Articles

The Basics of reverse mortgages

9/12/2018

If you are 62 or older, reverse mortgages are a way to borrow against the equity in your home (the value of your home minus any mortgage debt you may have) to provide what may be tax-free income (often referred to as cash flow). A reverse mortgage requires no scheduled loan payments until the loan ends.

Potential Advantages of a Reverse Mortgage:

• A reverse mortgage may help you continue your financial independence and maintain or improve your quality of life.

• A reverse mortgage allows you to remain in and keep the title to your home.

• The money you receive is generally not considered taxable income. You should consult with an independent tax professional to determine individual tax consequences of a reverse mortgage.

• You make no payments until the end of the term of the loan (defined to be when the last eligible borrower permanently leaves or sells the home, when you die, when a fixed due date occurs, or at the end of the loan term as it otherwise may be determined).

• You can eliminate mortgage payments by paying off existing loans through proceeds from the reverse mortgage.

• You can select from several different benefit payment plans/options to meet your needs.

• Your income or credit score is not a consideration in obtaining a reverse mortgage, since no payments are required until the loan ends.

• Independent counseling is required in advance.

Potential Drawbacks of a Reverse Mortgage

• They are more complicated than conventional mortgages, and the consequences of various plans/options are not always obvious.

• They are relatively expensive compared to other loans, including home equity loans, especially at the time the loan is originated.

• Although the money you receive is typically income tax-free, it may affect your eligibility under existing law for “needs-based” public assistance benefits such as Supplemental Security Income (SSI) and Medicaid/MediCal.

• They may reduce or eliminate the equity in your home, affecting the estate to be distributed to your heirs.

• When the product is other than an FHA-insured mortgage, you should confirm the reverse mortgage is entirely a non-recourse loan. This means the liability to repay the loan is limited to your home (its then market value or sales price) and would not subject any of your other assets or income, or the income and assets of your heirs, as sources for repayment.

• They are often not well understood by real estate, mortgage, tax, or legal professionals. Check out their experience with these mortgages before accepting their advice.
Important Questions to Ask Before Choosing a Reverse Mortgage

• How much money do I need?

• Is there a way to meet my needs that does not involve a reverse mortgage?

• Will a reverse mortgage make my partner or me ineligible for any “needs-based” public assistance benefits—now or in the future?

• Does my home qualify for a reverse mortgage?

• How much can I borrow through available reverse mortgage products?

• How much will it cost me in origination fees, closing costs, interest, monthly, or periodic fees?

• Will I have to sell my home before I die to pay off the reverse mortgage?

• If I die and my partner is still living in my home, will he or she have to leave or pay off the reverse mortgage?

• Will the reverse mortgage become due and payable if I require long-term care and move to an assisted-living facility, or to a nursing or convalescent home?

• Will there be anything left for my partner, my heirs, or me when the reverse mortgage is fully paid?

• Are there any fees, costs, or other charges due when the reverse mortgage is fully paid? (Regardless of product, prepayment penalties cannot be demanded when the reverse mortgage is partially or fully prepaid.)

• What are my continuing financial obligations with a reverse mortgage, such as property maintenance, property taxes, insurance premiums, and homeowners’ association assessments or fees (as applicable)?

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MECHANIC'S LIENS

9/7/2018

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A mechanics lien is a "hold" against your property, filed by an unpaid contractor, subcontractor, laborer, or material supplier, and is recorded with the county recorder's office. If unpaid, it allows a foreclosure action, forcing the sale of the property in lieu of compensation.

A lien can result when the prime contractor (referred to as a "direct contractor" in mechanics lien revision statutes, effective July 1, 2012) has not paid subcontractors, laborers, or suppliers. Legally, the homeowner is ultimately responsible for payment — even if they already have paid the direct contractor.

A lien can result in a range of problems, which include: Foreclosure (if the homeowner doesn't pay the lien); Double payment for the same job (if the homeowner pays the direct or prime contractor, and he/she does not pay the subcontractor, laborer, or supplier); and/or A recorded lien on the property title (which can affect the owner's ability to borrow against, refinance, or sell the property).

To prevent a mechanic’s lien, do your diligence. Hire only licensed contractors and check the contractor's license status on CSLB's website. Make sure your contractor hires only licensed subcontractors, and check their licenses. Check your direct (prime) contractor's reputation for paying subcontractors and materials suppliers, and check for lawsuits at the local courthouse. Get a list of all subcontractors, laborers, and material suppliers to be used by your direct contractor.

Make sure your written contract includes a payment schedule that states when specific phases of the work start and end, and the price for each segment; identifies the subcontractors or laborers for each segment; and identifies material suppliers.

A Preliminary Notice is required from subcontractors and suppliers if there is a chance they may need to file a lien. The notice states that the subcontractor or supplier has provided, or will provide, goods and services to improve your property and could file a lien claim if they are not paid. If subcontractors and suppliers don't provide you with the notice, they lose the right to file a lien.

The simplest way to prevent liens and ensure that subcontractors and suppliers are paid is to pay with joint checks. This is when both parties endorse the check.

• Compare the contractor's materials or labor bill to the schedule of payments in your contract and the Preliminary Notices.
• Make sure that work was done as described.
• Make the check payable to both the contractor and the supplier or subcontractor.

Lien releases allow property owners to track when potential lien claimants have been paid. Before making a payment, get a signed conditional release from the possible lien claimants.Lien release forms are available online from the CSLB. You or your contractor can download a copy of the release. The direct contractor is required to get release signatures for you from the potential lien claimants.

After you pay, the contractor should provide you with an unconditional release signed by each of the claimants paid for the portion of the work being released. Make sure that the actual claimant signs the unconditional release.

By law, you may withhold the next payment until you get the unconditional releases for the previous payment.

Filing a Notice of Completion with the county recorder's office after work is completed reduces the amount of time a contractor, subcontractor, laborer, or materials supplier has to record a claim. Homeowners have 15 days from the date of completion to do so.
This notice reduces the amount of time a contractor has to record a mechanics lien from 90 to 60 days, and reduces the time a subcontractor or materials supplier has to record a mechanics lien from 90 days to 30 days.

The Notice of Completion form may be obtained through your county recorder's office, or a stationary or office supply store that stocks legal forms. Some of these forms are available online.

What if a Mechanics Lien is Filed on Your Property?

Determine if it is a valid lien. It may not be valid if the work was not completed or supplies were not included in the plans or contracts. An attorney can help you find out if the lien is valid.

Often lien claims are invalid because the contractor, subcontractor, laborer, or material supplier has failed to meet the required timelines for filing the claim. Review the checklist below to determine if the claimant followed the required timelines.

Check to see if a Preliminary Notice was given to you within the specific time frames. (Remember: direct contractors and laborers do not have to file preliminary notices.)
A subcontractor or material supplier has 20 days after beginning work or delivering materials to serve you a Preliminary Notice. If the notice is late, the claimant loses lien rights for work done or materials delivered more than 20 days before the notice. The claim against your property is only valid for work done or supplies delivered 20 days before notice was given and anytime thereafter.

Be sure the Notice of Mechanics Lien accompanies the lien claim. The claim should include the amount owed, the service or products provided, the employer, the property owner, the address or description of where work was done or products delivered, the claimant's address, and a Proof of Service Affadivit completed and signed by the person serving the Notice and the claim.

Check to see if the potential lien claimant filed the mechanics lien within the legal time frame. If the potential lien claimant fails to record the mechanics lien within the appropriate time frame, the lien isn't valid.

The potential lien claimant must record the mechanics lien within 90 days of:
Completion of work;
When the property owner began using the improvement;* or
When the property owner accepted the improvement.

*This is sometimes hard to verify because the homeowner often occupies the residence during construction. Contact an attorney for assistance on this point.
Check with your local superior court to see if the subcontractor or material supplier filed a timely lien foreclosure action.

A lien foreclosure action is a lawsuit to foreclose the mechanics lien. The lien claimant must file a lien foreclosure action within 90 days of the date that he or she recorded the mechanics lien. Often a lien claimant with a valid claim will fail to follow through, making the lien invalid.

A lien stays in the county records and on your property title until you take action to remove it. An invalid lien can make it difficult or impossible to sell, refinance, or obtain a line of credit on your property.

If the contractor, subcontractor, laborer, or material supplier fails to follow any of the specific time frames, you can petition the court to remove the lien.
If the lien claimant doesn't remove the invalid lien, and the time has expired to record the mechanics lien and take action to foreclose, you may petition the court for a decree to release the property from the lien. This is a complicated process that may require the services of an attorney.

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Rights and remedies REGARDING stolen property

8/6/2018

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RIGHTS AND REMEDIES REGARDING STOLEN PROPERTY:
Law Enforcement, Pawnbrokers, and Victims

Introduction. A borrower pawns personal property. The pawnbrokers loans the borrower money, collateralized by the property. The property turns out to be stolen, or allegedly stolen. Law enforcement places a hold on the collateral, or worse, seizes the collateral. A victim claims the stolen property is his or hers. What are the rights, obligations and remedies of this legal quadripartite of borrower, pawnbroker, victim and law enforcement?

Pawnbrokers (i.e., “secondhand dealers;” see B&P § 21626(a)) are legally required, pursuant to Business and Professions Code sections 21628 and 21630, to report detailed descriptions of pawned property to their local law enforcement agency. This enables law enforcement to locate stolen property that is subsequently pawned, authorizing the preservation of such evidence for the benefit of an eventual prosecution while preserving the interests of the lawful owner, with the added benefit of providing an excellent tool for investigating burglaries and other thefts. But, when the criminal investigation and prosecution is over, it often also creates a dilemma for law enforcement, being caught between competing claims for the return of the property.

What are the Various Legal Interests in Stolen, Pawned Property? There can be three or sometimes even more parties who have a potential legal or possessory interest in pawned property. (See, Wolfenbarger v. Williams I (10th Cir. 1985) 774 F.2nd 358, 361-362; G & G Jewelry, Inc. v. City of Oakland (9th Cir. 1993) 989 F.2nd 1093, 1096-1098.)

The “Pledger” (i.e., the one pawning the property). The thief, or other person who has knowingly received stolen property, obviously, has no real, defensible legal right to reclaim the property and has therefore been largely ignored in the case law. If the one who pawns the property unknowingly received stolen property, he or she may also have a legitimate interest in the property. In order to obtain the return of property seized, a person must show satisfactory proof of ownership; a requirement difficult for the thief to satisfy. (See Penal Code §1413(b), and People v. Superior Court (McGraw) (1979) 100 Cal.App.3rd 154.)

The “Pledgee” (i.e., the one receiving the property, in good faith, for value). The pawnbroker, as the “pledgee,” at least where he lends against the property for value and in good faith, has a “lawful,” albeit qualified, possessory interest, enforceable against everyone else in the world other than the legal owner. (See Business & Professions Code, §21628(h); Penal Code §484.1.

The “Victim.” Where the pawned property is shown to have been stolen, the “true owner” obviously has an interest. The owner, with “title” to the stolen property, has a “legal interest” which is enforceable against the whole world. (Sanders v. City of San Diego (9th Cir. 1996) 93 F.3rd 1423, 1426-1427.)

The law is clear that even one who acquires stolen property from a thief, at least when purchased for value and in good faith, has a lawful and enforceable property interest in such property. (See Business & Professions Code, §21628(h); G & G Jewelry, Inc. v. City of Oakland, supra; Sanders v. City of San Diego, supra.) But note, every swap meet vendor “and every person whose principal business is dealing in, or collecting merchandise or personal property” (including their agents, employees and representatives), “who buys or receives any property of a value in excess of nine hundred dollars and fifty dollars ($950) that has been stolen or obtained in any manner constituting theft or extortion, under circumstances that should cause the person . . . to make reasonable inquiry to ascertain that the person from whom the property was bought or received had the legal right to sell or deliver it, without making a reasonable inquiry,” is guilty of a felony (wobbler). (Emphasis added; Penal Code §496(b)) The same section provides for misdemeanor punishment if the property is worth $950 or less.

Note also that Penal Code §484.1(a), makes it a “theft” for a person to knowingly give the pawnbroker or secondhand dealer false information or false verification as to his true identity or as to his ownership interest in property or his authority to sell the property, for the purpose of obtaining money or other valuable consideration, and does in fact receive money or other valuable consideration, from the pawnbroker or secondhand dealer. §484.1(b) provides for restitution being made to the pawnbroker or secondhand dealer. And §484.1(c) requires the probation department to notify the pawnbroker or secondhand dealer (or “coin dealer,” which is not referred to under subsections (a) or (b)) of the time and place for sentencing. See also Penal Code §1191.1, which addresses the right of victims to appear at sentencing and address the court concerning restitution.

Whose Side is Law Enforcement On? Law enforcement officers who take it upon themselves to return stolen property to the victim of a theft, believing that as between the victim and the pawnbroker, the victim has the stronger claim to the property, are ignoring the pawnbroker’s rights and subjecting themselves to serious civil liability. See, G & G Jewelry, Inc. v. City of Oakland, supra; Sanders v. City of San Diego, supra; Wolfenbarger v. Williams II (10th Cir. 1987) 826 F.2nd 930; Zeltser v. City of Oakland (9th Cir. 2003) 325 F.3d 1141. While the officer may be perfectly correct in believing that the victim of a theft has a superior interest in the stolen/pawned property, it is for the courts to decide this issue. Statutes have been enacted, as described below, for the purpose of defining the rights and interests of the parties in such property, and must be complied with.

It is not uncommon for the pawnbroker to insist that a law enforcement officer have a search warrant before seizing property from his or her business. Contrary to older federal authority (see Wolfenbarger v. Williams II, supra, at pp. 934-937.), no search warrant is needed to seize the property if that property is in “plain sight” while the officer is at a place he or she has a lawful right to be; e.g., inspecting pawned property pursuant to authority granted under Financial Code §21206; G & G Jewelry, Inc. v. City of Oakland, supra, at pp. 1099-1101, and fn. 4; see also Christians v. Chester (1990) 218 Cal.App.3rd 273, 276-277; seized ring displayed in a case in plain view.)

“(T)he Fourth Amendment permits the warrantless seizure of merchandise from a pawnbroker for investigatory purposes where (1) the police officer is lawfully on the premises, (2) the pawnbroker is required by statute to produce the pawned property for inspection, and (3) the examination of the property reveals that there was probable cause to believe it was stolen.” Sanders v. City of San Diego, supra, at p. 1427   Financial Code §21206 also grants law enforcement authority to inspect pawned property. (G & G Jewelry, Inc. v. City of Oakland, supra, at pp. 1099-1101, and fn. 4.)

The pawnbroker, therefore, may not have a right to insist upon a search warrant, nor to deny an officer access to the property for purposes of inspecting it. Also, if a search warrant is used, note that pursuant to Penal Code §1536, the property may not be disposed of without a court order. The thief’s plea of guilty before a judge to the theft of the property from the victim, by itself, neither constitutes a court determination that the stolen property belongs to the theft victim nor an authorization for the release of that property to the victim without complying with the statutory procedures described herein. Zeltser v. City of Oakland, supra.

Pawnshops often demand that officers who attempt to seize pawned property first sign an agreement to return the property to the pawnbroker when no longer needed in a criminal prosecution. Often, the agreement purports to determine who will be responsible for the attorneys’ fees should the pawnbroker be forced to sue to protect his interests. Law enforcement is under no obligation to sign these agreements. Moreover, when a law enforcement officer seeks to take stolen property from a pawnbroker, it may be a criminal violation (e.g., Penal Code §148) for the pawnbroker to refuse to provide the property upon demand. Instead, pursuant to Financial Code §21206.7, all that an officer must provide is a receipt for the items seized that contains a description of the property, the reason for seizure, and the names of the pawnbroker and the offer. Nothing more is required of law enforcement. If seized pursuant to a search warrant, a copy of the required “receipt and inventory” would serve this purpose.

Disposition of Stolen Property upon Completion of a Criminal Investigation and/or Prosecution. Things get a bit murkier here, particularly amongst the rights of the borrower, victim and pawnbroker. Here are some of the rules to play by. First, the law enforcement officer may not take sides in any dispute between those claiming the right to title and/or possession of the stolen property. And second, the officer’s only concern should be to first make sure it the property is available for any related criminal prosecution. After that, absent a court order, the status quo should be maintained, leaving the owner and pawnbroker to either reach some sort of agreement between themselves or to litigate the issue in the courts. G & G Jewelry, Inc. v. City of Oakland, supra, at pp. 1096, 1098; Zeltser v. City of Oakland, supra.

Pending a criminal prosecution of the person who stole and/or pawned the property, other than when a pawnbroker merely turns over property voluntarily, the law enforcement officer has two ways he or she may proceed; place a hold upon, or seize, the property. See, Zeltser v. City of Oakland, supra, for a detailed description of the two alternatives.

Option #1: 90-Day Hold. The first option, placing a hold, is authorized by Business and Professions Code §21647(a) which provides that a law enforcement officer, upon developing probable cause to believe property may be stolen, “may” place a 90-day hold upon the property. Section 21647 reads in its entirety:

(a)(1) If a peace officer has probable cause to believe that property, except coins, monetized bullion, or “commercial grade ingots” as defined in subdivision (d) of Section 21627, in the possession of a licensed pawnbroker or secondhand dealer is lost, stolen, or embezzled, the peace officer may place a hold on the property for a period not to exceed 90 days.

(2) A 90-day hold issued pursuant to this section:

(A) Is created upon the receipt by a licensed pawnbroker or secondhand dealer of a written notice by a peace officer that contains the following:

(i) An accurate description of the property being placed on the 90-day hold.

(ii) An acknowledgment that the property is being placed on hold pursuant to this section and denoting whether physical possession will remain with the licensed pawnbroker or secondhand dealer or will be taken by the law enforcement agency instituting the 90-day hold.

(iii) The law enforcement agency's police report or department record number, if issued, for which the property is needed as evidence.

(iv) The date the notice was delivered to the licensed pawnbroker or secondhand dealer that shall initiate the notification period set forth in subdivisions (c) and (g).

(B) Shall not exceed a period of 90 calendar days, but may be renewed as provided in subparagraph (C).

(C) May be renewed as often as is required for a criminal investigation or criminal proceeding by any peace officer who is a member of the same law enforcement agency as the peace officer placing the hold on the property.

(D) Permits a peace officer to either take physical possession of the property as evidence, consistent with a peace officer's right to a plain view seizure for a criminal investigation or criminal proceeding, or to leave the property in the possession of the licensed pawnbroker or secondhand dealer as a custodian on behalf of the law enforcement agency.

(E) Requires the licensed pawnbroker or secondhand dealer to maintain physical possession of the property placed on hold and prohibits the property's release or disposal, except pursuant to the written authorization signed by a peace officer who is a member of the same law enforcement agency as the peace officer placing the hold on the property.

(F) Terminates when the property is no longer needed as evidence in a criminal investigation or criminal proceeding, at which time the property shall be disposed of pursuant to subdivision (d).

(G) Shall not be applicable to secure lost, stolen, or embezzled property found in the possession of an unlicensed pawnbroker or secondhand dealer that has not duly and correctly reported the acquisition pursuant to Section 21628. In such a circumstance, a peace officer, having probable cause to believe the property found in the possession of an unlicensed pawnbroker or secondhand dealer is lost, stolen, or embezzled, may seize the item or items consistent with the authority granted the peace officer under the Penal Code or any other law.

(b)(1) Whenever property that is in the possession of a licensed pawnbroker or secondhand dealer, and that has been placed on hold pursuant to this section, is required by a peace officer in a criminal investigation, the licensed pawnbroker or secondhand dealer, upon reasonable notice, shall produce the property at reasonable times and places or may deliver the property to the peace officer upon the request of any peace officer.

(2) If property placed on hold pursuant to this section is physically surrendered or delivered to a law enforcement agency during the period of the hold, the hold and the pawnbroker's lien against the property shall continue.

(c) Whenever a law enforcement agency has knowledge that property in the possession of a licensed pawnbroker or secondhand dealer has been reported as lost, stolen, or embezzled, the law enforcement agency shall, within two business days after placing the hold on the property pursuant to this section, notify in writing the person who reported the property as lost, stolen, or embezzled of the following:

(1) The name, address, and telephone number of the licensed pawnbroker or secondhand dealer who reported the acquisition of the property.

(2) That the law neither requires nor prohibits payment of a fee or any other condition in return for the surrender of the property, except that when the person who reported the property lost, stolen, or embezzled does not choose to participate in the prosecution of an identified alleged thief, the person shall pay the licensed pawnbroker or secondhand dealer the “out-of-pocket” expenses paid in the acquisition of the property in return for the surrender of the property.

(3) That if the person who reported the property as lost, stolen, or embezzled takes no action to recover the property from the licensed pawnbroker or secondhand dealer within 60 days of the mailing of the notice, the licensed pawnbroker or secondhand dealer may treat the property as other property received in the ordinary course of business. During the 60-day notice period, the licensed pawnbroker or secondhand dealer may not release the property to any other person.

(4) That a copy of the notice, with the address of the person who reported the property as lost, stolen, or embezzled deleted, will be mailed to the licensed pawnbroker or secondhand dealer who is in possession of the property.

(d) When property that is in the possession of a licensed pawnbroker or secondhand dealer is subject to a hold as provided in subdivision (a), and the property is no longer required for the purpose of a criminal investigation or criminal proceeding, the law enforcement agency that placed the hold on the property shall release the hold on the property and return the property to the licensed pawnbroker or secondhand dealer from which it was taken if the law enforcement agency took physical possession of the property.

(e) If a pledgor seeks to redeem property that is subject to a hold, the licensed pawnbroker shall advise the pledgor of the name of the peace officer who placed the hold on the property and the name of the law enforcement agency of which the officer is a member. If the property is not required to be held pursuant to a criminal prosecution the hold shall be released.

(f) Whenever information regarding allegedly lost, stolen, or embezzled property is entered into the Department of Justice automated property system or automated firearms system, and the property is thereafter identified and found to be in the possession of a licensed pawnbroker or secondhand dealer, the property shall be placed on a hold pursuant to this section and Section 11108.5 of the Penal Code.

(g) If the hold, including any additional hold, is allowed to lapse, or 60 days elapse following the delivery of the notice required to be given by subdivision (c) to the person who reported the property to be lost, stolen, or embezzled without a claim being made by that person, whichever is later, the licensed pawnbroker or secondhand dealer may mail under a certificate of mailing issued by the United States Post Office, addressed to the law enforcement agency that placed the property on hold, a written request to delete the property listing from the Department of Justice automated property system or automated firearms system, as is applicable. Within 30 days after the request has been mailed, the law enforcement agency shall either cause the property listing to be deleted as requested or place a hold on the property. If no law enforcement agency takes any further action with respect to the property within 45 days after the mailing of the request, the licensed pawnbroker or secondhand dealer may presume that the property listing has been deleted as requested and may thereafter deal with the property accordingly, and shall not be subject to liability arising from the failure of the removal of the property listing from the Department of Justice automated property system or automated firearms system.

(h) A licensed pawnbroker or secondhand dealer shall not refuse a request to place property in their possession on hold pursuant to this section when a peace officer has probable cause to believe the property is lost, stolen, or embezzled. If a licensed pawnbroker or secondhand dealer refuses a request to place property on hold pursuant to this section, the property may be seized with or without a warrant. The peace officer shall issue a receipt, as described in Section 21206.7 of the Financial Code, left with the licensed pawnbroker or secondhand dealer. The property shall be disposed of pursuant to procedures set forth in Section 21206.8 of the Financial Code, which shall apply to both licensed pawnbrokers and secondhand dealers under this section.

(i) If a search warrant is issued for the search of the business of a licensed pawnbroker or secondhand dealer to secure lost, stolen, or embezzled property that has been placed on hold, the hold shall continue for the duration that the property remains subject to the court's jurisdiction. Notwithstanding any other law, when the use of the property seized for a criminal investigation or criminal proceeding has concluded, the property shall be disposed of pursuant to subdivision (d).

(j) If a civil or criminal court is called upon to adjudicate the competing claims of a licensed pawnbroker or secondhand dealer and another party claiming ownership or an interest in the property that is or was subject to a hold pursuant to this section, the court shall award possession of the property only after due consideration is given to the effect of Section 2403 of the Commercial Code.

(k) A licensed pawnbroker or secondhand dealer is not subject to civil liability for compliance with this section.

Written notice to the pawnbroker is required that contains an accurate description of the property placed on hold; an acknowledgment that the property is being placed on hold pursuant to this section and denoting whether the property will remain in the possession of the pawnbroker or law enforcement; the law enforcement agency’s report or department record number; and the date the notice was delivered to the pawnbroker.

The hold shall not exceed 90 days, but may be renewed as often as required for the criminal investigation. The hold terminates when the property is no longer needed for the criminal investigation or proceeding.   This section also makes clear that the pawnbroker’s lien against property on hold that is delivered to law enforcement remains in place during the hold period(s).

Section 21647 also requires law enforcement to notify the party reporting the property lost, stolen or embezzled, within two days after placing the hold, of the name, address, and phone number of the pawnbroker; that the law neither requires nor prohibits payment of a fee or any other condition in return for the surrender of the property, except that when the “victim” reporting the stolen/lost property does not participate in the prosecution of the alleged thief, the person shall pay the pawnbroker the “out-of-pocket” expenses the pawnbroker incurred in exchange for the return of the property; and should the “victim” take no action to recover the property within 60 days after the mailing of the notice, the pawnbroker may treat the property as received in the ordinary course of business. During this 60-day period, the pawnbroker may not release the property to any other person.

Section 21647 further provides that when the property on hold is no longer required for criminal investigation or proceedings, it shall be returned to the pawnbroker.

Note that these statutory procedures provided under §21647 do not purport to resolve ownership (i.e., “title”) of the property. They only dictate who is entitled to “possession” while ownership is resolved. If the pawnbroker declines to return the property to the owner, as is his right, it is incumbent upon them to resolve the issue of ownership by negotiation or in the civil courts. G & G Jewelry, Inc. v. City of Oakland, supra, at pp. 1096, 1098   Therefore, for a law enforcement officer to unilaterally take stolen property from a pawnbroker being held pursuant to §21647 and return it to the true owner, despite the best of intentions, is a Fourteenth Amendment “due process” violation of the pawnbroker’s qualified interest in the property, short-circuiting the statutory procedures set forth above, and may subject the officer to potential civil liability.

Thus, if an officer takes it upon him or herself to “award” the property to the victim, the officer will not be able to claim even a “qualified immunity” (which he/she is normally entitled to when “reasonable” mistakes are made) should he or she later be sued by the pawnbroker. (Wolfenbarger v. Williams II, supra, at pp. 931-934 In performing discretionary functions, governmental officials are only shielded from liability for civil damages insofar as their conduct does not violate clearly established statutory and constitutional rights of which a reasonable officer should have known.   Given the pawnbroker’s well-established constitutionally protected interests in at least possession of the property, and California’s statutory procedures for determining the right to ownership as between the true owner and the pawnbroker, California peace officers cannot claim ignorance of the pawnbroker's rights to the pawned property.   Therefore, a law enforcement officer’s legal duty under the relevant statutes is to do no more than inform the parties when the property is no longer required as evidence, allowing the owner and pawnbroker to resolve their respective possessory rights through agreement or by the judgment of a civil court.

Option #2: Seizure. Business and Professions Code §21647(b) authorizes a peace officer to seize the stolen property whenever required as a part of a criminal investigation, whether or not a hold has already been placed on it.   “The police can either place a hold on the property, take possession of the property upon voluntary delivery by the pawnbroker, or seize the property and provide the receipt required by (Financial Code) section 21206.7.” G & G Jewelry, Inc. v. City of Oakland, supra, at pp. 1101-1102; 59 Ops.Cal.Atty.Gen. 195 (1976); Christians v. Chester, supra.)

Financial Code §21206.7 provides that whenever property is taken from a pawnbroker by a peace officer that is alleged to be stolen, the officer “shall” give the pawnbroker a receipt for the property which contains a description of the property, the reason for the seizure, and the names of the pawnbroker and the officer. When property is seized pursuant to §21647(b), instead of subjected to a 90-day hold pursuant to §21647(a), disposal of the property after termination of a criminal prosecution related to the property must be done under the terms of Financial Code §21206.8. (Sanders v. City of San Diego, supra, at pp. 1429-1430.)   This procedure has been held to be sufficient to protect the pawnbroker’s due process rights. (Sanders v. City of San Diego, supra, at pp. 1429-1433

Under the terms of Financial Code §21206.8, stolen or embezzled property taken from a pawnbroker shall not be delivered to anyone else claiming ownership until after the pawnbroker is given notice by the officer of the owner’s claim and the pawnbroker fails to make a claim on the property within 10 days of such notification. Fin. Code, §21206.8(b). Section 21206.8 was recently amended to clarify that a Court must give due consideration to the effect of Section 2403 of the Commercial Code between competing claims. Section 2403 holds that a purchaser of goods acquires all title which his transferor had, and a person with voidable title has power to transfer good title to a bona fide purchaser for value.

Note that Penal Code §1413(b) gives the pawnbroker 15 days (from the date of receipt of the notice) to respond to a notice of the owner’s claim to the property. Just as when the property is subjected to the 90-day hold, whenever there are competing claims (i.e., between the theft victim and the pawnbroker), the parties must seek to resolve the matter between themselves or submit the issue before a judge. For instance, P.C. §§1408 to 1410 provide for a judicial determination by “the magistrate before whom the complaint is laid, or who examines the charge against the person accused of stealing or embezzling it” (§ 1408), or “comes into the custody of” (§ 1409), or “before which a trial is had for stealing or embezzling it” (§ 1410), to determine who gets the property. See Sanders v. City of San Diego, supra, at p. 1431, fn. 12; and People v. Chabeear (1984) 163 Cal.App.3rd 153.)   Also, where §§1408 et seq. are not used, Penal Code §1413(b) ostensibly gives “the clerk or person in charge of the property section” of a law enforcement agency in possession of stolen or embezzled property the power to determine who gets the property, so long as that person:

            • Receives satisfactory proof of ownership from the one claiming to own the property;
            • The “owner” presents proper personal identification;
            • The clerk makes a photographic record of the property;
            • The person claiming ownership signs, under penalty of perjury, a declaration of ownership; and
         • The person from whom custody of the property was taken is given notice of a claim of ownership (with a copy of the owner’s proof of ownership); 15 days from receipt of notice to respond, asserting a claim to the property; and a reasonable opportunity to be heard as to why the property should not be delivered to the person claiming ownership.

The property clerk’s determination, however, is without prejudice to the parties’ right to seek a review of the clerk’s decision before the judge before whom the criminal case was heard. Penal Code §1413(b) & (c); Sanders v. City of San Diego, supra, at pp. 1431, 1434.

A second scenario is also possible, where the victim does not claim the property. If no one else comes forward to claim the property, the pawnbroker from whom the property was taken must be given notice and allowed three months to claim the property before the officer may dispose of the property as otherwise provided by law. Fin. Code, §21206.8(c); see also Penal Code §1411.

Conclusion. The laws governing the rights, obligations and remedies of borrowers, victims, pawnbrokers and law enforcement officers relating to stolen, lost or embezzled property are complex. When in doubt, consult your legal advisor.

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Pawn Shops and Electronic Signatures

8/6/2018

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I.          Background.

The pawn industry and business model has a longstanding history throughout world history. The industry began over 3,000 years ago in Ancient China as a way to grant short‑term credit to peasants. The business made its way over to ancient Greece and Rome, giving merchants a way to get small shops off the ground. During the Middle Ages, some restrictions were placed on charging interest by the Catholic Church, halting the growth of pawn shops. These rules were relaxed in the 14th and 15th centuries in Europe as short‑term credit became an important way of financing business endeavors and granting temporary aid to the poor and wealthy alike. England=s King Edward III financed the war against France in 1388 by pawning his jewels. Queen Isabella of Spain similarly pawned her jewelry to finance Christopher Columbus's first voyage to the New World.

The history of pawnshops and its business also has roots in the United States. During the era of the Great Depression when banks were failing, pawnshops were some of the only money lending institutions. Thereafter, the pawn industry grew. Today, there are over 12,000 pawnshops operating in the United States, and growing.

The business model of pawn shop is simple, the pawn shop or broker offers a secured loan to a seller or pledger using personal property as collateral. The loan is based on the value of the collateral with varying degrees of loan length and interest rates. The industry is under strict federal and state or local regulations that set requirements for interest rates, loan amounts, reporting requirements, and zoning ordinances. The pawnshop business model has proven to be successful, an estimated 80 percent of customers are repeat customers, and between 70 to 80 percent of all loans nationwide are repaid.

The appeal of pawnshops is that they offer customers a quick, convenient and confidential way to borrow money. The loan does not require a back account, credit check, and there are no legal consequences if the loan is not repaid. As a result of the recession, there are stricter banking regulations and rules which negatively impacted many Americans. Traditional or community banks no longer provide small loans, resulting in a gap, which pawn shops inevitably fill. According to the FDIC 2011 National Survey of Unbanked and Underbanked, approximately 8.2 percent of households did not have a bank account, which translates into about 17.7 million adults without a bank account. Further, a reported 20 percent of US households are underbanked, meaning that they have a bank account but rely on alternative financial services (AFS). As the survey points out, households who are either unbanked or underbanked, rely more on AFS, such as pawn shops and payday loans, to meet their financial needs. The FDIC Survey also notes that 7.4 percent of all U.S. households have used a pawnshop. Data suggests that certain states, such as Texas and Arizona, frequent pawn shops more often, resulting in 26 percent and 24 percent of the population, respectively, using a pawn shop in the last five years. (McKernan Prohibitions, Price Caps, and Disclosures Table 1).

II.        Law Enforcement and Pawnbrokers.

As previously noted, the majority of states have strict regulations which the pawn shop must adhere to. Guidelines include strict information gathering about the seller or pledger and reporting mandates to local police. This information is meant to help police identify stolen property. As a result of pawnshops= own discretion and procedures in place to obtain pawned merchandise, less than half of one percent of all pawned merchandise is identified as stolen goods. (Nationalpawn brokers.org). In some states or municipalities, in addition to requiring information gathering about the seller, such as their physical description, driver=s license information, and/or social security information, about seven states absolutely require the fingerprint of the seller to do business. Half a dozen more states have left this issue up to local municipalities in which some require a fingerprint or require a fingerprint where there is no photo identification. The strict identification and reporting guidelines have the purpose to curb thieves from pawning stolen goods and help police solve property crimes. There is conflicting reports about the ability of police to productively use this information to solve property crime. For example, in 2007 in Charlotte Mecklenburg County, North Carolina more than a quarter‑million items were sold to pawn shops. In 48 cases, the fingerprint helped to identify a suspect. Reports from Denver, Colorado, states that local police search through 40,000 pawn‑shop slip transactions for stolen items. These pawn‑shop sales slips spawn about 50 investigations. (http://extras.denverpost.com/news/shot1201a.htm).

III.       Pawnbrokers and Expansion into E-Commerce.

Despite various rules and regulations, pawn shops are still frequented by many. Until recently, pawn shops have been a strictly brick and mortar business. Recently, as with most other brick and mortar industries, the pawn business has expanded into an online business transaction. In this scenario of an electronic transactions, a seller or Apledger@ contacts an online pawnbroker site by phone or through the internet. The pledger describes the item(s) he wishes to pawn. The online pawn site requests photographs of the item(s) and makes a provisional offer. The pawn site sends a shipping label for the borrower to send them the item(s). Once received, the pawnshop appraises the item(s). If the borrower agrees on the loan amount, the pawnshop wires the loan proceeds to the borrower=s bank account or mails a check. Once the loan is repaid with interest, the pawnshop mails the borrower back the item(s). If the borrower defaults on the loan, the pawnshop keeps the item(s).

With the advent of the Internet and other advances in technology, agreements are frequently negotiated and finalized by electronic communication methods such as fax, e‑mail, or Internet websites. Agreements formed in this matter are not "written" or "signed" within the traditional meanings of those terms. In recognition of the changes in the way agreements are formed and preserved, both California and the federal government have enacted legislation validating electronic documents and electronic signatures. In California, the governing statute is the Uniform Electronic Transactions Act (UETA) [Civ. Code 1633.1 et seq.]. Nearly all other states also have enacted UETA. The federal counterpart is the Electronic Signatures in Global and National Commerce Act (E‑SIGN) [Pub. L. No. 106‑229, tit. 1, 2 (June 30, 2000); 15 U.S.C. ' 7001 et seq.].

In California, UETA applies (with some specified exceptions) to electronic records and electronic signatures relating to a "transaction"; that is, an action or set of actions occurring between two or more persons relating to the conduct of business, commercial, or governmental affairs [Civ. Code 1633.3(a); see Civ. Code 1633.2(o) (definition of "transaction"); see also Civ. Code 1633.2(a)‑(n), 1633.3(b)‑(d), (f) (other definitions; exceptions)]. UETA is to be construed and applied so as to facilitate electronic transactions consistent with other applicable law; to be consistent with reasonable practices concerning electronic transactions and with the continued expansion of those practices; and to effectuate the general purpose to make uniform the law with respect to the subject of UETA among states enacting it [Civ. Code 1633.6]. Numerous specific statutory exclusions from UETA exist [see Civ. Code 1633.3(b), (c)]. The broadest exclusions include the following:

* Transactions subject to a law governing the creation and execution of wills, codicils, or testamentary trusts [Civ. Code 1633.3(b)(1)].
* Transactions subject to Division 1 of the Commercial Code, except Com. Code 1107 and 1206 [Civ. Code 1633.3(b)(2)].
* Transactions subject to Divisions 3 (negotiable instruments), 4 (bank deposits and collections), 5 (letters of credit), 8 (investment securities), 9 (secured transactions), or 11 (funds transfers) of the Commercial Code [Civ. Code 1633.3(b)(3)].
* Transactions subject to any law requiring that specifically identifiable text or disclosures in a record or portion of a record be separately signed or initialed [Civ. Code 1633.3(b)(4)]. However, this exclusion does not apply to transactions subject to Civ. Code '1677 or 1678, relating to liquidated damages in real property sales contracts, or Code Civ. Proc. 1278, relating to arbitration provisions in real property sales contracts.

Although transactions excluded from UETA are not subject to its provisions, they still may be conducted by electronic means if that can be done under any other applicable law [Civ. Code 1633.3(f)].

Under UETA, a record or signature may not be denied legal effect or enforceability solely because it is in electronic form. A contract may not be denied legal effect or enforceability solely because an electronic record was used in its formation. If a law requires a record to be in writing, an electronic record satisfies the law. If a law requires a signature, an electronic signature satisfies the law [Civ. Code 1633.7; see Civ. Code 1633.2(a), (d), (e), (g), (h), (m) (definitions of "contract," "electronic," and "record")]. In a case evaluating, under common law, the validity of an e mail sent prior to enactment of the UETA, a federal court held that the e mail, signed with a party's name, satisfied the statute of frauds, assuming that a binding oral agreement existed and that the e mail included all of the material terms of that agreement [ Lamle v. Mattel, Inc. (Fed. Cir. 2005) 394 F.3d 1355, 1362‑1363] .

The UETA does not require that a record or signature be created, generated, sent, communicated, received, stored, or otherwise processed or used, by electronic means or in electronic form [Civ. Code 1633.5(a)]. Moreover, the UETA applies only to a transaction between parties each of whom has agreed to conduct the transaction by electronic means. Whether the parties agree to conduct a transaction by electronic means is determined from the context and surrounding circumstances, including the parties' conduct. Except for a separate and optional agreement the primary purpose of which is to authorize a transaction to be conducted by electronic means, an agreement to conduct a transaction by electronic means may not be contained in a standard form contract that is not an electronic record. An agreement in such a standard form contract may not be conditioned on an agreement to conduct transactions by electronic means. An agreement to conduct a transaction by electronic means may not be inferred solely from the fact that a party has used electronic means to pay an account or register a purchase or warranty. These statutory rules may not be varied by agreement [Civ. Code 1633.5(b)].

A party that agrees to conduct a transaction by electronic means may refuse to conduct other transactions by electronic means. If a seller sells goods or services by both electronic and nonelectronic means and a buyer purchases the goods or services by conducting the transaction by electronic means, the buyer may refuse to conduct further transactions regarding the goods or services by electronic means. These statutory rules may not be varied by agreement [Civ. Code 1633.5(c)].

Except as otherwise provided in UETA, the effect of any of its provisions may be varied by agreement. The presence in certain provisions of UETA of the words "unless otherwise agreed," or words of similar import, does not imply that the effect of other provisions may not be varied by agreement [Civ. Code 1633.5(d)].

An electronic record or electronic signature is attributable to a person if it was the act of the person. The act of the person may be shown in any manner, including a showing of the efficacy of any security procedure applied to determine the person to whom the electronic record or electronic signature was attributable [Civ. Code 1633.9(a)]. The effect of an electronic record or electronic signature attributed to a person under the foregoing rules is determined from the context and surrounding circumstances at the time of its creation, execution, or adoption, including the parties' agreement, if any, and otherwise as provided by law [Civ. Code 1633.9(b)].

The federal E‑SIGN Act applies to any transaction in or affecting interstate or foreign commerce [see 15 U.S.C. 7001(a)]. Under E‑SIGN, notwithstanding any statute, regulation, or other rule of law, a signature, contract, or other record relating to a transaction affecting interstate or foreign commerce may not be denied legal effect, validity, or enforceability solely because it is in electronic form, and a contract relating to such a transaction may not be denied legal effect, validity, or enforceability solely because an electronic signature or electronic record was used in its formation [15 U.S.C. 7001(a); see 15 U.S.C. 7006 (definitions)]. The term "transaction" means an action, or a set of actions, relating to the conduct of business, consumer, or commercial affairs between two or more persons, including any of the following types of conduct [15 U.S.C. 7006(13)]:

The sale, lease, exchange, licensing, or other disposition of personal property (including goods and intangibles) or services (or any combination of these actions).
The sale, lease, exchange, or other disposition (or any combination of these actions) of any interest in real property.

The E‑SIGN requirements do not limit, alter, or otherwise affect any requirement imposed by a statute, regulation, or rule of law, other than a requirement that contracts or other records be written, signed, or in nonelectronic form [15 U.S.C. 7001(b)(1)].

State law, regulation, or other rule of law may modify, limit, or supersede the provisions of 15 U.S.C. 7001, but California UETA is preempted by the federal statute to the extent that anything is inconsistent with the regulatory provisions of E‑SIGN. In other words, UETA controls in states that have enacted it, but individual state modifications of UETA that are inconsistent with E‑SIGN are preempted.

As of mid‑2007, UETA has been enacted in all but four states, and those four have equivalent laws [see 15 U.S.C. 7002(a)(2)]. UETA has also been enacted in the District of Columbia and the U.S. Virgin Islands.

The requirement to give effect to an electronic signature or record also does not apply to court documents (such as orders, notices, briefs and pleadings); notices of cancellation or termination of utility services; specified notices in connection with default, acceleration, repossession, foreclosure, eviction, or right to cure under a credit agreement secured by, or a rental agreement for, an individual's primary residence; cancellation of health or life insurance benefits; product recall notices [15 U.S.C. 7003(b)(2)]; and any document required to accompany any transportation or handling of toxic or dangerous materials [15 U.S.C. 7003(b)(3)].

Several states allow electronic pawn transactions including: Colorado, Florida, Texas, New York, Georgia, New Hampshire, Hawaii, and Arizona. Online or electronic pawn transactions is changing the perception and face of this industry. Online pawn shops such as Borro, Pawntique, Pawngo, and Ultrapawn, each have a maximum transaction borrowing limits of $1 million, and will let you borrow on collateral of items such as an luxury vehicles, a $450,000 wine collection, or even an Oscar Statute.
(http://www.forbes.com/sites/ashleaebeling/2012/07/09/short‑on‑cash‑luxury‑pawn‑shop‑borro‑loans‑10000‑to‑1‑million/)

Electronic pawn transactions have a greater appeal than traditional brick and mortar stores. In today's time, more and more people are making purchases online, banking online, and are otherwise constantly plugged into technology. Electronic pawn transactions specifically cater to this type of person. Electronic transactions offer convenience, confidentiality, and privacy for many higher end consumers who many not be comfortable visiting a local pawn shop. Further, online pawn shops offer lower rates of interest, larger loan amounts, and often higher valuations.

IV. Pawnbrokers, Title Risks, and Fingerprints.

The main difference between a typical loan from a pawnbroker and one from a commercial financial institution (such as a bank) concerns the requirements for the provision of identification. In the case of a bank loan, rigorous identification checks are required to assess the credit risk of the borrower. Conversely, a pawnbroker only requires identification of the borrower so that the title of the goods pledged as security can be accepted and potential loss from retrieval of pledged goods by the rightful owner avoided. (Pawnbrokers regard this as possibly the most serious risk they face). Apart from this, identity of the borrower is essentially irrelevant. Similarly, whereas formal legal contracts are required for bank borrowing, minimal legal documentation is involved in pawnbroking. The only documentation legally required to be produced by the pawnbroker, is that of a pledge ticket which consists of basic information about the borrower, the goods, the principal of the loan, the interest rate charged, and the amounts and dates when payments are to be made.

As a result of the minimal contractual and identification obligations, a loan may be completed in about ten minutes. Pawnbrokers perform a variety of economic functions for a variety of customers. The most common interpretation of the pawnbrokers' role is that they provide short‑term secured loans. In addition to providing consumer credit, pawnbrokers offer sellers of goods a means of selling goods (either by outright buys or by pledging goods and not subsequently redeeming them). When pawnbrokers resells goods from buys or goods not redeemed, they offer consumers an alternative to purchasing new goods. Yet another interpretation of the pawnbroking role, and that least complimentary to the pawnbroker, is the common perception that it facilitates the disposal of stolen goods. Because of the minimal identification requirements, possessors of stolen goods can obtain cash for those goods by pledging them, but with no intention of redeeming. The extent to which pawnbroking facilitates the disposal of stolen goods depends upon the extent to which pawnbrokers insist on verifying title to goods offered, which in turn depends, inter alia, upon the probability and extent of loss if goods accepted are stolen and subsequently reclaimed by the rightful owners. Regulatory requirements and their enforcement are relevant here, as is the extent to which, for different types of goods, title can be readily established. For example, serial numbers on electronic equipment may enable police and rightful owners to identify such goods easily, whereas rightful ownership of common design jewelry is not so readily established.

It is often thought that because of the nature of their business, pawnbrokers provide a conduit for trade in stolen property. While stolen goods may be offered as collateral, the pawnbroker faces the risk that, if the pledged item does not belong to the individual, a claim by the rightful owner will lead to return of the pledged good and loss of the loaned funds. Such a risk may be referred to as title risk, and is regarded by pawnbrokers as a major source of risk, particularly since goods may be pawned by family or friends of the rightful owner and criminal charges of theft never made. Anecdotal evidence of customers purchasing goods using stolen credit cards and identity documents from a department store and providing the receipt and using the same documents when pawning the good, or of one person pawning a good and an accomplice subsequently appearing to assert ownership of stolen goods, are not uncommon. The police have trouble prosecuting such cases, in which the pawnbroker often becomes the victim. This risk is comparable to a financial institution's credit risk and, just as those institutions attempt to assess the credibility of the promise to repay, pawnbrokers should exercise great effort to assess the credibility of the borrower's claim to title.

California law governing pawn transactions within the state require pledgers to provided photo identification along with a fingerprint. The requirement of a finger print for pawn transactions is a hardship and California pawnbrokers face and are being prevented from expanding into electronic transactions. Requiring a fingerprint in an electronic transaction is causing California to lose revenue and pawnbrokers to lose clientele to online brokers residing in other states that penetrate the California marketplace. And, there are no empirical studies or other data available to establishes any correlation between criminal conviction rates and fingerprints obtained from the JUS-123 forms. Indeed, while it may be law enforcement's general feeling that fingerprinting a borrower may act as a deterrent to fencing stolen property, there is no data available to support that supposition. While one can make the argument that criminals whose fingerprints are already in State or Federal law enforcement databases may think twice about giving a fingerprint to a pawnshop (hence, the deterrent factor), the majority of borrowers who have no prior experience with law enforcement will not be deterred from giving a fingerprint in connection with pawning property. And, separate and apart from the deterrent factor is the apprehension element. Again, there is no data or studies available to establish any nexus between convictions based on fingerprints on a pawnbroker's JUS 123 forms.

California and its pawnbrokers are losing and will continue to lose revenue and income unless the existing law is changed to permit electronic transactions without the need for fingerprints. As other online pawn brokers have seen, there is has been a transformation in clientele who turn to pawnbrokers for loans. This new face of pledgers turn to electronic transactions for the convenience and privacy that this service offers. The clientele who uses expensive luxury goods as collateral would think twice about providing a fingerprint, especially if the pledger can find the same service elsewhere which does not require a fingerprint. California is already losing revenue and income because the law has not caught up, as residents are sending collateral elsewhere than going to local pawnshops. Robert T., self described as an upper class resident of California sent a Rolex to Pawntique, which gave him a loan for $4,200. (http://www.pawntique.com/news/pawntique‑chicago‑tribune/) Ramon C., a Citrus Heights, California resident, was offered $400 more from internet company PawnGo than the local pawnshop for his collection of gold coins. Vernita J., a Sacramento resident, also used the services of PawnGo, which offered her $45.00 compared to her local pawnshop offer of $20. California's residents have a lot of luxury good and assets. PawnGo, based out of Colorado, is seeing many transactions from California residents. In fact, according to CEO Todd Hill, California is one of PawnGo's top three states in terms of transactions with the average loan by California residents of $5,000. (http://www.sacbee.com/2012/03/15/v‑wireless/4338961/online‑pawnshops‑start‑to‑click.html) California is clearly on the losing side of this business. Stan L., vice president of Capital City Loan & Jewelry, a chain of nine Sacramento‑area pawnshops, states that "online stores are in direct competition with California pawnbrokers."

Current pawnbrokers that conduct electronic transactions are not required to obtain a fingerprint from a pledger, even in states that require a fingerprint during a face to face transaction. For instance, pawnbrokers in Colorado are not mandated by state law to provide fingerprints of pledgers, rather the local municipalities govern. The municipalities of Centennial and Littleton, Colorado require fingerprints from sellers during in person pawn transaction. Ordinances passed by both municipalities waive this requirement for online transactions and instead allow for digital signatures and electronic‑identification verification to supplant the photo ID and fingerprint. Other internet-based pawnshops require a driver's license or other form of government issued ID and proof of residence, such as a utility bill, for identification. A fingerprint during electronic transactions is not necessary; identifying a pledger through two sources of identification is sufficient. The identification of the pledger and description of each collateral item will still be transmitted to local authorities.

UPDATE: SB-300, enacted in 2015, now permits electronic pawn transactions.

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