BILL NUMBER: AB 1603INTRODUCED BILL TEXT INTRODUCED BY Assembly Members Feuer and Eng (Coauthors: Assembly Members Dickinson and Skinner) FEBRUARY 6, 2012 An act to add Article 1.7 (commencing with Section 2946) to Chapter 2 of Title 14 of Part 4 of Division 3 of the Civil Code, relating to mortgages. LEGISLATIVE COUNSEL'S DIGEST AB 1603, as introduced, Feuer. Mortgages and deeds of trust: mortgage servicers: force-placed insurance. Existing law generally regulates mortgages and deeds of trust, including, among other things, recording mortgages and deeds of trust, disclosures in connection with mortgages and deeds of trust, and foreclosure procedures for mortgages and deeds of trust. This bill would regulate the arranging by a mortgage servicer, as defined, of a replacement policy of hazard, flood, or homeowner's insurance, collectively defined as "force-placed insurance," with respect to a residential property securing a mortgage loan, when a borrower has failed to make payments on hazard, flood, or homeowner's insurance sufficient to satisfy the terms of the mortgage loan agreement. The bill would require a mortgage servicer to make reasonable efforts to continue or reestablish the borrower's insurance with respect to the property, as specified, prior to arranging for force-placed insurance. The bill would require a mortgage servicer to provide written notice, as specified, to a borrower prior to arranging for force-placed insurance. The bill would specify the circumstances, manner, and limitations under which a mortgage servicer may arrange for force-placed insurance, and when a borrower is entitled to a refund from the mortgage servicer in connection with that insurance. The bill would authorize a borrower to bring a civil action in connection with the mortgage servicer's violation of the provisions of the bill. The bill would authorize the Attorney General to bring an action for injunctive relief, and for restitution, disgorgement, or damages, as appropriate, for the affected borrowers. The bill would also authorize the Attorney General to include a claim for costs, including reasonable attorney's fees and expenses. The bill would further authorize the Attorney General to levy a civil penalty not exceeding $10,000 against any mortgage servicer who violates the provisions of the bill, and would establish notice and hearing procedures for persons subject to the civil penalty. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Article 1.7 (commencing with Section 2946) is added to Chapter 2 of Title 14 of Part 4 of Division 3 of the Civil Code, to read: Article 1.7. Force-Placed Insurance 2946. As used in this article, the following definitions shall apply: (a) "Force-placed insurance" means a policy of hazard, flood, or homeowner's insurance that is purchased on behalf of a borrower by a mortgage servicer with respect to real property securing a mortgage loan serviced by the mortgage servicer after the borrower has failed to make payments on hazard, flood, or homeowner's insurance for that property. (b) "Mortgage servicer" means a person that is an approved servicer for the Federal Housing Administration, Veterans Administration, Farmers Home Administration, Government National Mortgage Association, Federal National Mortgage Association, or Federal Home Loan Mortgage Corporation, and directly services or offers to service mortgage loans. (c) "Mortgage loan" means a federally related mortgage loan as defined in Section 3500.2 of Title 24 of the Code of Federal Regulations, or a loan made to finance construction of a one-to-four family dwelling. 2946.1. (a) If a mortgage servicer is aware that a borrower has failed to make a premium payment to maintain hazard, flood, or homeowner's insurance coverage sufficient to satisfy the terms of the mortgage loan agreement, the mortgage servicer shall take reasonable actions to continue or reestablish that insurance coverage. (b) A mortgage servicer may require a borrower to provide updated premium payment information to enable the mortgage servicer to continue or reestablish insurance coverage described in subdivision (a). 2946.2. A mortgage servicer shall not arrange for force-placed insurance if the mortgage servicer knows or has reason to know that the borrower has insurance coverage sufficient to satisfy the terms of the mortgage loan agreement. 2946.3. If a mortgage servicer satisfies the requirements of Section 2946.1 and is not able to continue or reestablish the borrower's hazard, flood, or homeowner's insurance, the mortgage servicer may arrange for force-placed insurance covering the mortgaged property. Prior to arranging for force-placed insurance, the mortgage servicer shall provide written notice to the borrower, including a clear and conspicuous statement, of all of the following: (a) Procedures for the borrower to, within a reasonable period of time specified in the notice, demonstrate to the mortgage servicer that the borrower has insurance coverage sufficient to satisfy the requirements set forth in the mortgage loan agreement. (b) Procedures by which the mortgage servicer shall terminate the force-placed insurance and refund to the borrower any insurance premiums and related fees paid by or charged to the borrower. 2946.4. A mortgage servicer shall provide the borrower with a refund of unearned premiums paid by the borrower or charged to the borrower for force-placed insurance arranged by the mortgage servicer if the borrower provides reasonable proof that the borrower has obtained insurance coverage sufficient to satisfy the terms of the mortgage loan agreement. 2946.5. (a) A mortgage servicer who arranges for force-placed insurance in accordance with this chapter shall obtain that insurance coverage at a commercially reasonable rate. (b) A mortgage servicer shall not arrange for force-placed insurance, or require a borrower to obtain or maintain insurance coverage, in excess of the replacement cost of the improvements on the mortgaged property. (c) A mortgage servicer shall not arrange for force-placed insurance with an affiliated entity or any entity in which the mortgage servicer has an ownership interest. (d) A mortgage servicer shall not split fees, give, or accept any referral fees or anything else of value in connection with arranging for force-placed insurance. (e) A mortgage servicer shall pay to the borrower the amount of any funds that the mortgage servicer receives as a result of arranging for force-placed insurance in violation of this section. 2946.6. A borrower may bring a civil action against a mortgage servicer that violates this article with respect to that borrower. 2946.7. (a) In addition to the remedy provided in Section 2946.6, the Attorney General may bring an action for injunctive relief, and for restitution, disgorgement, or damages, as appropriate, on behalf of injured borrowers, and may include a claim for costs, including reasonable attorney's fees and expenses. (b) In addition to the remedies provided in subdivision (a) and in Section 2946.6, the Attorney General may levy a civil penalty not exceeding ten thousand dollars ($10,000) against any mortgage servicer who violates this article. (c) Before a civil penalty is levied, the person charged with the violation shall be given a written notice of the nature of the violation and the amount of the proposed penalty, and shall have the right to request a hearing within 20 days after receiving notice of the proposed penalty. A notice of the proposed penalty that is sent by certified mail to the last known address of the person charged shall be considered to have been received even if delivery is refused or the notice is not accepted at that address. If a hearing is requested, notice of the time and place of the hearing shall be given at least 10 days before the date set for the hearing. At the hearing, the person shall be given an opportunity to review the Attorney General's evidence and to present evidence on his or her own behalf. If a hearing is not timely requested, the Attorney General may impose the penalty proposed without a hearing.