I. INTRODUCTION
REALTORS®
commonly consider the filing of a notice of default as the beginning of the
foreclosure process. However, it may also be the start of something
sinister. The public recording of a notice of default can act as a beacon
to unscrupulous people who, under the guise of offering assistance, seek to
take advantage of homeowners in distress. To protect homeowners in
foreclosure, California’s foreclosure consultant law strictly regulates the
activities of people who perform foreclosure-related services, including real
estate agents to a limited extent.
This legal
article discusses the issues surrounding foreclosure-related scams, with
special attention given to the ways that REALTORS® and their clients can
distinguish between legitimate and illegal enterprises. This article also
provides REALTORS® with legal and practical guidelines for complying with the
foreclosure consultant law.
II. FORECLOSURE-RELATED SCAMS
Q 1. What
is a foreclosure-related scam?
A A foreclosure-related scam is a loose term for fraud,
deceit, or trickery perpetrated against homeowners facing foreclosure or others
involved in the foreclosure process. With the rise in foreclosures in the
mid-2000s, foreclosure-related scams have exploded onto the real estate scene.
Some con artists offer to help homeowners in foreclosure, but in truth, merely
intend to dupe the distressed homeowners out of their money or property (see,
more specifically, Question 5). Other scams target real estate agents,
investors, buyers, lenders, tenants, or other people involved in the
foreclosure process.
Q 2. How
could someone fall victim to a foreclosure-related scam?
A A scam artist generally knows which victims to target
and which buttons to push. Homeowners facing foreclosure are highly
vulnerable to scams. They are often unable to comprehend or get help for
the complicated legal, financial, and tax issues surrounding foreclosures,
short sales, loan modifications, and bankruptcies. Moreover, they often
experience difficulty handling the stress and stigma of possibly losing their
homes through foreclosure. Because homeowners are likely to consider
purchasing a home as one of the most important things that they have ever done,
the anxiety from possibly losing that home may cause them to make bad
decisions. Some homeowners are specifically targeted by scam artists
because they are perceived as easy prey, such as people who are elderly, have
language barriers, have limited resources, or lack knowledge. Given all
these circumstances, homeowners in foreclosure can easily succumb to a scam
artist's lure of a quick fix. As a victim of the Community Home Savers
scam discussed in Question 6 said, "When you’re down and out you'll
believe anything."
Aside from
homeowners, real estate agents and others involved in the foreclosure process
are also vulnerable to scams, especially given the financial strain brought
about by a down real estate market. Some agents merely get caught in the
crossfire between the scam artist and homeowner in foreclosure. Others
are reeled in by design because their participation may facilitate or lend
legitimacy to the fraudulent schemes. Agents are also targeted for their
leads as they are often the first point of contact for a homeowner in distress,
such as outfits that claim they will do short sale consulting. Agents may
also get tricked into paying for bogus foreclosure related marketing tools,
farming lists, training seminars, coaching services, and other products or
services.
Q 3.
Is there a simple way to detect if someone is a
scam artist?
A No. Outwardly, scam artists do not act or
appear dastardly. On the contrary, the typical scam artists look nice and
clean-cut, and they seem kind, helpful, patient, and trustworthy. Their
purported companies or organizations often have names that sound altruistic,
such as Community Home Savers or Housing Assistance Services (see Question 6).
Scam
artists commonly engage in "affinity marketing" tactics which means
they attempt to lure people by being, or pretending to be, members of the same
racial, religious, social, or other group as their victims. For example,
a scam artist may claim to be in the military and use military terms and
mannerisms in an attempt to befriend someone in the military. Or another
scammer may join a church to gain the trust of other members of that church
before attempting to defraud them. Scam artists may also use many other
tactics, such as claiming to be conducting official business for a government
entity, claiming to be a non-profit organization, or offering a money-back
guarantee, just to name a few.
Q 4. When
dealing with someone, what are the red flags of a foreclosure-related scam to
watch out for?
A Homeowners in foreclosure and their real estate
agents should be wary when dealing with someone who does any of the following:
• Asks
for money upfront before providing any service;
• Asks for payment only in the form of cash, cashier’s check, or wire
transfer;
• Asks for a transfer of title or an interest in the property;
• Gives an unqualified promise to stop foreclosure or other assurances;
• Offers to buy a home for a price above its market value;
• Asks for something to be done immediately without delay;
• Asks for the homeowner to give a power of attorney;
• Asks for signatures on a grant deed or deed of trust;
• Asks for signatures without giving homeowner a lot of time to review the
documents;
• Asks for signatures on a document that has lines left blank;
• Fails to provide copies of documents signed;
• Refuses or fails to provide an oral promise in writing;
• Instructs a homeowner to make mortgage payments to someone other than
the lender; or
• Instructs a homeowner not to discuss the situation with the lender,
housing counselor, accountant, attorney, family, friends, or others.
Additionally,
for acts prohibited under the foreclosure consultant law, see Question
40. For things a person can do to take a proactive stance against scams,
see Question 9.
Q 5. How
does a foreclosure scam work?
A There are many different types of foreclosure-related
scams, and new types of scams sprout up every day. These
foreclosure-related scams can be loosely categorized as follows:
• Phantom Help: In this type of scam,
the scam artist offers to negotiate with the lender or perform other
foreclosure-related services for the homeowner in exchange for a fee.
However, in reality, the scammer performs little or no service at all and
eventually absconds with the money. Whatever services the scam artist
does provide, the homeowner could have probably done on his or her own.
The homeowner ends up not only losing the money, but often loses valuable time
to make other arrangements to save his or her home from foreclosure.
• Bail-Out: This scam involves a con
artist who offers some sort of plan or scheme to get the homeowner out of his
or her predicament. One common example is the rent-to-buy scheme where
the scam artist promises to take title to the property, cure the default, and
rent the property back to the homeowners until they get back on their feet
again and buy back the property. What in fact happens is that the scam
artist reneges on these promises by, for example, not curing the default, not
honoring the rent-back agreement, or selling the property to an unsuspecting
buyer.
• Bait-and-Switch: This is another
common type of scam where, for example, the scam artist tells the homeowner to
sign one thing, but the homeowner ends up signing something else altogether,
such as the grant deed to the property.
In addition
to the above categories, there are many other types of foreclosure-related
scams, including forgeries, theft, identity theft, property flipping scams,
loan fraud, predatory lending practices, pyramid schemes, ponzi schemes,
bankruptcy fraud, landlord-tenant fraud, short sale consulting fraud, and
bank-owned property or REO fraud. A scam can be a highly elaborate scheme
or as crude and simple as a "We Buy Homes" or "Stop Foreclosure
Now" sign on a telephone pole at the side of a road. For real-life
examples of foreclosure scams, see Questions 6 and 7.
Q 6. What
are some real-life examples of foreclosure-related scams that target
homeowners?
A Here are some real-life examples of
foreclosure-related scams perpetrated in California:
• Housing Assistance Services in Garden Grove,
California: Marc Sheckler’s company, Housing Assistance
Services, Inc. (HAS), targeted homeowners in Orange County when they received
notices of default. HAS mass marketed official-looking "Fresh Start
Program" letters in the mail offering to provide counseling on the options
for avoiding foreclosure and to negotiate loan modifications with the
lenders. To sign up, a homeowner paid an upfront basic fee of $750 to
$1,250 and agreed to pay additional fees for credit reports, "docusave"
services, processing reinstatements, monitoring repayment plans, and financial
education materials. HAS representatives instructed homeowners not to
talk to their mortgage lenders. Whenever homeowners voiced concern about
the impending foreclosure sale, HAS reassured the homeowners that things would
be worked out. The California Attorney General’s Office received numerous
complaints from consumers who paid the fees, but claimed that HAS never
provided the services as promised. In 2004, California Attorney General
Bill Lockyer filed a $2 million lawsuit against HAS and obtained a court order
freezing HAS's assets.
• Rodriguez in Downey, California:
From 2003 to 2005, Martha Rodriguez and others ran a foreclosure rescue scam in
Southern California. They located their victims using computerized lists
of properties going into foreclosure. The defrauders promised to help
homeowners refinance their loans and save their credit, but what they did in
reality was arrange for straw buyers to buy the homes. By the time the
defrauders were finally caught by the authorities, they had victimized over 100
homeowners and amassed over $12 million. Rodriguez ran this scam while
awaiting sentencing on another loan fraud scheme. In February 2007, she
pleaded guilty to criminal charges for the foreclosure rescue scam and faces a
possible sentence of 40 years in federal prison.
• Rice in Orange County, California:
In 1990, Evelyn Onofrio’s home was in foreclosure when Marshall Rice paid her a
house call. He offered to help her but did not give her a
written foreclosure consultant contract. He arranged a secured loan
for her, but at 35% interest payable to Rice's own wife. When Onofrio
defaulted on the loan, Rice and his wife commenced foreclosure proceedings and
acquired the property at the trustee’s sale. Onofrio sued Rice for, among
other things, violating the foreclosure consultant law and breaching his
fiduciary duties as a real estate broker. Rice violated the foreclosure
consultant law by, among other things, acquiring an interest in the property
and failing to provide a written foreclosure consultant contract.
The court awarded Onofrio monetary damages, attorneys' fees, and costs, and
cancelled not only the transfer of title to Rice, but the relevant deeds of
trust as well. This case is Onofrio v. Rice (1997) 55 Cal .App.
4th 413.
• Alburez and Silva in Alameda, California:
Sonia Alburez and Verena Silva went by several names, such as Community Home
Savers and California Home Saver Program. They used lists of homes in
default from the county recorder's office to send out mailers to homeowners in
foreclosure. They allegedly told homeowners that, for an upfront fee plus
additional monthly payments, they could save their homes from
foreclosure. In reality, Alburez and Silva merely transferred a
fractional interest of a home to a sham corporation. The sham corporation
would then file bankruptcy, but as soon as the foreclosing lender challenged
the bankruptcy, the sham would be uncovered and the foreclosure would resume.
Alburez and Silva were arrested in Alameda County in March 2008.
• Hutchings in San Diego, California:
William Hutchings and his cohorts ran a foreclosure rescue scam in San Diego
for over two years, and duped hundreds of homeowners out of their homes and
money. Targeting mostly non-English-speaking homeowners, Hutchings held
seminars on how he could help homeowners stop foreclosures by transferring
title to their homes to his company. He claimed he could file a
governmental land grant on their behalf which would extinguish their mortgages
in four years, at which time the homeowners could reacquire their homes from
Hutchings free and clear. He bolstered his claims by using visual aids,
such as antiquated maps and land surveys. In reality, the last legitimate
use of a land grant was in 1848 when Mexico ceded property to the U.S. at the
end of the Mexican-American War. Yet, someone who attended one of
Hutchings’ seminars observed that, when the seminar concluded, the homeowners
would flood to the back of the room to stand in line to sign up for the program
by signing over their properties and paying up to $10,000 upfront.
Hutchings and the others were arrested in May 2008 and face over 100 felony
charges.
Q 7. What
are some real-life examples of foreclosure-related scams that target people
other than homeowners?
A Many people other than homeowners may be victimized
by foreclosure-related scams, including real estate agents, investors, buyers,
lenders, tenants, and others. Some real-life examples of this type of
foreclosure-related scams in California are as follows:
• Standefor in Pasadena, California:
Jeanetta Standefor of Accelerated Funding Group operated a fraudulent
foreclosure reinstatement scheme for over two years. She convinced over
600 people to invest a total of $18 million by claiming the funds would be used
to cure defaults for distressed properties and promising a return of 50 percent
in one month. What Standefor was actually doing was operating a
ponzi-like scheme using the money from new investors to pay previous
investors. She also used $1.9 million of the funds for her own lavish
wedding, cars, jewelry, and other personal expenses. In 2008, Standefor
was charged with both civil and criminal fraud and securities violations, and faces
a statutory maximum sentence of 180 years in federal prison.
• Davis of Tiburon, California: Mark
Allen Davis placed over 100 newspaper ads around the country from 2004 to 2007
offering callers a list of government foreclosures in their areas for a one-time
fee of $83 to $93. Customers were told to call a toll-free phone number,
and then instructed to leave their names and bank account information for
verification purposes. Davis never sent the lists. Instead, he
withdrew $126 to $185 from the accounts of 800 people, totaling over
$400,000. When caught, Davis was fined over $328,000 and sentenced to 81
months in federal prison for identity theft, mail fraud, and wire fraud.
Q 8. What
are the legal remedies for a victim of foreclosure-related scams?
A In theory, there are various legal remedies for a
victim of foreclosure-related scams, but in reality, the legal remedies may
leave a lot to be desired. As in the real-life examples mentioned above,
one legal remedy for a foreclosure-related scam is criminal prosecution.
A fraud victim may pursue criminal prosecution by reporting the offense to
local, state, and federal law enforcement authorities. However, law
enforcement authorities have a broad discretion for which crimes to investigate
and prosecute, and they often devote their limited resources towards pursuing
other crimes, such as murder, robbery, and drug violations.
A
foreclosure-related scam is also a civil offense. In addition to pursuing
a criminal offense, a fraud victim may file a civil lawsuit to obtain a
monetary judgment for damages suffered or other relief as appropriate.
However, the typical fraud victim’s obstacles to filing a lawsuit for fraud
include, without limitation, locating the defrauder’s whereabouts, locating the
defrauder’s assets, proving the elements of fraud, and having the resources to
hire and pay for an attorney if needed.
Depending
on the circumstances, a foreclosure-related scam may also be the subject matter
of a complaint to a governmental agency, such as the California Department of
Real Estate (DRE) or Department of Corporations (DOC). The DRE or DOC may
issue an order to stop unlicensed activity. However, the function of the
DRE, DOC, or even criminal prosecutors is to stop violations of the law, not necessarily
to get fraud victims their money back or other relief sought.
Nevertheless, the actions of the governmental agencies may occasionally result
in recovery for the individual fraud victim as well.
A list of
government enforcement agencies and other organizations for reporting fraud
activities is set forth in Question 48. Some of these agencies and
organizations are also good resources for obtaining more information about
foreclosure-related fraud.
Q 9. What
should homeowners and others do to protect themselves against
foreclosure-related scams?
A The basic rule is "if it sounds too good to be
true, it probably is." Other measures to take to protect against
scams include, but are not limited to, the following:
• Do
not panic. Do not make any rash decisions. It’s precisely when our
chips are down that we must keep a clear head.
• Before entering into any agreement or other arrangement with anyone,
understand every aspect of what it entails. Read documents carefully and
thoroughly before signing. If you cannot understand a document, seek the
advice of an attorney or other professional as appropriate. If you do not
speak the same language as the person you’re negotiating with, don’t use that
person’s interpreter or translator -- bring your own instead.
• Do not sign your name to any false statements or documents with spaces
left blank, especially if you’re told that signing will be harmless or
inconsequential.
• Get as much information as you possibly can before making a
decision. Ask questions. Conduct as much research and investigation
as you can upfront (see Question 10). Do your best to understand the
legal, financial, and tax consequences of your situation. Look into
different options. Ask for advice and help from trusted family, friends,
and professionals if appropriate.
• Always try to stay a step ahead of scam artists. As society comes
to know to watch out for one type of scam, con artists attempt to catch their
victims off guard by devising new schemes. For example, with greater
public awareness that a "foreclosure consultant" representative must,
among other things, be licensed and bonded (see Question 42), scam artists may
start presenting themselves as something else, such as loan mediators, loan
facilitators, legal officers, and so on.
Q 10. How
does someone check on the legitimacy of a foreclosure consultant or other
foreclosure-related business?
A There are many ways to check the legitimacy of a
foreclosure consultant or other foreclosure-related business. Before doing
business with anyone, ask for references and check out those references.
Also check someone's background, credentials, and reputation. Check with
licensing agencies, trade groups, friends, family, and other people you
trust. However, even if someone has the proper credentials or comes
highly recommended, the risk of a scam is less, but is not eliminated entirely.
Some of the resources for checking licensing and registration include the
following:
• To
check whether a corporation or limited liability company (LLC) is registered
with the California Secretary of State, go to its Web site at http://kepler.sos.ca.gov/list.html.
• To check whether a fictitious business names is registered, check with
the local county recorder’s office.
• For real estate licensed activities, to check whether someone has a real
estate license, go to the California Department of Real Estate (DRE) Web site
at http://www2.dre.ca.gov/PublicASP/pplinfo.asp.
To check whether someone is licensed with the DRE, the Office of Real Estate
Appraisers, the Department of Corporations, or the Department of Financial
Institutions, go to http://www.dre.ca.gov/gen_lic_info.html.
Short sale consultants and representatives of foreclosure consultants should
generally be real estate licensees (see Question 43).
• For legal services, to check whether someone is licensed to practice law
in California, go to the State Bar of California Web site at http://members.calbar.ca.gov/search/member.aspx.
Q 11. Where
can homeowners find legitimate help for foreclosure-related matters?
A The conventional wisdom is for homeowners
facing foreclosure to contact their lender immediately. Homeowners may
also seek the advice of a reputable housing, financial or credit counselor,
attorney, or other qualified professional. The U.S. Department of Housing
and Urban Development (HUD) has a Guide to Avoiding Foreclosure on its Web site
at www.hud.gov/foreclosure/index.cfm. For a list of HUD-approved housing
counseling agencies in California, go to
http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?&webListAction=search&searchstate=CA.
Also, the non-profit organization Homeownership Preservation Foundation has a
24/7 toll-free Homeowner’s HOPE Hotline at (999) 995-HOPE or visit its Web site
at http://www.995hope.org.
III. FORECLOSURE
CONSULTANT LAW
California
has very stringent rules for foreclosure consultants who offer to perform
certain foreclosure-related services, such as stopping or postponing a
foreclosure sale or assisting a homeowner in foreclosure in obtaining a
loan. The foreclosure consultant law is a very complicated body of
law. However, knowing these rules helps REALTORS® and their clients
distinguish between legitimate and illegal enterprises.
A. GENERAL OVERVIEW OF
THE FORECLOSURE CONSULTANT LAW
Q 12. What,
in a nutshell, is the foreclosure consultant law?
A The foreclosure consultant law generally regulates
the activities of people who provide, or offer to provide, foreclosure-related
consultation services, such as helping a homeowner stop or postpone a
foreclosure sale. This law requires that foreclosure consultant contracts
to be in writing in the manner specified (see Questions 33 to 35). It
also provides other safeguards for homeowners in foreclosure (see Questions 31
and 32). Most notably, it prohibits a foreclosure consultant from
collecting an upfront fee (see Question 40). The law requires
representatives of a foreclosure consultant to be bonded real estate
licensees (see Questions 41 and 42). Effective July 1, 2009, a
foreclosure consultant must also be bonded and registered with the California
Department of Justice (see Questions 44 and 45).
Real estate
agents are generally exempt from the foreclosure consultant law except when
engaging in certain activities, such as acquiring an interest in the property
or making a direct loan. The applicability of this law to REALTORS® is
discussed in Questions 19 to 25.
Q 13. Is
this a new law?
A No. The foreclosure consultant law is not a new
law. It was originally enacted in 1979. However, on September 25,
2008, the California legislature enacted major revisions to the law with the
passage of Assembly Bill 180 (see Question 32).
Q 14. Where can I find the foreclosure consultant law?
A This law is called the "Mortgage
Foreclosure Consultant Law" (but is referred to in this article as
foreclosure consultant law) and can be found in section 2945 to
2945.45 of the California Civil Code, available at www.leginfo.ca.gov. References in
this legal article are made to the foreclosure consultant law as revised
in 2008 and effective July 1, 2009, unless otherwise indicated.
Q 15. What
is the purpose of the foreclosure consultant law?
A The purpose of the foreclosure consultant law is to
safeguard the public against unscrupulous foreclosure consultants.
According to the California legislature, homeowners in foreclosure are
susceptible to fraud, deception, harassment, and unfair dealings. Scam
artists who offer to help in fact want to take advantage of the homeowners’
predicament. These so-called foreclosure consultants may charge
exorbitant fees, and even secure payment by a deed of trust on the home in
foreclosure, yet ultimately perform no worthwhile service at all.
Homeowners relying on their foreclosure consultants' promises of help may take
no other action to stop the foreclosure process. As a result, they may
end up losing their homes and their equity, sometimes to the foreclosure
consultants who buy the homes at a fraction of their true value. The
California legislature intends for the foreclosure consultant law to be
liberally construed to prevent these unscrupulous practices. (Cal. Civ.
Code § 2945.)
Q 16. Is
the foreclosure consultant law different from the home equity sales contracts
law for buyers who are investors?
A Yes. The foreclosure consultant law and home
equity sales contracts law are similar to each other, but different bodies of
law. Both laws pertain to "residences in foreclosure" as
defined (see Question 17). However, the foreclosure consultant law
generally regulates people who offer to perform foreclosure-related
consultation services for residences in foreclosure, whereas the home equity
sales contracts law generally regulates investors who offer to buy residences
in foreclosure.
More
specifically, the home equity sales contracts law imposes certain requirements
when all four of the following conditions are met:
• The
existing owner occupies the property as a principal residence;
• The property is one-to-four family dwelling units;
• There is an outstanding notice of default recorded against the property;
and
• The buyer will not use the property as a personal residence.
(Cal. Civ.
Code § 1695.1(b).)
When these
four conditions are met and no exemption applies, the law requires a sales
contract to provide the seller with a right to cancel within five business days
(or by 8 a.m. of the day of the trustee’s sale if sooner) (Cal. Civ. Code §
1695.4). The contract must also be in 10-point bold font and in the same
language principally used by the parties to negotiate the sale (Cal. Civ. Code
§ 1695.2). Furthermore, under the home equity sales contract law, the
buyer’s representative must provide proof of a real estate license (Cal. Civ.
Code § 1695.17).
To comport
with these and other requirements, C.A.R. offers a standard form Notice of
Default Purchase Agreement (Form NODPA) and two attachments, the Notice
of Cancellation of Notice of Default Purchase Agreement (Form HENC) and
the Declaration and Proof of Real Estate License (Form DPL). For
more information about home equity sales contracts, REALTORS® may refer to
C.A.R.'s legal article NOD and Investor-Buyer Transactions:
Home Equity Sales Contracts.
B. APPLICABILITY OF FORECLOSURE
CONSULTANT LAW
Q 17. Under
what circumstances does the foreclosure consultant law apply?
A The foreclosure consultant law generally applies when
someone performs, or offers to perform, foreclosure-related services for
compensation for a "residence in foreclosure" (see Question
18). A "residence in foreclosure" is defined as follows:
• The
owner occupies the property as a principal residence;
• The property is one to four family dwelling units; and
• There is an outstanding notice of default recorded against the property.
(Cal. Civ.
Code § 2945.1(f) (citing Cal. Civ. Code § 1695.1).)
Q 18. What
types of activities fall within the scope of the foreclosure consultant law?
A A very broad range of activities fall within the
scope of the foreclosure consultant law. In brief, a foreclosure
consultant is someone who assists a homeowner with an impending
foreclosure. More specifically, the law defines a "foreclosure
consultant" as someone who, for compensation, performs or offers to
perform any of the following services for an owner of a residence in
foreclosure:
• Stopping
or postponing the foreclosure sale (Cal. Civ. Code § 2945.1(a)(1));
• Obtaining a forbearance from a lender (Cal. Civ. Code § 2945.1(a)(2));
• Saving the owner's residence from foreclosure (Cal. Civ. Code §
2945.1(a)(8));
• Helping the owner obtain a loan or advance of funds (Cal. Civ. Code §
2945.1(a)(6));
• Avoiding or ameliorating the impairment of the owner's credit resulting
from the notice of default or foreclosure sale (Cal. Civ. Code § 2945.1(a)(7));
• Assisting the owner in exercising the right of reinstatement under
section 2924c of the California Civil Code (Cal. Civ. Code § 2945.1(a)(3));
• Obtaining an extension for the owner to reinstate his or her obligation
(Cal. Civ. Code § 2945.1(a)(4));
• Obtaining a waiver of an acceleration clause contained in a mortgage
loan secured by a residence in foreclosure (Cal. Civ. Code § 2945.1(a)(5)); or
• Assisting the owner in obtaining, from the lender or trustee under a
power of sale, the remaining proceeds from the foreclosure sale of the owner’s
residence (Cal. Civ. Code § 2945.1(a)(9)).
Under the
foreclosure consultant law, an "offer to perform" these
foreclosure-related services includes any solicitation or representation to
perform these services (Cal. Civ. Code § 2945.1(a)).
Foreclosure
consultant services also include, but are not limited to, the following:
• Providing
debt, budget, or financial counseling of any type (Cal. Civ. Code §
2945.1(e)(1));
• Giving any advice or explanation on curing a default, reinstating an
obligation, fully satisfying an obligation, postponing a trustee’s sale, or
avoiding a trustee sale (Cal. Civ. Code § 2945.1(e)(7));
• Contacting creditors on the owner’s behalf (Cal. Civ. Code §
2945.1(e)(3));
• Arranging or attempting to arrange for any delay or postponement of a
foreclosure sale (Cal. Civ. Code § 2945.1(e)(5));
• Arranging or attempting to arrange for an extension for owner to cure a
default and reinstate an obligation under section 2924c of the California Civil
Code (Cal. Civ. Code § 2945.1(e)(4));
• Receiving money to pay a creditor of any obligation secured by a lien on
the residence in foreclosure (Cal. Civ. Code § 2945.1(e)(2));
• Advising on, or assisting in preparing, any document for filing with a
bankruptcy court (Cal. Civ. Code § 2945.1(e)((6)); or
• Arranging or attempting to arrange for the payment by the lender or
trustee under power of sale of the remaining proceeds of a foreclosure sale of
the owner’s residence, including instances where the owner transfers or assigns
such right to the foreclosure consultant or the foreclosure consultant’s
designee (Cal. Civ. Code § 2945.1(e)(8)).
Q 19. Is
a real estate agent exempt from the foreclosure consultant law?
A In most cases, yes. As a general rule of thumb,
a real estate agent who engages in typical real estate licensed activities is
exempt from the foreclosure consultant law (but see Question 20). For
example, the foreclosure consultant law is unlikely to apply in the typical
situation where a listing agent takes a listing for a residence in foreclosure,
markets the property for sale, and represents the seller in a subsequent
sale. The foreclosure consultant law is also unlikely to apply in the
typical situation where a buyer’s agent represents the buyer in purchasing a
residence in foreclosure (but see, in contrast, the home equity sales contract
law discussed in Question 16). The foreclosure consultant law is also
unlikely to apply if a real estate licensee helps a homeowner in foreclosure to
modify an existing loan or refinance with a third-party lender.
More
specifically, a real estate licensee engaging in licensed activities is exempt
from the foreclosure consultant law when making a direct loan as specified
(see Question 22) or when all of the following conditions are met:
• The
licensee engages in acts whose performance requires a real estate license;
• The licensee is entitled to compensation for the acts performed for
selling a residence in foreclosure, or arranging a loan secured by a lien a
residence in foreclosure;
• The licensee does not claim, charge, or receive any compensation until
the acts have been performed, or cannot be performed because of an owner’s own
failure to: (1) disclose any outstanding liens of record or the correct current
vested title (under California Business & Professions Code section 10243);
or (2) accept an offer to buy or make a loan on the residence in foreclosure from
a ready, willing, and able buyer or lender based on the terms in a listing or a
loan agreement;
• The licensee does not acquire any interest in a residence in foreclosure
directly from the owner other than as a trustee or beneficiary under a deed of
trust given to secure the payment of a loan or that compensation; and
• The licensee does not assist the owner in obtaining, from the lender or
trustee under a power of a sale, the remaining proceeds from the foreclosure
sale of the owner’s residence.
(Cal. Civ.
Code § 2945.1(b)(3) and (c). )
Q 20. Under
what circumstances could the foreclosure consultant law apply to a real estate
agent?
A A real estate agent may implicate the foreclosure
consultant law when engaging in any of the following four activities.
Stated another way, even though the law is complex, a simple way for REALTORS®
to ensure that they do not implicate the foreclosure consultant law is
to avoid engaging in any of the following four activities:
• Direct Loan: Making a direct loan
for a residence in foreclosure (Cal. Civ. Code § 2945.1(b)(3)) (see Questions
22 and 23);
• Property Interest:
Acquiring an interest in a residence in foreclosure (Cal. Civ. Code §
2945.1(b)(3)(D)) (see Question 24);
• Advance Fee:
Claiming or receiving any compensation before performing real estate services
for a residence in foreclosure (Cal. Civ. Code § 2945.1(b)(3)(C)) (see
Questions 25 to 27); or
• Foreclosure Proceeds:
Assisting an owner in obtaining the remaining proceeds if any from the
foreclosure sale of an owner’s residence (Cal. Civ. Code § 2945.1(c)).
Q 21. In
practical terms, what are some examples of situations where
the foreclosure consultant law may apply to a real estate agent?
A Let's say, for example, a listing broker offers to
lend his or her own money to a homeowner in an exchange for obtaining a listing
on a residence in foreclosure. Perhaps the listing broker offers the
money to help the homeowner pay to fix up the property for sale or to get the
homeowner out of foreclosure. In this situation where the broker makes a
direct loan, the foreclosure consultant law may be implicated. For more
information about making a direct loan, see Question 22.
As another
example, a broker seeks to obtain a listing of a residence in
foreclosure. The broker promises the homeowner that, if the broker cannot
get the property sold by the date of an upcoming foreclosure sale, the broker
will personally buy the property from the seller to avoid foreclosure.
This scenario involving the broker acquiring an interest in the residence in
foreclosure may implicate the foreclosure consultant law. For more
information about acquiring an interest in a residence in foreclosure, see
Question 24.
As another
example, a couple is not only in foreclosure, but also upside down on their
loan. A real estate broker offers to help modify their existing loan with
more favorable terms. The broker, however, wants to collect an upfront
fee to make sure that he or she gets paid, regardless of whether the lender
agrees to the loan modification. This scenario involving an advance fee
may implicate the foreclosure consultant law. For more information about
advance fees, see Questions 25 and 26.
Q 22. Can a real estate broker
make a direct loan without implicating the foreclosure consultant law?
A Yes, if certain requirements are met. A real
estate broker can make a direct loan without implicating the foreclosure
consultant law, but only if all of the following conditions are met:
• The
real estate broker makes a loan of the real estate broker’s own funds;
• The loan is secured by a deed of trust on the residence in foreclosure;
• The broker does not acquire any interest in the residence in foreclosure
directly from the owner other than as a beneficiary under the deed of trust;
• The broker makes a good faith attempt to assign the loan and deed of
trust to a lender for an amount at least sufficient to cure all of the defaults
on obligations which are then subject to a recorded notice of default;
• Any foreclosure sale of the deed of trust must be conducted by a
disinterested party. More specifically, the law states that "if a
foreclosure sale is conducted with respect to the deed of trust, the person
conducting the foreclosure sale [must have] no interest in the residence in
foreclosure or in the outcome of the sale and is not owned, controlled, or
managed by the lending broker;" and
• The loan is not made for the purpose or effect of avoiding or evading
the provisions of this law.
(Cal. Civ.
Code § 2945.1(b)(3).)
The foreclosure
consultant law does not specifically define what constitutes a "good faith
attempt" to assign the loan and deed of trust to a lender.
Q 23. Can
a real estate salesperson make a direct loan without implicating the
foreclosure consultant law?
A Apparently not. According to the plain reading
of the law, the exemption to the foreclosure consultant law for making a
direct loan pertains to a real estate broker's own funds, not real estate
salesperson (Cal. Civ. Code § 2945.1(b)(3)).
Q 24. Can
a real estate agent acquire an interest in a residence in foreclosure without
implicating the foreclosure consultant law?
A Probably not. A real estate agent engaging in
licensed activities who acquires an interest in a residence in foreclosure
implicates the foreclosure consultant law, unless such acquisition is as a
trustee or beneficiary under a deed of trust given to secure the payment of a
loan or the agent’s compensation (Cal. Civ. Code § 2945.1(b)(3)). To be
prudent, any loan made by a real estate agent should comply with the direct
loan requirements set forth in Question 22 above.
Q 25. Can
a real estate agent collect an advance fee from a homeowner in foreclosure
without implicating the foreclosure consultant law?
A No, in most cases. It's a double-edged
sword. A real estate agent generally cannot collect an advance fee
without implicating the foreclosure consultant law (Cal. Civ. Code §
2945.1(b)(3)(C)). Furthermore, if the foreclosure consultant law is
implicated, it prohibits a foreclosure consultant from collecting any
compensation until after the foreclosure consultant has fully performed the
services as agreed (Cal. Civ. Code § 2945.4(a)).
More specifically, the law does not exempt a real estate agent from the
foreclosure consultant law if he or she claims or collects any compensation
before the licensed activities have been performed or cannot be performed
because the owner fails to: (1) accept an offer from a buyer or lender who is
ready, willing and able to buy or lend on terms set forth in a listing or loan
agreement; or (2) make loan disclosures under section 10243 of the California
Business and Professions Code (Cal. Civ. Code § 2945.1(b)(3)(C)).
Even if the foreclosure consultant law prohibits a real estate agent from
collecting an advance fee, it is problematic for an agent to collect an advance
fee anyway under general real estate licensing rules (see Question 26).
Moreover, even if the foreclosure consultant law generally prohibits a real
estate agent from collecting an advance fee, an agent can collect a fee upon
performance of the agreed-upon services (see Question 27).
Q 26. What
are the requirements for a real estate broker to collect an advance fee under
general real estate licensing law?
A A real estate broker cannot collect an advance fee
unless certain requirements are met. An advance fee is a fee charged
upfront for services not yet performed. An advance fee is broadly defined
to include a fee claimed, demanded, charged, received, collected or contracted
from a principal for listing real property or negotiating real estate loans
(Cal. Bus. & Prof. Code § 10026). Among other things, no less than
ten calendar days before collecting an advance fee, a real estate broker must
submit to the California Department of Real Estate (DRE) for approval the
advance fee agreement and all other materials to be used for advertising,
promoting, soliciting, or negotiating the advance fee (10 Cal. Code Reg. §
2970). Furthermore, a broker who collects an advance fee must deposit it
into a trust account with a bank or other recognized depository, because the
funds are not the broker’s funds (Cal. Bus. & Prof. Code § 10146).
Amounts may not be withdrawn on the broker’s behalf until actually expended for
the benefit of the principal or five days after a specified accounting is
mailed to the principal (10 Cal. Code Reg. § 2972).
For a list
of real estate brokers who have received "no objection" letters for
their advance fee agreements, go to the DRE Web site at http://www.dre.ca.gov/mlb_adv_fees_list.html.
Q 27. If
I do not collect an advance fee, how can I make sure that I get paid when I
perform counseling, loan modification, or other real estate services for homeowners
in foreclosure?
A Instead of collecting an advance fee, a real estate
broker may collect a fee from a homeowner after performing a service that the
broker has agreed to provide. The parties may agree in writing that the
broker will perform certain services and charge the homeowner a fee upon
performance of each distinct service. For loan modification services, a
broker and homeowner may agree, for example, that the homeowner will pay a
certain dollar amount after the broker provides an initial consultation,
another dollar amount after the broker prepares and submits a loan modification
package to the lender, and another dollar amount after the broker has
negotiated the loan modification with the homeowner's lender.
Alternatively, the broker and homeowner may agree that the broker will charge a
certain hourly rate for services rendered, and that the broker will collect
that fee after performing each hour of work.
In sharp
contrast, a foreclosure consultant falling within the foreclosure consultant
law is prohibited from claiming or collecting any compensation until after the
foreclosure consultant has fully performed each and every service foreclosure
consultant contracted to perform or represented he or she would perform (Cal.
Civ. Code § 2945.4(a)).
Q 28. Aside
from real estate agents, are there any other exceptions to the foreclosure
consultant law?
A Yes. Aside from real estate agents, the
following is a list of other exemptions to the foreclosure consultant
law. Other than an owner’s attorney, however, anyone who assists the
owner in obtaining from the lender the remaining proceeds from a foreclosure
sale of the owner’s residence is deemed to be a foreclosure consultant (Cal.
Civ. Code § 2945.1(c)).
• An
attorney rendering legal services who is licensed to practice law in
California;
• A licensed accountant (under Cal. Fin. Code §§ 5000 et seq.);
• A person or his or her agent acting under the authority of the
Department of Housing and Urban Development (HUD) or other federal or state
agency;
• A person doing business under federal or state laws relating to banks,
trust companies, savings and loan associations, industrial loan companies,
pension trusts, credit unions, insurance companies, title company, escrow
company, or HUD-approved mortgagee;
• A finance lender or broker licensed under the California Finance Lenders
Law (at Cal. Bus. & Prof. Code §§ 22000 et seq.). The
Commissioner of Corporations, however, has the authority to terminate this
exclusion, after notice and hearing, for any licensee who has defrauded,
deceived, harassed or unfairly dealt with a homeowner in foreclosure;
• A person licensed as a residential mortgage lender or servicer under the
California Residential Mortgage Lending Act (at Cal. Fin. Code §§ 50000 et
seq.);
• A person who holds or is owed an obligation secured by a lien on any
residence in foreclosure when the person performs services in connection with
this obligation or lien; or
• A prorater as defined under Cal. Fin. Code §§ 12000 et seq.
A prorater is a person who, for compensation, engages in the business of
receiving money or evidence of money for the purpose of distribution among
creditors to pay a debtor’s obligations (Cal. Fin. Code § 12002.1).
(Cal. Civ.
Code § 2945.1(b).)
Q 29. Does
the foreclosure consultant law apply to a short sale consultant?
A It depends. A short sale consultant is
generally someone who counsels and helps a homeowner sell a property by
negotiating with the homeowner’s lender to accept a loan payoff of less than the
balance owed. A short sale may or may not involve a residence in
foreclosure. If the short sale does involve a residence in foreclosure,
and the short sale consultant offers to, for compensation, help the owner by,
among other things, stopping or postponing a foreclosure sale, saving the home
from foreclosure, or giving advice on satisfying an obligation, the foreclosure
consultant law may be implicated (unless one of the exemptions applies).
For more information about short sales, C.A.R. offers its members a legal
article, Short Sales.
Q 30. Does
the foreclosure consultant law apply to a buyer who is a real estate licensee?
A It depends. If a buyer who is a real estate
licensee acts on his or her own behalf in an arms-length transaction with a
homeowner in foreclosure, the foreclosure consultant law should not
apply. A prudent licensee acting as a buyer should not only use C.A.R.'s
standard form Seller Non-Agency Agreement (Form SNA) to document the
lack of an agency relationship, but should also refrain from acting as the
seller’s agent. On the other hand, if a buyer offers to, for example,
help the homeowner in an impending foreclosure, the foreclosure consultant law
may be implicated depending on the specific circumstances. For
applicability of the home equity sales contracts law to buyers who are
investors, see Question 16.
C. REQUIREMENTS OF THE FORECLOSURE CONSULTANT LAW
Q 31. What
is currently required under the foreclosure consultant law?
A The following is a summary of the current
requirements under the foreclosure consultant law:
• Written Contract: Anyone who engages
in activities that fall within the scope of the foreclosure consultant law must
enter into a written contract with the homeowner in foreclosure in the manner
specified (Cal. Civ. Code § 2945.3(a)) (see Questions 33 to 35).
• Notice of Cancellation:
The foreclosure consultant must provide the homeowner with a copy of the
contract and attached Notice of Cancellation (Cal. Civ. Code § 2945.3(g)) (see
Question 37).
• Owner's Right to Cancel:
A homeowner may cancel a foreclosure consultant contract if the foreclosure
consultant does not provide a written contract in the manner prescribed by law
(Cal. Civ. Code § 2945.3(h)). Furthermore, until June 30, 2009, a
homeowner has the right to cancel a contract within three business days after
signing. Starting July 1, 2009, a homeowner has the right to cancel with
five business days after signing (Cal. Civ. Code § 2945.2(a)). See
Questions 38 and 39.
• Prohibited Acts:
A foreclosure consultant is also prohibited from engaging in certain acts as
set forth in Question 40.
• Representatives:
A representative of the foreclosure consultant must provide both a written
statement and proof that the representative is a bonded real estate licensee
(Cal. Civ. Code § 2945.11) (see Questions 41 and 42).
Q 32. What
will be required under the recent 2008 amendment to the foreclosure
consultant law?
A On September 25, 2008, the California legislature
enacted Assembly Bill 180 which includes major revisions to the foreclosure
consultant law. The new requirements, effective July 1, 2009, are in
addition to the existing requirements set forth in Question 31.
Highlights
of the new revisions effective July 1, 2009 are as follows:
• Certificate of Registration: A
foreclosure consultant must register with the California Department of Justice
(Cal. Civ. Code § 2945.45(a)(1)) (see Question 44);
• Surety Bond: A
foreclosure consultant must obtain and maintain a $100,000 surety bond (Cal.
Civ. Code § 2945.45(a)(2)) (see Question 45);
• Other Languages:
A foreclosure consultant must, depending on the circumstances, provide the
homeowner with a copy of the foreclosure consultant contract in certain
languages (Cal. Civ. Code § 2945.3(c)) (see Question 37);
• Owner’s Right to Cancel:
The new law extends the homeowner’s right to cancel from three business days to
five business days after signing a foreclosure consultant contract (Cal. Civ.
Code § 2945.2(a)) (see Question 38). The new law also clarifies that
notice of cancellation may be given by mail, fax, or e-mail (Cal. Civ. Code §
2945.2(b)) (see Question 39).
• No Power of Attorney:
A foreclosure consultant cannot take a power of attorney from the homeowner for
any purpose (Cal. Civ. Code § 2945.4(f)).
• No Surplus Funds Contract:
A foreclosure consultant cannot enter into an agreement to arrange or assist
the homeowner in arranging for the release of surplus funds from a trustee’s
sale (Cal. Civ. Code § 2945.4(h)) (see Question 40).
Q 33. What
are the requirements of a foreclosure consultant contract?
A A foreclosure consultant contract must meet all the
following requirements:
• Must
be in writing (Cal. Civ. Code § 2945.3(a)).
• Must fully disclose the exact nature of the foreclosure consultant’s
services (Cal. Civ. Code § 2945.3(a)).
• Must fully disclose the total amount and terms of the foreclosure
consultant’s compensation (Cal. Civ. Code § 2945.3(a)).
• Until June 30, 2009, the first page of the contract must contain, in a
type size no smaller than that generally used in the body of the document, the
name and address of the foreclosure consultant to whom a notice of
cancellation is to be mailed. Effective July 1, 2009, the first page of
the contract must contain, in a type size no smaller than that generally used
in the body of the document, the name, mailing address, e-mail address and fax
number of the foreclosure consultant to whom a notice of cancellation is to be
sent. (Cal. Civ. Code § 2945.3(e).)
• Must contain, on the first page of the contract, in a type size no
smaller than that generally used in the body of the document, the date the
homeowner signed the contract (Cal. Civ. Code § 2945.3(e)).
• Must contain certain language as set forth in Questions 34 and 35.
• Must be dated and signed by the owner (Cal. Civ. Code § 2945.3(d)).
• Any provision in a contract which attempts to require arbitration of any
dispute arising under the foreclosure consultant law shall be void, at the
owner’s option, on the same grounds as contract revocation (Cal. Civ. Code §
2945.10(a)).
Q 34. What
is the exact wording required in a foreclosure consultant contract?
A A foreclosure consultant contract must contain the
language set forth in the table below with the blank spaces completed (Cal.
Civ. Code § 2945.3). The formatting requirements for these contractual
provisions are set forth in Question 35.
Part A
NOTICE REQUIRED BY CALIFORNIA LAW
______________________________
(Name) or anyone working for him or her CANNOT:
(1) Take any money from you or ask you for money until
______________________________ (Name) has completely finished doing everything
he or she said he or she would do; and
(2) Ask you to sign or have you sign any lien, deed of trust, or deed.
Part B
You, the
owner, may cancel this transaction at any time prior to midnight of the third
business day after the date of this transaction. See the attached notice
of cancellation form for an explanation of this right.
Attachment A (Effective
Until June 30, 2009)
NOTICE OF CANCELLATION
_____________________________
(Enter date of transaction) (Date)
You may
cancel this transaction, without any penalty or obligation, within three
business days from the above date.
To cancel
this transaction, mail or deliver a signed and dated copy of this cancellation
notice, or any other written notice, or send a telegram to
_____________________________________________________
(Name of mortgage foreclosure consultant)
at
_____________________________________________________ (Address of mortgage
foreclosure consultant’s place of business)
NOT LATER
THAN MIDNIGHT OF ________________________
(Date)
I hereby
cancel this transaction
____________________________________
(Date)
____________________________________
(Owner’s signature)
[Please Note: Effective July 1, 2009,
the above statutorily-required language changes. The words “third”
and "three" must be replaced by “fifth” or
"five" respectively, and the Addendum must include some
additional language.]
Addendum A (Effective July 1, 2009)
NOTICE OF CANCELLATION
_____________________________
(Enter date of transaction) (Date)
You may cancel this transaction, without any penalty or obligation, within five
business days from the above date.
To cancel this transaction, mail or deliver a signed and dated copy of this
cancellation notice, or any
other written notice, or send a telegram,
to __________________________________________________
(Name of foreclosure consultant)
at __________________________________________________
(Address of foreclosure consultant's place of business)
You may also cancel by sending a facsimile (fax) of a signed and dated copy of
this cancellation notice,
or any other written notice, to the following number:
_____________________________________________________
(Facsimile telephone number of foreclosure consultant's place of business)
You may also cancel by sending an e-mail canceling this transaction to the
following e-mail address:
_____________________________________________________
(E-mail address of foreclosure consultant's business)
I hereby cancel this transaction
____________________________________________.
(Date)
___________________________________________''
(Owner's
signature)
Q 35. What
are the formatting requirements for the language in Question 34?
A The required language of a foreclosure consultant
contract, as indicated in the answer to Question 34, must be formatted in the
following manner:
• Part
A must be completed and printed in at least 14-point boldface type immediately
above Part B (Cal. Civ. Code § 2945.3(b)).
• Part B must be a conspicuous statement in at least 10-point bold type
and in immediate proximity to the space reserved for the owner’s signature
(Cal. Civ. Code § 2945.3(c)).
• Attachment A must be completed in duplicate and captioned “Notice of
Cancellation.” It must be in at least 10-point type and attached to the
contract, but easily detachable. It must be written in the same language
as used in the contract. (Cal. Civ. Code § 2945.3(f)).
Q 36. Does
C.A.R. offer a standard form foreclosure consultant agreement?
A No. C.A.R. does not currently offer a standard
form agreement that comports with the requirements of the foreclosure
consultant law.
Q 37. What
are the requirements for delivering a foreclosure consultant contract to the
homeowner?
A The foreclosure consultant must provide the homeowner
with a copy of the contract and the attached notice of cancellation (Cal. Civ.
Code § 2945.3(g)). Also, the foreclosure consultant contract must be
written in the same language as principally used by the foreclosure consultant
to describe his or her services or to negotiate the contract (Cal. Civ. Code §
2945.3(c)).
Additionally,
effective July 1, 2009, the homeowner must, before signing the foreclosure
consultant contract, be given a copy of a completed contract written in any
other language used in any communication between the foreclosure consultant and
homeowner (Cal. Civ. Code § 2945.3(c)). Also effective July 1, 2009, if
the foreclosure consultant principally uses English to describe his or her
services or to negotiate the contract, the foreclosure consultant must notify
the homeowner orally and in writing before the homeowner signs the contract
that the owner has the right to ask for a completed copy of the contract in
Spanish, Chinese, Tagalog, Vietnamese, or Korean (Cal. Civ. Code § 2945.3(c)).
Q 38. What
is a homeowner’s right to cancel a foreclosure consultant contract?
A Until June 30, 2009, a homeowner has the right to
cancel a foreclosure consultant contract until midnight of the third business
day after the owner signs the contract. Starting July 1, 2009, a
homeowner has the right to cancel until midnight of the fifth business day
after the owner signs the contract (Cal. Civ. Code § 2945.2(a)). For the
purpose of this law, a "business day" is defined as any calendar day
except Sunday or the following business holidays: New Year's Day, Washington's
Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day, and Christmas Day (Cal. Civ. Code § 1689.5).
Q 39. What
constitutes a proper cancellation under the owner’s right to rescind?
A Until June 30, 2009, cancellation occurs when the
owner gives written notice of cancellation to the foreclosure consultant at the
address specified in the foreclosure consultant contract. The owner’s
notice of cancellation need not take the particular form as provided with the
contract. However expressed, the owner’s notice of cancellation is
effective if it indicates the owner’s intent not to be bound by the
contract. If the notice of cancellation is given by mail, it is effective
when deposited in the mail properly addressed with postage prepaid.
Starting
July 1, 2009, cancellation occurs when the owner gives written notice of
cancellation to the foreclosure consultant by mail at the address specified in
the contract, or by fax or e-mail at the number or address identified in the
contract. The owner’s notice of cancellation need not take the particular
form as provided with the contract. However expressed, the owner’s notice
of cancellation is effective if it indicates the owner’s intent not to be bound
by the contract. If notice of cancellation is given by mail, it is
effective when deposited in the mail properly addressed with postage
prepaid. If given by fax or e-mail, the notice of cancellation is
effective when successfully transmitted. (Cal. Civ. Code § 2945.2.)
Q 40. What
is a foreclosure consultant prohibited from doing?
A A foreclosure consultant is prohibited from, among
other things, engaging in any of the following activities:
• No Advance Fees: A foreclosure
consultant cannot 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 he or
she would perform (Cal. Civ. Code § 2945.4(a)).
• No Interest in Subject Property:
A foreclosure consultant cannot acquire any interest in a residence in
foreclosure from an owner with whom the foreclosure consultant has
contracted. Any such interest acquired is voidable, except as against a
bona fide purchaser or encumbrancer for value and without notice of a violation
of this article. Knowing that the property was "residential real
property in foreclosure" does not constitute notice of a violation of this
article. This rule does not abrogate any duty of inquiry which exists as
to rights or interests of persons in possession of residential real property in
foreclosure. (Cal. Civ. Code § 2945.4(e).)
• No Secured Payment:
A foreclosure consultant cannot take any wage assignment, real property lien,
personal property lien, or other security for the payment of
compensation. Any such security shall be void and unenforceable.
(Cal. Civ. Code § 2945.4(c).)
• No Mortgage Broker Fee Over 10%:
A foreclosure consultant cannot claim, demand, charge, collect, or receive any
fee, interest, or other compensation for any reason which exceeds 10% per annum
of the amount of any loan which the foreclosure consultant may make to the
owner (Cal. Civ. Code § 2945.4(b)).
• No Undisclosed Fees:
A foreclosure consultant cannot receive any consideration from any third party
in connection with services rendered to an owner unless that consideration is
fully disclosed to the owner (Cal. Civ. Code § 2945.4(d)).
• No Power of Attorney:
A power of attorney generally authorizes a person to act on another person’s
behalf. Until June 30, 2009, a foreclosure consultant cannot take any
power of attorney from a homeowner, except to inspect documents as provided by
law. Beginning July 1, 2009, a foreclosure consultant cannot take any
power of attorney from an owner for any purpose whatsoever. (Cal. Civ.
Code § 2945.4(f).)
• No Invalid Contract:
A foreclosure consultant cannot induce or attempt to induce any owner to enter
into a contract which does not comply with the foreclosure consultant law (Cal.
Civ. Code § 2945.4(g)).
• No Surplus Funds Contract:
Until June 30, 2009, a foreclosure consultant cannot, within 65 days after a
trustee’s sale, enter into an agreement to arrange or assist the owner in
arranging for the release of surplus funds (which are funds remaining after a
trustee’s sale). Moreover, such an agreement must comply with certain
requirements. Effective July 1, 2009, a foreclosure consultant cannot, at
any time, enter into an agreement to arrange or assist the owner in arranging
for the release of surplus funds. (Cal. Civ. Code § 2945.4(h).)
Q 41. Who
is a “representative” of the foreclosure consultant?
A A “representative” of the foreclosure consultant is a
person who in any manner solicits, induces, or causes any homeowner to contract
with a foreclosure consultant, to pay any consideration, or to transfer title
to the residence in foreclosure to the foreclosure consultant. A
representative is also someone who solicits, induces, or causes any member of
the owner’s family or household to induce or cause any owner to pay any
consideration or transfer title to the residence in foreclosure to the
foreclosure consultant. (Cal. Civ. Code § 2945.9.)
Q 42. What
does the law require for representatives of a foreclosure consultant?
A Any representative (as defined in Question 41) deemed
to be the agent or employee of the foreclosure consultant shall be required to
do all of the following:
• Provide
the homeowner with written proof that the representative has a valid current
California Real Estate Sales License (Cal. Civ. Code § 2945.11(a)(1));
• Provide the homeowner with written proof that the representative is
bonded by an admitted surety insurer in an amount equal to at least twice the
fair market value of the real property that is the subject of the contract
(Cal. Civ. Code § 2945.11(a)(1)); and
• Provide all parties to the contract (before transfer of any interest in
the property) with a written statement, under penalty of perjury, that the
representative has the required real estate license and bond, and has provided
the owner with written proof of same (Cal. Civ. Code § 2945.11(a)(2)).
Any failure
to comply with these requirements for representatives of the foreclosure
consultant shall, at the option of the owner, render the contract void and the
foreclosure consultant shall be liable to the owner for all damages proximately
caused by noncompliance (Cal. Civ. Code § 2945.11(b)). A foreclosure consultant
is also generally liable for damages resulting from any statement made or acts
committed by his or her representative (Cal. Civ. Code § 2945.9).
Any
provision in a contract which attempts to limit the foreclosure consultant’s
liability for these requirements pertaining to representatives shall be void
and, at the owner’s option, render the contract void. The foreclosure
consultant shall be liable to the owner for damages proximately caused by that
limitation of liability provision. (Cal. Civ. Code § 2945.10(a).)
Q 43. Does
a foreclosure consultant have to be a real estate licensee?
A Possibly so. Although the foreclosure
consultant law specifically requires a representative of the foreclosure
consultant to have a real estate license, it does not specifically state that
the foreclosure consultant must have a real estate license. In any
event, under general licensing laws, a real estate broker’s license is required
for anyone who, for compensation or in expectation of compensation, does or negotiates
to do certain activities for another (Cal. Bus. & Prof. Code §
10131). Such activities include, among other things, negotiating loans or
performing services for borrowers or lenders in connection with loans secured
by real property (Cal. Bus. & Prof. Code § 10131(d)). If a
foreclosure consultant falls within these parameters and undertakes any of
these tasks, and no exemption applies, a real estate license is required.
Q 44. What
is the new registration requirement for a foreclosure consultant?
A Effective July 1, 2009, a person must not take
any action as a foreclosure consultant unless the person registers with the
California Department of Justice and is issued and maintains a certificate of
registration. The registration must include, without limitation, the
following:
• All
the names, addresses, telephone numbers, Internet Web sites, and e-mail
addresses used or proposed to be used for foreclosure consulting;
• Statement that the person has not been convicted of (or pled nolo
contendere to) any crime involving fraud, misrepresentation, dishonesty, or a
violation of the foreclosure consultant law;
• Statement that the person has not been held liable in a civil judgment
for fraud, misrepresentation, violation of the foreclosure consultant law,
unfair competition (Cal. Bus. & Prof. Code § 17200), or false or misleading
advertising (Cal. Bus. & Prof. Code § 17500);
• Copies of all advertising and promotional materials, including print,
electronic, telephone scripts, broadcasts, and other statements used or
proposed to be used for foreclosure consulting; and
• Copy of the requisite bond (see Question 45).
Furthermore,
a foreclosure consultant must file with the Department of Justice an update of
certain material changes to the registration information (Cal. Civ. Code §
2945.45(a)(1)).
The
Department of Justice may refuse to issue or revoke a certificate of
registration if someone does any of following:
• Makes
any misstatement in the registration form;
• Is held liable for fraud, misrepresentation, unfair competition, or
false or misleading advertising;
• Commits any violation of the foreclosure consultant law; or
• Fails to maintain the requisite bond (see Question 45).
(Cal. Civ.
Code § 2945.45(c).)
Q 45. What
is the new bond requirement for a foreclosure consultant?
A Effective July 1, 2009, a foreclosure consultant must
obtain and maintain a $100,000 surety bond from a corporate surety admitted to
do business in California. The bond shall be made in favor of the State
of California for the benefit of homeowners for damages caused by the
foreclosure consultant. The bond must be filed with the Department of
Justice and the Secretary of State. (Cal. Civ. Code § 2945.45(a)(2)).)
Q 46. Can
an owner waive any of the requirements of the foreclosure consultant law?
A No. Any waiver by an owner of the provisions of
the foreclosure consultant law shall be deemed void and unenforceable as
contrary to public policy. Any attempt by the foreclosure consultant to
induce an owner to waive his or her rights is a violation of this law.
(Cal. Civ. Code § 2945.5.)
Q 47. What
is the potential liability for violating the foreclosure consultant law?
A An owner may, among other things, bring a civil
action against a foreclosure consultant who violates the foreclosure consultant
law. The owner may recover actual damages, reasonable attorneys’ fees and
costs, and appropriate equitable relief. Furthermore, a court not only
has the discretion to award exemplary damages, but for certain violations, the
court must award exemplary damages equal to three times the compensation
received by the foreclosure consultant (or actual damages suffered by the
owner). The violations for which a court must award exemplary damages are
those pertaining to improper advance fees (§ 2945.4(a)), exorbitant mortgage
broker fees (§ 2945.4(b)), and undisclosed fees (§ 2945.4(d)) (see Question
40). An owner has four years from the date of the alleged violation to
bring such action. (Cal. Civ. Code § 2945.6.)
Furthermore,
any person who violates the provisions set forth in the answer to Question 40
above may be criminally punished by one year imprisonment, plus a fine of
$10,000 (Cal. Civ. Code § 2945.7).
Additionally,
effective July 1, 2009, a person who fails to comply with the certificate of
registration and surety bond requirements may be punished by a fine up to
$25,000 for each violation, plus one-year imprisonment.
IV. ADDITIONAL INFORMATION
Q 48. Where
does someone report a foreclosure-related scam?
A The following is a list of government
enforcement agencies and other organizations for reporting fraud
activities. Some of these agencies and organizations are also excellent
resources for obtaining more information about foreclosure-related fraud.
Office of the Attorney General
California Department of Justice
Attn. Public Inquiry Unit
P. O. Box 944255
Sacramento, California 94244-2550
(916) 322-3360
(800) 952-5225
(in California only)
http://ag.ca.gov/consumers/mailform.htm
(Consumer complaints)
California Department of Real Estate
P. O. Box 187000
Sacramento, California 95818-7000
(916) 227-0864
http://www.dre.ca.gov/cons_complaint.html
(Consumer complaints)
Federal Bureau of Investigation (FBI) Headquarters
J. Edgar Hoover Building
935 Pennsylvania Avenue, NW
Washington, D.C. 20535-0001
(202) 324-3000
Or contact your local FBI field office
https://tips.fbi.gov/ (FBI tips and public
leads)
Department of Housing and Urban Development (HUD) Headquarters
HUD Office of Inspector General Hotline (GFI)
451 7th Street, SW
Washington, D.C. 20410
(800) 347-3735
Or contact your local HUD field office
http://www.hud.gov/offices/oig/hotline/
(Office of Inspector General hotline)
Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, D.C. 20580
(877) 382-4357
http://www.ftc.gov/ftc/contact.shtm
Better
Business Bureau
The Council of Better Business Bureaus
4200 Wilson Boulevard, Suite 800
Arlington, Virginia 22203-1838
Contact your local bureau
http://www.bbb.org/
Q 49. Where
can I obtain more information about foreclosure scams?
A
Some of these agencies and organizations listed in Question 48 are good
resources of foreclosure-related scams. Another commonly cited resource
is the National Consumer Law Center’s publication "Dreams Foreclosed: The
Rampant Theft of Americans' Homes Through Equity-Stripping Foreclosure 'Rescue'
Scams," available at http://www.consumerlaw.org/news/ForeclosureReportFinal.pdf.
Q 50. Where
can I obtain more information?
A This legal article is just one of the many
legal publications and services offered by C.A.R. to its members. For a
complete listing of C.A.R.'s legal products and services, please visit C.A.R.
Online at www.car.org.