New Foreclosed Home Law

California foreclosure law

The Escrow Institute of California announced that on 10-23-09  Governor Schwarzenegger signed Assembly Bill 957 into law. This bill, authored by Assembly Member Cathleen Galgiani (D-Tracy), protects consumers by ensuring that they have the right to choose their own real estate service providers when purchasing foreclosed properties.

AB 957, known as the Buyer’s Choice Act, prohibits sellers of so-called REO properties – typically foreclosed properties owned by banks – from requiring the buyer to use a particular title company, escrow settlement or other real estate service provider. This unethical, anti-competitive practice drives up costs for homebuyers and takes business away from locally owned companies. The problem has become particularly acute in the Central Valley and Inland Empire, areas that have faced some of the highest foreclosure rates in the country. Recent data indicate that 11 of the nation’s top 20 foreclosure rates are in California metropolitan areas.

“Homebuyers should have every right to choose their title, escrow and real estate service providers based on price and quality of service,” said Assembly Member Cathleen Galgiani. “AB 957 ensures that buyers can make marketplace choices that suit their own best interests, rather than getting forced to serve the financial interests of some international bank or other corporation.”

The Buyer’s Choice Act enjoyed overwhelming, bi-partisan support in the Legislature, with State Senator Jeff Denham (R-Merced) providing important assistance. AB 957 was sponsored by the Escrow Institute of California, and received support from the California Association of Realtors and numerous real estate professionals from across the state. The bill requires that REO sellers provide a disclosure notice to buyers informing them of their rights to choose their own title, escrow and other real estate services. Sellers who violate the provisions of AB 957 are subject to enforcement action by state regulators and liable to buyers for civil penalties.

“It’s just not right that independent escrow companies and other local real estate businesses are being literally locked out of the foreclosure sales market,” said Escrow Institute of California CEO Tim Egan. “These local companies oftentimes offer the best price and highest quality of service available to consumers. Excluding these companies from REO sales kills local jobs and eliminates competition in the marketplace.”

Below is some additional information on the new California law:

“Buyers Choice Act” for Title & Escrow

A bill that would prohibit a seller of foreclosed property from requiring that
the buyer purchase title insurance or escrow services from a particular title
insurer or escrow agent as a condition of selling the property passed the
California Senate by a vote of 29 to 4 on September 1st.

Assembly Bill 957, also known as “The Buyers Choice Act,’ will ensure that homebuyers can use local escrow services to provide better service at lesser cost in the purchase of Bank Owned houses.

Assemblymember Cathleen Galgiani (D-Livingston) aided by Senator Jeff Denham (R-Merced) successfully guided “The Buyers Choice Act”, AB 957, to passage on the Senate floor. Galgiani made the bill an urgency measure in the Senate which requires a two-thirds vote but would have the law go into effect immediately after being signed by the Governor and chaptered by the Secretary of State rather than January 2010.

“It will reduce costs for homebuyers and give local escrow companies a chance to compete for business.”

Due to the urgency measure change and some other minor amendments AB 957 must go back to the Assembly for concurrence before going to the Governor. AB 957 passed the Assembly in May by a vote of 77 to 0.

Why is the bill necessary? According to Galgiani, it will reduce costs for homebuyers and give local escrow companies a chance to compete for business. The foreclosure crisis over the last two years revealed a practice in the market that is having significant consequences to home buyers, their realtors and local escrow offices. Banks and other large lenders that have taken possession of foreclosed homes are increasingly requiring that buyers of those properties use escrow companies with which they have contracts regardless of who pays for the service. This practice causes local homebuyers to pay up to twice as much in escrow fees to escrow offices out of the area that provide inadequate service to the buyer.

Assemblywoman Galgiani alerted to the problem by local realtors and mortgage industry professionals.

The “Buyers Choice Act” would mandate that buyers of bank owned properties (foreclosed homes) would have the choice of using a local escrow office to handle the transaction. It would prohibit a seller of residential property from requiring the buyer to use an escrow service company or purchase title insurance chosen by the seller and would also prohibit a seller of residential property from, without good cause, disapproving the use of a title or escrow company chosen by a buyer.

A seller who violates the provisions of the bill would be liable to the buyer for an amount equal to three times all charges made for the title insurance or escrow services.

“Local escrow companies, which can offer the best resources and service in the current housing crisis, are being shut out of the bank owned (foreclosed) housing market,” according to Galgiani. “Instead of local businesses assisting buyers and expediting the transfer of foreclosed properties to homeowners, they’re literally locked out of the market. Excluding local businesses from competition for services also eliminates local jobs that further harms the local economy and eliminates competition.”

Currently, a federal law called the Real Estate Settlement Procedures Act (RESPA) prohibits a seller of residential property from requiring or influencing a buyer to purchase title insurance from a company chosen by the seller. Assembly Bill 957 seeks to do the same with escrow services which are often joined with title insurance.

In its current form, AB 957 “does not prohibit a buyer from agreeing to accept a title insurer or an escrow agent recommended by the seller if written notice of the right to make an independent selection is first provided by the seller to the buyer.”

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