The Foreclosure Consultant Act (California Civil Code Section 2945 et. al.) is being amended effective July 1, 2009 and the changes will affect many people now in the loan modification industry. First, lets define what a “foreclosure consultant” is:
California Civil Code Section 2945.1
(a) “Foreclosure consultant” means any person who makes any solicitation, representation, or offer to any owner to perform for compensation or who, for compensation, performs any service which the person in any manner represents will in any manner do any of the following:
(1) Stop or postpone the foreclosure sale.
(2) Obtain any forbearance from any beneficiary or mortgagee.
(3) Assist the owner to exercise the right of reinstatement provided in Section 2924c.
(4) Obtain any extension of the period within which the owner may reinstate his or her obligation.
(5) Obtain any waiver of an acceleration clause contained in any promissory note or contract secured by a deed of trust or mortgage on a residence in foreclosure or contained that deed of trust or mortgage.
(6) Assist the owner to obtain a loan or advance of funds.
(7) Avoid or ameliorate the impairment of the owner’s credit resulting from the recording of a notice of default or the conduct of a foreclosure sale.
(8) Save the owner’s residence from foreclosure.
(9) Assist the owner in obtaining from the beneficiary, mortgagee, trustee under a power of sale, or counsel for the beneficiary, mortgagee, or trustee, the remaining proceeds from the foreclosure sale of the owner’s residence.
This definition obviously encompasses many of these loan modification companies that are out there today (conveniently, this law does not apply to attorneys). Now with this understanding, it is helpful to understand what a “foreclosure consultant” cannot do.
California Civil Code Section 2945.4
It shall be a violation for a foreclosure consultant to:
(a) Claim, demand, charge, collect, or receive any compensation until after the foreclosure consultant has fully performed each and every service the foreclosure consultant contracted to perform or represented that he or she would perform.
(b) Claim, demand, charge, collect, or receive any fee, interest, or any other compensation for any reason which exceeds 10 percent per annum of the amount of any loan which the foreclosure consultant may make to the owner.
(c) Take any wage assignment, any lien of any type on real or personal property, or other security to secure the payment of compensation. That security shall be void and unenforceable.
(d) Receive any consideration from any third party in connection with services rendered to an owner unless that consideration is fully disclosed to the owner.
(e) Acquire any interest in a residence in foreclosure from an owner with whom the foreclosure consultant has contracted. Any interest acquired in violation of this subdivision shall be voidable, provided that nothing herein shall affect or defeat the title of a bona fide purchaser or encumbrancer for value and without notice of a violation of this article. Knowledge that the property was “residential real property in foreclosure,” does not constitute notice of a violation of this article. This subdivision may not be deemed to abrogate any duty of inquiry which exists as to rights or interests of persons in possession of residential real property in foreclosure.
(f) Take any power of attorney from an owner for any purpose, except to inspect documents as provided by law.
(g) Induce or attempt to induce any owner to enter into a contract which does not comply in all respects with Sections 2945.2 and 2945.3.
(h) Enter into an agreement to assist the owner in arranging, or arrange for the owner, the release of surplus funds prior to 65 days after the trustee’s sale is conducted, whether the agreement involves direct payment, assignment, deed, power of attorney, or assignment of claim from an owner to the foreclosure consultant or any person designated by the foreclosure consultant.
Now lets talk about the changes. First, previously foreclosure consultants could arrange for owners to get some their money back after a foreclosure if there was a surplus. They had to wait 65 days after the sale. Under the new legislation, they simply cannot do this, ever.
Second, foreclosure consultants were required to give a three day cancellation notice. This period is being extended to 5 days, and the homeowner can now send the notice via any means.
Oh ya, and if a foreclosure consultant is not registered with the Department of Justice and posts a $100,000 bond, it’s a crime. With all of these restrictions and new ones on their way, it will be very interesting to see how the loan modification industry changes. I think this Act could be the tool used by many agencies to reign in the predators out there.
You can reach Nathan at (888) 756-2652
About Nathan Fransen (In his words.):
Prior to becoming an Attorney I was a Mortgage Broker. I enjoy the field and appreciate the challenges that face professionals within it. Presently, I advocate on behalf of homeowners against lenders in predatory lending cases. My firm also assists with negotiation loan modifications, short sales and deed-in-lieu of foreclosures. Our fees are reasonable and we often arrange some form of contingency retainer agreement. My specific focus area involves the Truth In Lending Act. I am well versed in TILA and have dozens of active cases.
Nathan,
If someone is doing a loan modification at no charge for a client, then none of the aforementioned article issues would apply, correct?
If you are charging for a forensic audit, but then submit the package for free if the loan is predatory, then that would be outside of these rules, am I right?
Thanks! Tom
I am an Enrolled Agent, Mortgage Broker, FHA Lender. I also do Loan Modifications, with DRE no-objection agreement.
May I do Forensic Audits outside of the DRE Corp?
Can I collect the Audits fee from NOD clients?
This bill is great in theory. However, it does not address the fact that attorneys are getting richer. It does not address the length of time a lender has to respond to the borrower. It does not address the fact that if a home is in forclosure, the lender can actually hold the decision of the loan modification until a sale date is posted. After that time if the lender turns the borrower down there is no recourse for the borrower. As I said in theory this is great but I think we have the fox guarding the hen house.