB 69 (Lieu): Mortgage Servicing Information.  Would require California Finance Lenders (CFLs) to submit specified mortgage servicing information, and broaden the authority of the Commissioner of Corporations to require servicing information from entities not subject to Department of Corporations jurisdiction.
  
  
• AB 180 (Bass): Foreclosure Consultants.  Broadens regulation over foreclosure consultants in California.  Includes a complete prohibition on receiving a fee to help former owners recover surplus funds after a foreclosure sale.

• AB 529 (Torrico): ARM Interest Rate Notifications.  Contains detailed requirements under which servicers would be required to notify borrowers of ARM adjustments, in addition to any required notifications under Reg Z.

• AB 1333 (Hancock):  Payment of Utility Charges.  Requires legal owners of residential rental property acquiring title through foreclosure to pay utility charges to service providers if the tenant paid the landlord for a utility service and was not a direct customers of the utility provider.  Contains similar provisions for mortgagees collecting payments under assignment of rents provisions.

• AB 1830 (Lieu): Higher-Cost Mortgages.  Creates a new category of higher-cost mortgages under the California Financial Code, defined as loans with specified percentages above Treasure rates.  These higher-cost loans would carry unique limitations on prepayment penalties, specified disclosures and limitations on broker compensation (including YSPs) and an express fiduciary duty from brokers providing services to borrowers and those borrowers.

• AB 2359 (Jones):  Loans: Waivers of Rights.  Prohibits borrowers from waiving rights (eg., through arbitration clauses) in nontraditional, subprime, or covered loans, as defined.

• AB 2586 (Torrico):  Residential Tenancies.  Similar to some of the provisions of AB 1333 above, this bill governs the obligations of legal owners following foreclosure for utility services and security deposits.

• SB 1240 (Machado):  Real Estate Brokers.  Proposes extensive new reporting obligations on real estate brokers offering mortgage brokerage or lending services.  CPAs would be required to perform certain “agreed-upon procedures” for reporting to the Department of Real Estate.

• SB 1055 (Machado):  Mortgage Debt Forgiveness.  Largely conforms the California Personal Income Tax law to provisions of the federal Internal Revenue Code concerning debt forgiveness.  Covers debt discharge for qualified principal residences which occurred between January 1, 2007 and January 1, 2009.

• SB 1511 (Ducheny):  Common Interest Developments.  Would permit homeowners associations to record special requests for notice of trustees sales, which in turn would obligate trustees to send the association copies of trustees deeds upon sale for units within the developments.

• SB 1737 (Machado):  Real Estate Licensees.  Would empower the Real Estate Commissioner to suspend or bar from employment in real estate offices unlicensed persons in specified situations.

For previous articles by Michael Belote, click here.