With interest rates dropping I have been helping many homeowners that have VA and FHA loans do rate reduction streamline refinances.
This is a very simple process where you dont have to requalify using your income, creidit or the value of your home(even if the value is now upside down).
Please call me at 360-480-3516, write me at drosenstein@acceptancecapital.com, or apply here online at www.acmcusa.com, so I can show you the possible monthly savings.
Rates are very low, now is the time to start your refinance and lock your loan. At least call me to see what the benefits are, or what your options are. Call me David Rosenstein, 360-480-3516, www.acmcusa.com
I have attached sections of an article that may help you understand and accept now is the time to look at refinancing.
"- RISMedia - http://rismedia.com -
New Low Mortgage Rates Out of Reach
Posted By beth On December 7, 2008 @ 11:53 am In Finance and Economy | Comments Disabled
By David M. Dickson
RISMEDIA, Dec. 8, 2008-(MCT)-Many of the would-be borrowers who have bombarded mortgage lenders with phone calls since interest rates dropped last week are finding they don’t qualify for loans.Credit standards remain significantly tighter than they were two or three years ago. Some types of loans, such as adjustable-rate balloon mortgages, are difficult to obtain, and millions of homeowners cannot qualify for refinancing because they owe more on their current mortgages than their houses are worth.
“A dramatic tightening of underwriting standards and a rising number of underwater homeowners will eliminate more than half of the people” who could benefit from the new lower rates, said Guy Cecala, publisher of Inside Mortgage Finance.
While acknowledging that credit standards had tightened this year, Bonnet emphasized that a buyer with solid credit could obtain a Federal Housing Administration-insured loan of $625,000 bearing a 5.5% fixed rate and requiring a down payment as low as 3.5%.
Mortgage rates fell immediately Nov. 25 after the Fed announced its extraordinary plan to spend $600 billion purchasing debt and mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.
“This is as big as it gets,” said Bob Walters, chief economist of Internet lender Quicken Loans. Mr. Walters reported that mortgage rates instantly dropped three-quarters to 1 percentage point, reaching 5.4% to 5.5%, after the Fed announced its program.
Many lenders expect rates to keep dropping.
“Mortgage rates have been artificially high this year mostly due to panic and disruption in the credit markets, especially for anything with a mortgage label on it,” said Cecala. “A more appropriate rate for 30-year fixed rate mortgages would have been 5 percent or less,” given how the rate on the Treasury 10-year note has plunged, Cecala said. Cecala expects rates to reach 5% by the end of the year.
For those who do qualify, the savings can be substantial, especially if their initial below-market “teaser” rate is scheduled to adjust upward in the near future.
A 30-year, $350,000 mortgage bearing a fixed rate of 5.25% instead of 6.5% would save a borrower $280 per month. A half-percentage-point reduction to 5.5% would yield a monthly savings of $111.
“Many people have been sitting on the sidelines, and they are now the ones who can take advantage of this opportunity,” said Mr. Walters. “It’s an early Christmas present.”
Mortgage brokers in some areas of the country were quoting 30-year fixed rates as low as 5.25% late last week for borrowers with stellar credit and substantial equity in their homes. As recently as July and August, 30-year fixed-rate mortgages averaged about 6.5%, according to national surveys by Freddie Mac.
“Consumers should not be holding out for a lower interest rate,” Bonnet cautioned. “In the last 50 years, rates have not been appreciably lower than they are today,” he said. “Waiting for a lower rate could be a fool’s game,” especially given the extreme volatility that has characterized the mortgage market during the past year.
Walters also cautioned against delay. “You are betting against history if you are waiting for interest rates to go lower,” he said.
“Mortgage rates dropped a lot in a matter of a day, which is just what the Fed wanted,” said Patrick Newport, an economist at IHS Global Insight who specializes in housing. “However, it will only affect mortgages eligible to be purchased by Fannie and Freddie,” Newport said. Although that is a huge market, it likely will exclude many of those who need the most help to avoid foreclosure.
For example, subprime loans and many exotic mortgages, which required the homeowner to pay interest only for several years, will not be affected by the Fed’s initiative, Newport said.
Jumbo loans that are too big for Fannie and Freddie to buy (more than $730,000 for now, and more than $625,000 beginning Jan. 1) will continue to command interest rates in the neighborhood of 8%, analysts said.
The interest-rate decline also will be of no benefit to millions of troubled homeowners who want to refinance their mortgages in states that have been hammered by the bursting of the housing bubble, including California, Florida, Arizona and Nevada, where housing prices have plunged by 30% to 40% in many markets.
Adjustable-rate mortgages requiring little or no down payments were wildly popular during 2005 and 2006 in the bubble states, and many homeowners in these states are now underwater, owing more on the mortgages than their houses are worth.
About 12 million U.S. homeowners are in that situation, said Mark Zandi of Moody’s Economy.com. That’s a big increase compared with the 6.6 million homeowners who owed more than their houses were worth at the end of last year. Only about 3 million homeowners were underwater at the end of 2006, Mr. Zandi said.
Copyright © 2008, The Washington TimesDistributed by McClatchy-Tribune Information Services.
When you are shopping for a new home loan, whether it is a refinance or to purchase a new home, it is important that the loan officer/banker you talk with provides you with a good faith estimate that is calculated correctly.
A good faith is not only a required disclosure of the fees, terms and other costs associated with the new loan you are shopping for, it will allow you to compare between lenders the actual cost of obtaining your new loan.
My point to my readers is that I strive to provide my clients the best rate and the lowest costs on their new loan, based on their income and credit situation.
It is important that a lender provide the client with a best estimate of the actual costs and fees to obtain the new loan. In some cases the numbers may change from the original good faith estimate, then the lender/broker must correctly redisclose to you.
When you are shopping for your new loan, you need to make sure to ask your lender to verify that they are correctly estimating all the prepaid loan charges, such as reserves for property taxes, and insurance, or the correct amount of prepaid interest at closing. Lately I have seen good faith estimates from several other lenders/brokers and bankers that are incorrectly calculating the good faith estimate which is misleading to the borrower. They build the clients confidence with the borrower letting them think upfront the amount needed to finance is less, or the amount needed to close is short.
There have been several times that the amount of the interest and taxes are incorrectly calculated, or if the loan requires mortgage insurance the original good faith did not include this.
I have been helping clients obtain new loan financing for over 17 plus years, and strive to provide clients with the most accurate estimate upfront as possible.
If you are shopping for a new loan, please call me to compare with any good faith you may have. In most cases I can and will present options that were not discussed to you.
You can contact me anytime at DRosenstein@acceptancecapital.com, or http://acmcusa.com, or call me at 360-480-3516.
Nov 4, 2008by Chris Kaucnik, Director of Marketing for Home Warranty of America and Michael J. Greenen, CPA, CFPNo matter the circumstances, there's a lot of stress a homeowner goes through in a foreclosure or a short sale. The loss of the home itself and any equity can add a lot of anguish to a situation that may be beyond the control of the homeowner from job loss or illness to changing market conditions. Brief BackgroundPrior to December of 2007 if a homeowner lost his house due to a bank foreclosure, and the bank forgave any difference between the price it was sold for and what was owed, the homeowner would owe additional income tax on that portion. Yes, it's hard to believe, but true. Let's say the homeowner owed $300,000 on the mortgage, but the foreclosure sale only brought in $200,000. Then the bank forgave the $100,000 shortfall. The homeowner would have been liable for the income tax on the $100,000 debt forgiveness from the bank. The IRS considered this money effectively paid to the homeowner, and it would be taxable in their top bracket. The special reporting form 1099-C depicts the explanation of this exactly - the "C" stands for cancellation of debt and the law said this was taxable income.Now, because of the unique stresses in the housing industry lately and on our whole economy, last December Congress stepped in to provide temporary relief in the form of forgiving this debt, but only for the 2007, 2008 and 2009 tax years. After that, the old rule applies again. But Wait, There's MoreTo be eligible for this tax relief, the mortgage must be for your principal residence. It does NOT apply to vacation, investment or other properties. And no more than $2,000,000 of forgiven debt can be excluded from taxable income. Well, most of us would fall below that threshold anyway. Home Equity LoansAnother very important detail in this temporary tax break is if part of the forgiven debt was a home equity loan and used for purposes other than to build, buy or substantially improve the property, that portion is STILL taxable. In other words, home equity loans used for vacations aren't included. Short SalesNow, what happens in a short sale? In brief, this can occur when a borrower is behind on the mortgage payments and the lender agrees he can sell his house for less than what is owed on the mortgage. But all proceeds must be turned over to the bank. The portion of the mortgage the bank forgives, PLUS any commission expenses or other selling costs ARE taxable income if this debt is canceled. Yes, even the commission and selling expenses count. No free rides. But, again for taxable years 2007, 2008 and 2009 Congress has provided the same temporary relief in this short sale situation. A short sale is not always the answer. First, the bank must agree to it and generally will weigh the cost of the short sale against the cost of a foreclosure. Other ScenariosThere are situations where the bank sees a homeowner with a great credit history, but who is having trouble making mortgage payments for a legitimate reason. If the bank agrees to reduce the mortgage by say 25%, this is again considered a cancellation of debt and would have been subject to income tax. But for the above stated tax periods, this new, temporary tax provision forgives this income. Why is there always a catch! If the homeowner does take advantage of debt cancellation by the lender, they are required, when they do eventually sell, to reduce the basis (original price of the home) equal to the amount forgiven. What does that mean? A homeowner can now receive a $250,000 (single) and $500,000 (married) capital gain exclusion on the sale of their primary residence. Here's an example where the home was originally purchased for $300,000, there was a $100,000 debt cancellation, and a married couple is selling the home:Home Sells for $750,000Less Original Basis* ($200,000)Less Capital Gain Exclusion ($500,000) Gain on Sale $50,000Capital Gains Tax at 15% $7500 (Owed by homeowner)*This is the original basis or price of home $300,000, less the $100,000 debt cancellation from the lender.While $7500 capital gains tax is surely a lot less than the $100,000 cancelled by the lender, the homeowner may not think of this or be aware it could happen down the road, perhaps just prior to retirement. And capital gains taxes are always subject to change.It gets a bit more complicated when one spouse dies and the other is left to sell the home. Consult your tax accountant or attorney for planning purposes. Mortgage Insurance AffectedIt is important to also note that this act extended mortgage insurance as an itemized deduction all the way through 2010. Yes, there's a restriction. The mortgage contract has to be entered into between December 31, 2006 and January 1, 2011. Housing Market StabilizationAll of this is being done in an effort to stabilize our housing market and should help many homeowners in these situations. Always consult with a professional tax accountant or attorney to be sure you are taking the right road to solving your mortgage crisis and will be covered under this new tax relief act. Michael J. Greenen is a Certified Public Accountant and Certified Financial Planner located outside of Chicago, IL. For the past decade, his firm has been working with small to medium businesses as well as high net worth individuals who need comprehensive tax and financial planning.
Home Warranty of America, Inc. of Buffalo Grove, IL, was founded in 1996 to provide home warranty coverage for houses, town homes, and condominiums. The Company has experienced remarkable growth to become a leading supplier of home warranties across the United States.
Interest rates are lower today then they have been in a very long time.
With so many financial issues and the "Recession" word being used, gas prices, home prices and now the interest rates are dropping.
Now is the best time to contact me to calculate the best rate for your situation. Many brokers quote rates in their ads, but that rate is not for everyone. You may have a lower credit score, the loan to value may be higher, which will cause you to have rate adjustments. There are the Conforming loans, FHA loans, VA loans, USDA Rural Housing loans, etc.....
So please call me at 360-480-3516, go to my website at http://www.acmcusa.com to apply or write me at drosenstein@acceptancecapital.com so I can provide you with the best possible estimate on how I can save you on the interest rate and more.
Do you have an FHA Loan?
FHA Streamline Refinance
Under the FHA Streamline Refinance Program, when mortgage rates drop, the Homeowner is entitled to reduce their current interest rate!
Some of the basic of a streamline refinance are:
1. The mortgage to be refinanced must already be FHA insured.
2. The mortgage to be refinanced should be current and not over 30 days delinquent more than once in the last year.
3. The benefit of the refinance is to result in lowering the borrower's monthly principal and interest payments.
4. No cash may be taken out on mortgages refinanced using the streamline process.
FHA Streamline loans are processed in one of two ways:
Streamline Refinance with an Appraisal:
Streamline Refinance without an Appraisal:
Non-Owner Occupied with FHA- (yes we can refinance your investment property with an FHA loan).
Please contact David Rosenstein for me information on how this program may lower your current rate, or apply online at www.acmcusa.com.
Hope is here, but not the only answer.
If you are a home owner and feeling the crunch of making your home mortgage payment(s), there are options. Below is an except about the new program that will help some, but not all.
I have options for you, please contact me to help you analyse your situation. You can write me at drosenstein@acceptancecapital.com or apply or ask me a question at www.acmcusa.com.
I have over 18 plus years in the mortgage and real estate industry.
Federal Housing Bill Now LawPresident Bush signed into law the Housing and Economic Recovery Act of 2008, which is primarily aimed at protecting homeowners from foreclosure, stop declining home prices, and stabilize the mortgage industry. Under the $300 billion HOPE for Homeowners Program, 400,000 distressed homeowners can pay off their troubled mortgages and replace them with more affordable, FHA-insured loans. To qualify, a borrower's existing loan must have been originated before 2008, and secured by the borrower's principal residence (as well as only residence). The FHA refinance will be a fixed rate loan up to $550,440 for at least 30 years, and will include charges for FHA insurance premiums. The maximum loan-to-value ratio of the FHA refinance is 90% of the appraised value. If the refinance proceeds are insufficient to pay off the existing liens, the refinance will not go through unless the original lenders voluntarily agree to accept a short payoff as payment in full. Upon obtaining the FHA refinance, the borrower must share with the FHA at least 50% of any equity realized through a subsequent sale or refinance. The FHA's share in equity will be based on a sliding scale of 100% of any equity realized within the first year of the FHA loan, 90% the second year, 80% the third year, and so on, but not less than 50%. The HOPE for Homeowners Program shall be in effect from October 1, 2008 to September 30, 2011.
Now is the time to start looking to get pre-approved to buy your first home or buy your move up one.
As I have told you before we do have several 100% options still available to buy a home, such as VA, and the USDA Rural Housing.
Not everyone or every property will qualify for these programs.
DID YOU KNOW-FHA will permit family members (as defined below) to lend on a secured or unsecured basis 100 percent of the homebuyer's required cash investment which may include the downpayment, closing costs, prepaid expenses and discount points.
This change is in response to new legislation that amends the cash investment requirement of Section 203(b)(9) of the National Housing Act. That section requires that the borrower provide at least 3 percent (or the current reqmt) of the cost of acquisition. Funds loaned to the mortgagor could not be counted for this purpose without special authorization by Congress. The legislation will now permit family members to choose whether to help with the costs of acquiring a home in the form of a gift or a loan.
FHA does not usually treat discount points as part of the costs of acquisition and the new legislation does not appear to require FHA to permit the family member loan to include discount points, but FHA has decided to permit it as a matter of administrative policy and the regulatory restriction in 24 CFR 203.32(a) is waived. This regulatory waiver will increase the usefulness of family member loans as a means of encouraging homeownership.
The following conditions apply:
Secondary Financing Terms and Conditions:
•
The maximum mortgage calculation process remains the same. Closing costs, but not prepaid expenses or discount points, may still be added to the lesser of the appraised value or sales price in determining the maximum mortgage. However, if the lender pays a portion of the closing costs through a premium interest rate, the amount of closing costs paid by the lender in this manner may not be included in calculating the mortgage amount.
The combined amount of financing may not exceed 100 percent of the lesser of the property's value or sales price, plus normal closing costs, prepaid expenses, and discount points. While the family member may lend 100 percent of the cash investment requirements, cash back to the homebuyer (beyond refund of any earnest money deposit) at closing is not acceptable.
If periodic payments of the secondary financing are required, the combined payments may not exceed the borrower's reasonable ability to pay. The secondary financing payments are to be included in the total debt payment-to-income ratio, i.e., the "back end" ratio, for qualifying purposes.
The second lien may not provide for a balloon payment within five years from the date of execution.
If the family member providing the secondary financing borrows those funds, the source may not be any entity with an identity-of-interest in the sale of the property, including the seller, builder, loan officer, real estate agent, etc. Mortgage companies that have retail banking affiliates may have that entity make a loan to the family member providing the secondary financing for the home purchase. However, the lending institution may not make such financing available under terms and conditions more favorable than to other borrowers, i.e., there may not be any special considerations provided in connection between making of the mortgage and lending funds to family members to be used as secondary financing for the purchase of the home.
An executed copy of the document outlining the terms of the secondary financing must be maintained in the lenders file.
Family Member Defined:
For this program, "family member" includes a child, parent, or grandparent of the mortgagor or mortgagor's spouse. Included in this definition are legally adopted sons or daughters (and a child who is a member of an individual's household if placed with such individual by an authorized agency for legal adoption by that individual), and foster children. The term "child" means a son, stepson, daughter, or stepdaughter.
SECONDARY FINANCING BY FAMILY MEMBERS. Mortgagee Letter 96-58 set forth the terms and conditions by which family members could provide secondary financing. At that time, we stated that the funds lent by the family member could be secured against the property or remain unsecured; this policy has not changed. However, if the money lent by the family member is secured against the subject property, whether borrowed from an acceptable source or from the family member's own savings, only the family member provider(s) may be the note holder. FHA will not approve any form of securitization of the note that results in any entity other than the family member being the note holder, whether at loan settlement or arranged to occur at any time during the mortgage life cycle.
Further, if the funds that are lent by the family member are borrowed from an acceptable source, the homebuyer may not be a coobligor on that note, e.g., the son and daughter-in-law may not be coobligors on the note used to secure money borrowed by the parents that in turn was lent for the downpayment.
Please also note that the definition of family member as stated in the mortgagee letter was sent forth in the law itself and cannot be waived by FHA or by mortgage lenders. Therefore, if the family member loans money for the mortgage you can only use the members stated in this memo (meaning aunts, uncles, cousins, fiancé, etc are not listed nor acceptable).
If you would like to know more, please write or call me at 360-480-3516, or drosenstein@acceptancecapital.com. If you want you can also apply online here at www.acmcusa.com.
TABLE OF CONTENTS
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 tohttp://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 anyother 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 propos