Existing law requires a creditor to make certain disclosures to a consumer applying for a home equity loan, as defined. Under existing law, upon receipt of a specified written request from a borrower, the lender must suspend the borrowers equity line of credit for a minimum of 30 days. Upon receipt of both that request and a specified payment, existing law requires a lender to close the borrowers equity line of credit and release or reconvey the property secured by the line of credit, as specified. Existing law provides for the repeal of these equity line of credit suspension and closure provisions on July 1, 2019.

This bill would extend the operation of those provisions indefinitely.

Existing law requires a creditor to make certain disclosures to a consumer applying for a home equity loan, as defined. Under existing law, upon receipt of a specified written request from a borrower, the lender must suspend the borrowers equity line of credit for a minimum of 30 days. Upon receipt of both that request and a specified payment, existing law requires a lender to close the borrowers equity line of credit and release or reconvey the property secured by the line of credit, as specified. Existing law provides for the repeal of these equity line of credit suspension and closure provisions on July 1, 2019.

This bill would extend the operation of those provisions indefinitely.

Existing law requires a creditor to make certain disclosures to a consumer applying for a home equity loan, as defined. Under existing law, upon receipt of a specified written request from a borrower, the lender must suspend the borrowers equity line of credit for a minimum of 30 days. Upon receipt of both that request and a specified payment, existing law requires a lender to close the borrowers equity line of credit and release or reconvey the property secured by the line of credit, as specified. Existing law provides for the repeal of these equity line of credit suspension and closure provisions on July 1, 2019.

This bill would extend the operation of those provisions indefinitely.

Date of Hearing:

ASSEMBLY COMMITTEE ON BANKING AND FINANCE

Monique Limón, Chair

SBPCA Bill Id:SB 1139

Author:(Morrell) – As Introduced Ver:February 13, 2018

SENATE VOTE: 38-0

SUBJECT: Real property liens: equity lines of credit: suspend and close

SUMMARY: Deletes the sunset provision on the section of law that provides a procedure for the suspension and closure of a home equity line of credit.

EXISTING LAW:

1. Defines an “entitled person” as a borrower, lender in first or subordinate position, and as the escrow or title company handling a property escrow (Civil Code Section 2943).
   
2. Defines a “payoff demand statement” as a written statement, prepared in response to a written demand made by an entitled person or authorized agent, setting forth the amounts required as of the date of preparation by the beneficiary, to fully satisfy all obligations secured by the loan that is the subject of the payoff demand statement (Civil Code Section 2943).
   
3. Until July 1, 2019:
   
   1. Defines “equity line of credit” as a revolving line of credit used for consumer purposes, which is secured by a mortgage or deed of trust encumbering residential real property consisting of one to four dwelling units, at least one of which is occupied by the borrower (Civil Code Section 2943.1).
      
   2. Defines “suspend” as prohibiting a borrower from drawing on, increasing, or incurring any additional principal debt on his or her equity line of credit (Civil Code Section 2943.1).
      
   3. Requires a beneficiary (i.e., lender) that issues a payoff demand statement in connection with an equity line of credit to include an e-mail address, fax number, or mailing address for delivery of the Borrower’s Instruction to Suspend and Close Equity Line of Credit (Civil Code Section 2943.1).
      
   4. Requires a beneficiary to suspend a borrower’s equity line of credit for a minimum of 30 days, upon receipt from an entitled person of a Borrower’s Instruction to Suspend and Close Equity Line of Credit, signed by the borrower (Civil Code Section 2943.1).
      
   5. Requires a beneficiary to close an equity line of credit and release or reconvey the property securing that line of credit, once the beneficiary is in receipt of a Borrower’s Instruction to Suspend and Close Equity Line of Credit and payment in accordance with the payoff demand statement (Civil Code Section 2943.1).
      
   6. Prescribes the form of the Borrower’s Instruction to Suspend and Close Revolving Line of Credit and provides that an alternate form is acceptable, if it is made in substantially the same form as the example provided in statute. The wording of the form that is written into statute asks for the identities of the lender, borrower, and escrow or settlement agent; the property address; and the account number of the equity line of credit.

FISCAL EFFECT: None

COMMENTS:

A home equity line of credit (HELOC) is an open-end line of credit secured by the borrower's property, and the lien associated with that loan remains on the property until it is paid back. During a sales transaction, an unknowing or unscrupulous borrower could draw down from their HELOC during the escrow process or immediately after the home is sold, making the new purchaser of the property liable for the amount of the drawdown. Because the HELOC has not been fully paid off, the HELOC lender would not release its lien on the property, which triggers a cascade of additional problems.

AB 1770 (Dababneh), Chapter 206, Statutes of 2014, created a standardized process for closing a HELOC when the home securing that HELOC was in escrow. The process established by AB 1770 was designed to prevent a HELOC from becoming the liability of a subsequent homeowner. Based on information provided to committee staff, AB 1770 has worked as intended. The sponsors of AB 1770 would like to delete the sunset date in existing law to add those provisions to California law on a permanent basis.

REGISTERED SUPPORT / OPPOSITION:

Support

California Land Title Association (sponsor)

Opposition

None on file

Analysis Prepared by: Michael Burdick / B. & F. / (916) 319-3081

 CONSENT  

Bill No: SB 1139

Author:

:

Vote:

SENATE BANKING & F.I. COMMITTEE: 7-0, 4/4/18

AYES: Bradford, Vidak, Gaines, Galgiani, Hueso, Lara, Portantino

SENATE JUDICIARY COMMITTEE: 7-0, 5/1/18

AYES: Jackson, Moorlach, Anderson, Hertzberg, Monning, Stern, Wieckowski

SUBJECT:

SOURCE: California Land Title Association

DIGEST:

This bill deletes the sunset date on the provision of law that provides a procedure by which an entitled person, as defined, can, with the approval of a borrower, request the suspension and closure of a home equity line of credit, as specified.

ANALYSIS:

Existing law:

1. Defines an “entitled person” as a borrower, lender in first or subordinate position, and as the escrow or title company handling a property escrow (Civil Code Section 2943).
   
2. Defines a “payoff demand statement” as a written statement, prepared in response to a written demand made by an entitled person or authorized agent, setting forth the amounts required as of the date of preparation by the beneficiary, to fully satisfy all obligations secured by the loan that is the subject of the payoff demand statement (Civil Code Section 2943).
   
3. Provides the following until July 1, 2019:
   
   1. Defines “equity line of credit” as a revolving line of credit used for consumer purposes, which is secured by a mortgage or deed of trust encumbering residential real property consisting of one to four dwelling units, at least one of which is occupied by the borrower (Civil Code Section 2943.1).
      
   2. Defines “suspend” as prohibiting a borrower from drawing on, increasing, or incurring any additional principal debt on his or her equity line of credit (Civil Code Section 2943.1).
      
   3. Requires a beneficiary (i.e., lender) that issues a payoff demand statement in connection with an equity line of credit to include an e-mail address, fax number, or mailing address for delivery of the Borrower’s Instruction to Suspend and Close Equity Line of Credit (Civil Code Section 2943.1).
      
   4. Requires a beneficiary to suspend a borrower’s equity line of credit for a minimum of 30 days, upon receipt from an entitled person of a Borrower’s Instruction to Suspend and Close Equity Line of Credit, signed by the borrower (Civil Code Section 2943.1).
      
   5. Requires a beneficiary to close an equity line of credit and release or reconvey the property securing that line of credit, once the beneficiary is in receipt of a Borrower’s Instruction to Suspend and Close Equity Line of Credit and payment in accordance with the payoff demand statement (Civil Code Section 2943.1).
      
   6. Prescribes the form of the Borrower’s Instruction to Suspend and Close Revolving Line of Credit and provides that an alternate form is acceptable, if it is made in substantially the same form as the example provided in statute. The wording of the form that is written into statute asks for the identities of the lender, borrower, and escrow or settlement agent; the property address; and the account number of the equity line of credit. By signing the form, a borrower acknowledges that:
      
4. The escrow or settlement agent named on the form has requested a payoff demand statement for the equity line of credit.
   
5. The borrower’s ability to use the line of credit will be suspended for at least 30 days to accommodate the pending transaction.
   
6. The line of credit will be due and payable upon close of escrow.
   
7. The line of credit will be closed once payment is made in accordance with the payoff demand statement.
   
8. If any amounts remain due after payment is made in accordance with the payoff demand statement, the borrower understands that he or she will remain personally liable for those amounts.
   
9. The borrower is instructing the beneficiary to close his or her line of credit and cause the secured lien against the subject property to be released, when the lender is in receipt of the signed instruction and payment in accordance with the lender’s payoff demand statement.

This bill deletes the July 1, 2019 sunset date on Civil Code Section 2943.1, making permanent the provisions of law described in Existing Law Number 3, above.

Background

This bill is sponsored by the California Land Title Association (CLTA) to make permanent the home equity line of credit (HELOC) termination provisions that have been successfully implemented by the lending community since 2015. In 2013, CLTA sponsored AB 1770 (Dababneh, Chapter 206, Statutes of 2013) to create a standardized process for closing a HELOC when the home securing that HELOC was in escrow. AB 1770 was intended to prevent a series of problems that could be triggered when a borrower drew down his or her HELOC after escrow was opened in connection with a home sale or a mortgage loan refinancing.

The problem that AB 1770 attempted to solve can be explained as follows: Title companies typically request payoff demand statements from all lenders that hold outstanding notes and deeds of trust on a property, shortly before that property is sold or the outstanding deed(s) of trust secured by that property are refinanced.

If the borrower involved in that sale or refinancing transaction has a HELOC, he or she can legally draw on that HELOC after the HELOC lender provides a payoff demand statement to the title company. In these cases, the payoff demand statement fails to reflect the additional draw, and the title company ends up remitting less than the full amount necessary to pay off the HELOC. Because the HELOC has not been fully paid off, the HELOC lender does not release its lien on the property, which triggers a cascade of additional problems.

AB 1770 was intended to prevent the HELOC draws that could cause that cascade of problems. The bill authorized a process by which a HELOC could be suspended prior to payoff, with the approval of the borrower. Once suspended, the HELOC could not be further drawn down, preventing the unanticipated drawdowns that prompted the need for the bill. By all accounts, the procedure added to law by AB 1770 has worked as intended. The parties that benefit from the new system would like to delete the sunset date on AB 1770 to add those provisions to California law on a permanent basis.

Related/Prior Legislation

AB 1770 (Dababneh, Chapter 206, Statutes of 2013), scheduled to sunset on July 1, 2019, created the standardized process for closing a HELOC during the escrow process.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

SUPPORT: (Verified 4/27/18)

California Land Title Association (source)

OPPOSITION: (Verified 4/27/18)

None received

ARGUMENTS IN SUPPORT: CLTA is sponsoring this bill for the reasons stated immediately above. “The AB 1770 reforms have been in place since July 1, 2015. CLTA is unaware of a single incident of the new law not doing what it was intended to do. Quite the contrary, we believe we solved the problem.”

Prepared by:

5/4/18 14:01:01

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2017-2018 Regular Session

Bill No: SB 1139 (Author:Morrell)

Version: February 13, 2018

Hearing Date: May 1, 2018

Fiscal: No

Urgency: No

Consultant: TSG

SUBJECT

Real property liens: equity lines of credit: suspend and close

DESCRIPTION

This bill would make permanent a 2014 law setting forth a procedure through which a home equity line of credit may be suspended and closed in anticipation of a real estate transaction involving the property that is the collateral for the loan. The procedure serves to avoid the possibility of an unpaid balance on the home equity line of credit when the property is transferred. Absent passage of this bill, the existing law will sunset on July 1, 2019.

BACKGROUND

A home equity line of credit (HELOC) is a type of loan that allows a borrower to open up a line of credit using his or her home as collateral. A HELOC allows the homeowner to borrow up to a pre-determined amount set by the lender. It is similar to a credit card in that it is a revolving line of credit.

Prior to July 1, 2014, the law allowed a borrower to draw funds from a HELOC even while the home is in escrow or during refinancing. Depending on the timing of the withdrawal, however, the resulting HELOC balance was not always fully paid off as part of the transaction. As the Senate Committee on Banking and Financial Institutions analysis succinctly explained it:

Title companies typically request payoff demand statements from all lenders that hold outstanding notes and deeds of trust on a property, shortly before that property is sold or the outstanding deed(s) of trust secured by that property are refinanced.

If the borrower involved in that sale or refinancing transaction has a HELOC, he or she can legally draw on that HELOC after the HELOC lender provides a payoff demand statement to the title company. In these cases, the payoff demand statement fails to reflect the additional draw, and the title company ends up remitting less than the full amount necessary to pay off the HELOC. Because the HELOC has not been fully paid off, the HELOC lender does not release its lien on the property, which triggers a cascade of additional problems.

AB 1770 (Dababneh, Ch. 206, Stats. 2014) set out to resolve this problem through the creation of a standardized process by which HELOCs would be suspended far enough in advance of the transaction to ensure that the payoff demand from the title company covers the entire HELOC balance, thus facilitating the entire transaction. The legislation contained a sunset which expires on July 1, 2019.

The sponsor asserts that AB 1770 was successful in solving the problem of unpaid HELOC balances resulting from withdrawals made between the payoff demand and close of escrow. Accordingly, it now seeks to make the provision permanent by lifting the sunset clause.

This bill passed out of the Senate Committee on Banking and Financial Institutions by a vote of 7-0.

CHANGES TO EXISTING LAW

Existing law defines an “entitled person” as a borrower, lender in first or subordinate position, and as the escrow or title company handling a property escrow (Civil Code Section 2943).

Existing law defines a “payoff demand statement” as a written statement, prepared in response to a written demand made by an entitled person or authorized agent, setting forth the amounts required as of the date of preparation by the beneficiary, to fully satisfy all obligations secured by the loan that is the subject of the payoff demand statement (Civil Code Section 2943).

Existing law, through July 1, 2019:

• defines “equity line of credit” as a revolving line of credit used for consumer purposes, which is secured by a mortgage or deed of trust encumbering residential real property consisting of one to four dwelling units, at least one of which is occupied by the borrower (Civil Code Section 2943.1(a)(5));
• defines “suspend” as prohibiting a borrower from drawing on, increasing, or incurring any additional principal debt on his or her equity line of credit (Civil Code Section 2943.1(a)(6));
• requires a beneficiary (i.e., lender) that issues a payoff demand statement in connection with an equity line of credit to include an e-mail address, fax number, or mailing address for delivery of the Borrower’s Instruction to Suspend and Close Equity Line of Credit (Civil Code Section 2943.1(b));
• requires a beneficiary to suspend a borrower’s equity line of credit for a minimum of 30 days, upon receipt from an entitled person of a Borrower’s Instruction to Suspend and Close Equity Line of Credit, signed by the borrower (Civil Code Section 2943.1(c));
• requires a beneficiary to close an equity line of credit and release or reconvey the property securing that line of credit, once the beneficiary is in receipt of a Borrower’s Instruction to Suspend and Close Equity Line of Credit and payment in accordance with the payoff demand statement (Civil Code Section 2943.1(d)); and
• provides model content for the Borrower’s Instruction to Suspend and Close Revolving Line of Credit and authorizes the use of an alternate format so long as it is in substantially the same form as the example provided in statute and is signed by the borrower. The wording of the form that is written into statute asks for the identities of the lender, borrower, and escrow or settlement agent; the property address; and the account number of the equity line of credit. By signing the form, a borrower acknowledges that: (i) the escrow or settlement agent named on the form has requested a payoff demand statement for the equity line of credit; (ii) the borrower’s ability to use the line of credit will be suspended for at least 30 days to accommodate the pending transaction; (iii) the line of credit will be due and payable upon close of escrow; (iv) the line of credit will be closed once payment is made in accordance with the payoff demand statement; (v) if any amounts remain due after payment is made in accordance with the payoff demand statement, the borrower understands that he or she will remain personally liable for those amounts; (vi) the borrower is instructing the beneficiary to close his or her line of credit and cause the secured lien against the subject property to be released, when the lender is in receipt of the signed instruction and payment in accordance with the lender’s payoff demand statement.

This bill would delete the July 1, 2019, sunset date on Civil Code Section 2943.1, making permanent the existing provisions of law described above.

COMMENT

1. Stated need for the bill

According to the author:

In 2013, AB 1770 created a standardized process for closing home equity lines of credit (HELOC) during the escrow process. Without a standardized closing process in place, innocent homeowners were potentially at risk of exposure to liens due to HELOCs that they did not authorize. By deleting the sunset date of July 1, 2019, SB 1139 keeps in place these HELOC termination provisions that have protected consumers and been successfully implemented by the lending community.

As sponsors of the bill, the California Land Title Association writes:

Prior to the enactment of AB 1770 in 2015, some HELOC loans were not being shut down to the detriment of new homebuyers, purchase money mortgage lenders, refinancing lenders, and title companies.

Specifically, AB 1770 sought to ensure that home sellers could not run up the balances on their HELOC loans secured through a lien on the very home they were selling to a new homebuyer, thus saddling him or her with their debt. HELOC loans, if not closed, would result in new homebuyers taking their homes subject to this debt. In some cases, home sellers didn’t realize what they were doing when they ran up their HELOC loans before selling. In other instances, the sellers were unscrupulous and deliberately running up the debt with no intention of repaying the money. Regardless of why it was happening, both situations resulted in innocent homebuyers becoming stuck with the seller’s debt secured with a lien on the home they just purchased.

The AB 1770 reforms have been in place since July 1, 2015. CLTA is unaware of a single incident of the new law not doing what it was intended to do. Quite the contrary, we believe we solved the problem.

Support: None known

Opposition: None known

HISTORY

Source: California Land Title Association

Related Pending Legislation: None known

Prior Legislation: AB 1770 (Dababneh, Ch. 206, Stats. 2014) created the standardized process for closing a HELOC during the escrow process, but contained a July 1, 2019, sunset date.

Prior Vote: Senate Banking and Financial Institutions Committee (Ayes 7, Noes 0)

**************

SENATE COMMITTEE ON

BANKING AND FINANCIAL INSTITUTIONS

Senator Steven Bradford, Chair

2017 - 2018 Regular

Bill No: SB 1139 Hearing Date: April 4, 2018

Subject: Real property liens: equity lines of credit: suspend and close

SUMMARY

This bill deletes the sunset date on the provision of law that provides a procedure by which an entitled person, as defined, can, with the approval of a borrower, request the suspension and closure of a home equity line of credit, as specified.

EXISTING LAW

1. Defines an “entitled person” as a borrower, lender in first or subordinate position, and as the escrow or title company handling a property escrow (Civil Code Section 2943).
   
2. Defines a “payoff demand statement” as a written statement, prepared in response to a written demand made by an entitled person or authorized agent, setting forth the amounts required as of the date of preparation by the beneficiary, to fully satisfy all obligations secured by the loan that is the subject of the payoff demand statement (Civil Code Section 2943).
   
3. Until July 1, 2019:
   
   1. Defines “equity line of credit” as a revolving line of credit used for consumer purposes, which is secured by a mortgage or deed of trust encumbering residential real property consisting of one to four dwelling units, at least one of which is occupied by the borrower (Civil Code Section 2943.1).
      
   2. Defines “suspend” as prohibiting a borrower from drawing on, increasing, or incurring any additional principal debt on his or her equity line of credit (Civil Code Section 2943.1).
      
   3. Requires a beneficiary (i.e., lender) that issues a payoff demand statement in connection with an equity line of credit to include an e-mail address, fax number, or mailing address for delivery of the Borrower’s Instruction to Suspend and Close Equity Line of Credit (Civil Code Section 2943.1).
      
   4. Requires a beneficiary to suspend a borrower’s equity line of credit for a minimum of 30 days, upon receipt from an entitled person of a Borrower’s Instruction to Suspend and Close Equity Line of Credit, signed by the borrower (Civil Code Section 2943.1).
      
   5. Requires a beneficiary to close an equity line of credit and release or reconvey the property securing that line of credit, once the beneficiary is in receipt of a Borrower’s Instruction to Suspend and Close Equity Line of Credit and payment in accordance with the payoff demand statement (Civil Code Section 2943.1).
      
   6. Prescribes the form of the Borrower’s Instruction to Suspend and Close Revolving Line of Credit and provides that an alternate form is acceptable, if it is made in substantially the same form as the example provided in statute. The wording of the form that is written into statute asks for the identities of the lender, borrower, and escrow or settlement agent; the property address; and the account number of the equity line of credit. By signing the form, a borrower acknowledges that:
      
4. The escrow or settlement agent named on the form has requested a payoff demand statement for the equity line of credit.
   
5. The borrower’s ability to use the line of credit will be suspended for at least 30 days to accommodate the pending transaction.
   
6. The line of credit will be due and payable upon close of escrow.
   
7. The line of credit will be closed once payment is made in accordance with the payoff demand statement.
   
8. If any amounts remain due after payment is made in accordance with the payoff demand statement, the borrower understands that he or she will remain personally liable for those amounts.
   
9. The borrower is instructing the beneficiary to close his or her line of credit and cause the secured lien against the subject property to be released, when the lender is in receipt of the signed instruction and payment in accordance with the lender’s payoff demand statement.

THIS BILL

1) Deletes the July 1, 2019 sunset date on Civil Code Section 2943.1, making permanent the provisions of law described in Existing Law Number 3, above.

COMMENTS

1. Purpose: This bill is sponsored by the California Land Title Association (CLTA) to make permanent the home equity line of credit (HELOC) termination provisions that have been successfully implemented by the lending community since 2015.
   
2. Background and Discussion: In 2013, CLTA sponsored AB 1770 (Dababneh) to create a standardized process for closing a HELOC when the home securing that HELOC was in escrow. AB 1770 was intended to prevent a series of problems that could be triggered when a borrower drew down his or her HELOC after escrow was opened in connection with a home sale or a mortgage loan refinancing.
   
   The problem that AB 1770 attempted to solve can be explained as follows: Title companies typically request payoff demand statements from all lenders that hold outstanding notes and deeds of trust on a property, shortly before that property is sold or the outstanding deed(s) of trust secured by that property are refinanced.
   
   If the borrower involved in that sale or refinancing transaction has a HELOC, he or she can legally draw on that HELOC after the HELOC lender provides a payoff demand statement to the title company. In these cases, the payoff demand statement fails to reflect the additional draw, and the title company ends up remitting less than the full amount necessary to pay off the HELOC. Because the HELOC has not been fully paid off, the HELOC lender does not release its lien on the property, which triggers a cascade of additional problems.
   
   AB 1770 was intended to prevent the HELOC draws that could cause that cascade of problems. The bill authorized a process by which a HELOC could be suspended prior to payoff, with the approval of the borrower. Once suspended, the HELOC could not be further drawn down, preventing the unanticipated drawdowns that prompted the need for the bill. By all accounts, the procedure added to law by AB 1770 has worked as intended. The parties that benefit from the new system would like to delete the sunset date on AB 1770 to add those provisions to California law on a permanent basis.
   
3. Support: CLTA is sponsoring this bill for the reasons stated immediately above. The trade association believes that the provisions of AB 1770 are working as intended and should be permanently added to California law. “Prior to the enactment of AB 1770 in 2015, some HELOC loans were not being shut down to the detriment of new homebuyers, purchase money mortgage lenders, refinancing lenders, and title companies....AB 1770 sought to ensure that home sellers could not run up the balances on their HELOC loans secured through a lien on the very home they were selling to a new homebuyer, thus saddling him or her with their debt. HELOC loans, if not closed, would result in new homebuyers taking their homes subject to this debt. In some cases, home sellers didn’t realize what they were doing when they ran up their HELOC loans before selling. In other instances, the sellers were unscrupulous and deliberately running up the debt with no intention of repaying the money. Regardless of why it was happening, both situations resulted in innocent homebuyers becoming stuck with the seller’s debt secured with a lien on the home they just purchased.
   
   “The AB 1770 reforms have been in place since July 1, 2015. CLTA is unaware of a single incident of the new law not doing what it was intended to do. Quite the contrary, we believe we solved the problem.”
   
4. Opposition: None received
   
5. Prior and Related Legislation:
   
   1. AB 1770 (Dababneh), Chapter 206, Statutes of 2013 created the standardized process for closing a HELOC during the escrow process, but contained a July 1, 2019 sunset date.

POSITIONS

Support

California Land Title Association (sponsor)

Opposition

None received

-- END --