By: Timothy A. Raty, Sr. Regulatory Compliance Specialist
Within the context of mortgage loans, California law promulgates two sections requiring disclosures to be provided to borrowers in certain languages other than English (the European language spoken by most Americans): Cal. Civ. Code § 1632, which was enacted in 1977 (see Cal. Stats. 1974, c. 1446. p. 3156) and its younger sibling Ibid. § 1632.5, which was enacted in 2009 (see Cal. Stats. 2009, c. 274, § 1).
While both have the same purpose, their means for accomplishing such differ and apply to different types of mortgage industry participants.
Cal. Civ. Code § 1632.5 applies to a “supervised financial organization that negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean” (Ibid. § 1632.5[a]), which organization is defined as:
“. . . a bank, savings association, as defined in Section 5102 of the Financial Code, credit union, or holding company, affiliate, or subsidiary thereof, or any person subject to Division 7 [the ‘Industrial Loan Law’], Division 9 [the ‘California Finance Law’], or Division 20 [the ‘California Residential Mortgage Loan Act’] of the Financial Code.” (Ibid. § 1632.5[b])
Ibid. § 1632, by contrast (and with some overlap), applies to “any person engaged in a trade or business who negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean” (Ibid. § 1632[b]). While loans secured by real property are generally exempt (see Ibid. § 1632[b]), those which are used “primarily for personal, family, or household purposes” and which are subject to either the Industrial Loan Law, California Finance Law, or California Real Estate Law are not so exempted (see Alvara v. Aurora Loan Servs., Inc., No. C-09-1512 SC, 2009 WL 1689640, at *3 [N.D. Cal. June 16, 2009]).
While Ibid. § 1632 is broad enough to cover “supervised financial organizations” defined under Ibid. § 1632.5(b)(2), the latter provides that if a “supervised financial organization” complies with Ibid. § 1632.5, then the organization is considered to be in compliance under Ibid. § 1632. In other words, supervised financial organizations are practically exempt from Ibid. § 1632, if they comply with Ibid. § 1632.5.
For the “big three” mortgage loan licensee types, this means that CFL and CRMLA licensees may provide translated copies of the forms published by the California Department of Financial Protection and Innovation (which, currently, are translated copies of the Federal Good Faith Estimate, Loan Estimate, and Closing Disclosure; see Ibid. § 1632.5[i]). Providing these forms properly ensures compliance with both Ibid. §§ 1632 & 1632.5.
However, licensees under the Real Estate Law (“REL”) are not considered a “supervised financial organization” and must, therefore, comply strictly with Ibid. § 1632 (see Ibid. § 1632[b]).
Disclosure Requirements Under § 1632
Unlike Cal. Civ. Code § 1632.5, Ibid. § 1632 does not have a (relatively) simple disclosure rule. Under Ibid. § 1632(b), a person must provide a translated copy of the “contract or agreement”, which are defined (in relevant part) as “the document creating the rights and obligations of the parties and includes any subsequent document making substantial changes in the rights and obligations of the parties” (Ibid. § 1632[g]).
California case law indicates that, for a mortgage loan, the “contract or agreement” would include both the promissory note and the security instrument (see ING Bank, fsb v. Ahn, 717 F. Supp. 2d 931, [N.D. Cal. 2010], wherein the court held that the plaintiffs had failed to provide defendants with translated copies of the “loan documents” – which documents are referenced earlier in the opinion as the promissory note and deed of trust). “Contract or agreement” may also include riders to the security instrument and other documents which create “the right and obligations of the parties” in the transaction (such as buydown agreements). Altogether, an REL licensee may need to provide at least two, but potentially more than a half dozen translated legal documents.
However, the law does give REL licensees two alternatives. The first, under Ibid. § 1632(c) permits the licensee to provide “a translation of the statement to the borrower required by Section 10240 of the Business and Professions Code”. The “statement” referenced is the one “containing all the information required by Section 10241” and is either the Re882 or Re883 forms published by the Department of Real Estate (see Cal. Code Regs. tit. 10, § 2840[a])
An alternate to these forms is to provide the disclosures promulgated by Cal. Bus. & Prof. Code § 10240(c), if the loan is considered a “federally regulated residential mortgage loan transaction” with a principal amount of either $30,000 or more (primary lien) or $20,000 or more (junior lien). In such cases, a copy of the “Good Faith Estimate” or “Loan Estimate” (both required generally under 12 U.S.C.A. § 2604[c]), along with some supplemental disclosures[i], and the balloon payment disclosure promulgated under Ibid. § 10241(h) (if applicable).
It must be noted, however, that Cal. Civ. Code § 1632(c) specifically references “the statement” required by Cal. Bus. & Prof. Code § 10240, which section of law only references a “statement” in connection with Forms Re882 and Re883, therefore casting some doubt on whether the alternative disclosures under Ibid. § 10240(c) can be sufficiently used to also comply with Supra § 1632(c). Lending credence to this conclusion is the fact that the exemption currently found in Supra § 1632(c) has existed since at least 1988 (see Cal. Stats. 1988, c. 1531, § 1), while the alternative promulgated under Ibid. § 10240(c) came into existence in 1997 (see Cal. Stats. 1997, c. 245, § 1), indicating that the California legislature only considered “the statement” (and not any alternatives) when they formed the exemption.
A second alternative under Cal. Civ. Code § 1632(e) is for REL licensees to provide “a translation of the disclosures required by . . . Regulation Z . . . prior to the execution of the contract or agreement[.]” “Regulation Z” is defined as “any rule, regulation, or interpretation promulgated by the Board of Governors of the Federal Reserve System and any interpretation or approval issued by an official or employee duly authorized by the board to issue interpretations or approvals dealing with . . . consumer lending, pursuant to the Federal Truth in Lending Act, as amended (15 U.S.C. Sec. 1601 et seq.).” (Supra § 1632[e])
It is important to note that under this provision, translated copies of the Loan Estimate or Closing Disclosure cannot be used as a substitute, because it is the Federal Reserve Board’s version of Regulation Z (12 C.F.R. Pt. 226) which must be complied with for the substitution to be effective, not the Consumer Financial Protection Bureau’s version (12 C.F.R. Pt. 1026) which exclusively provides for the LE and CD.
At best, translated copies of the Truth-in-Lending Disclosure (“TIL”), ARM Disclosures, etc. would need to be provided. Even then, it’s dubious, because it must be the disclosures “required by” the FRB’s version of Regulation Z which, as a practical matter, is no longer applicable to real estate mortgage loans, since supervisory authority over these types of transactions was transferred to the CFPB last decade.
Altogether, REL licensees have several options to comply with Cal. Civ. Code § 1632(b):
- Provide translated copies of the “contract or agreement”, the definition of which would include the promissory note, security instrument, and possibly riders and other contractual agreements between the parties (g., a buydown agreement);
- Provide a translated copy of either Form Re882 or Re883;
- Arguably, provide translated copies of either the GFE or LE, a supplemental disclosure, and/or balloon payment disclosure (but this option may only be utilized for loans exceeding certain amounts); or
- Arguably, provide a translated copy of all required disclosures under 12 C.F.R. Pt. 226 (as a practical matter, this option can only be utilized for loans which are not subject to the TILA-RESPA Integrated Disclosure rule and, debatably, only those subject to the FRB’s version of Regulation Z).
Cal. Civ. Code § 1632 was recently amended by CA A.B. 3254 (2020). Prior to such amendment, translated copies of the “contract or agreement” were required to be provided to “the other party” to such “contract or agreement” (Ibid. § 1632[b]). However, effective January 1, 2021 the requirement will be that such copies need to be provided to both “the other party” and “any other person who will be signing the contract or agreement” (Ibid.).
Essentially, translated copies of the document must be given to each signatory to the “contract or agreement.” This can include the borrower, a non-purchasing spouse, cosigner, trustee, etc. The justification for this is provided by the “Senate Floor Analyses” dated August 24, 2020 (available at: https://leginfo.legislature.ca.gov/faces/billAnalysisClient.xhtml?bill_id=201920200AB3254), which states the following:
“AB 3254 will help close a loophole in current law by protecting non-English speaking co-signers. Currently, when a contract is negotiated in one of the five most commonly spoken languages in California other than English, a physical contract must be provided in that language. This provision does not apply to monolingual cosigners. AB 3254 would ensure co-signers have the same protections. Without these protections co-signers are extremely susceptible to fraud because they may not understand the terms of the contract and are taking on all risk in a loan without receiving any of the benefit.” (p. 5)
Notably, this additional requirement does not apply to substitutions allowed in Ibid. § 1632(c) & (e), thus compliance with the cross-references in those subsections (Cal. Bus. & Prof. Code § 10240 and 12 C.F.R. Pt. 226, respectively) should be sufficient. Under Cal. Bus. & Prof. Code § 10240(a) & (c), the disclosures need only be provided to “the borrower.” The disclosures required under 12 C.F.R. Pt. 226 may be provided to one or any number of individuals, depending upon the requirements for the disclosure.
What First American Docutech Provides
First American Docutech provides limited, Spanish-language support for Cal. Civ. Code § 1632 in one of two ways:
First, we provide a copy of the Spanish-language version of Form Re882 in our library (Cx17108). This copy, however, prints in blank, since it is not possible to match the tens of thousands of fees imported into our system (with an equal number of fee descriptions) with the hardcoded text description of these fees on the model forms.
Second, we do provide a Spanish-language copy of the LE (Cx18990) and a “Spanish CA REL Supplemental Disclosure” (Cx22518), which can be used for those who interpret providing translated copies of the disclosures listed in Cal. Bus. & Prof. Code § 10240(c) as being compliant with Supra § 1632(c). Please note that, due to a lack of demand for balloon loans, as well as the Department of Real Estate’s implicit holding that a copy of the LE is sufficient to cover the balloon disclosure requirements[ii], we do not provide a Spanish-language copy of the balloon statement Ibid. § 10241(h) (our English-language copy is Cx2800), but can create one upon a client’s request.
[i] See Dep’t of Real Estate Licensee Advisory “How does the new TILA-RESPA Integrated Disclosure rule affect the MLDS?” (revised December 2015; available at: https://www.dre.ca.gov/Licensees/Advisories.html).
[ii] See Dep’t of Real Estate Licensee Advisory “How does the new TILA-RESPA Integrated Disclosure rule affect the MLDS?” (revised December 2015; available at: https://www.dre.ca.gov/Licensees/Advisories.html).