SB 94 – Effective Oct. 11, 2009: No more Advance Fees on Loan Modifications.
No Advance Fee Loan Modifications: Starting October 11, 2009, a new law prohibits anyone from claiming any compensation for negotiating or arranging a loan modification until after that person fully performs each and every service as promised. Aimed at combating loan modification scams, this ban applies to upfront fees collected by real estate agents and attorneys. The ban expires on January 1, 2013. Also effective immediately, anyone who negotiates or arranges a loan modification must give the borrower the following notice in 14-point font that paying a third-party for loan modification services is unnecessary. “It is not necessary to pay a third party to arrange for a loan modification or other form of forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge. A list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) is available from your local HUD office or by visiting www.hud.gov.”
These new requirements apply to mortgage loans secured by residential property up to four units, with certain exceptions for lenders and loan servicers acting on their own behalf. Violations can be penalized by, among other things, a $10,000 fine plus one-year imprisonment for individuals, or a $50,000 fine for businesses.
Real estate brokers with existing Advance Fee Loan Modification Agreements reviewed by the Department of Real Estate (DRE) can no longer, as of October 11, 2009, enter into these agreements or collect advance fees. Agreements entered into and advance fees collected before October 11, 2009 are not affected. For the DRE announcement, go to http://www.dre.ca.gov/pdf_docs/SB94WebAnnouncement(brokers).pdf.
Advance Fee Redefined: Aside from loan modifications discussed above, Senate Bill 94 also broadens the definition of an advance fee which must be specially handled by real estate agents, such as by submitting an advance fee agreement for DRE review and placing funds received into a broker’s trust account. Under the new definition that took effect on October 11, 2009, agents cannot separate advance fees or services into components to avoid the advance fee requirements. More specifically, an advance fee is now defined as “a fee, regardless of the form, claimed, demanded, charged, received, or collected by a licensee from a principal before fully completing each and every service the licensee contracted to perform, or represented would be performed.” Exceptions include advertisements in newspapers of general circulation, tenant prescreening fees, and tenant security deposits. A broad interpretation of this provision could make existing listing agreements a violation. Informal discussions with DRE representatives have indicated they do not intend to interpret it that way. CAR intends to sponsor legislation to clarify that existing listing agreements do not violate the new law.
AB 957 – Effective Oct. 11, 2009: REO Sellers cannot dictate escrow & title.
REO Buyer Can Select Escrow and Title: Effective October 11, 2009, the Buyer’s Choice Act prohibits an REO lender selling property of one to four residential units from directly or indirectly requiring the buyer to purchase escrow services or title insurance from any particular company. A buyer, however, who has received written notice of the right to make an independent selection, may agree to use the escrow or title recommended by the REO lender. An REO lender that violates this law can be held liable for three times the charges the buyer incurred. A violation by the seller’s agent may be subject to license disciplinary action. This law expires on January 1, 2015.