First let's get the law out on the table. I will bold the portions to be discussed in this article. I have also put some random comments in here so read through it. My comments are italicized. The following is general legal information only, and not legal advice. Consult with an attorney if you have specific questions.
CHAPTER 1. GENERAL ........................................... 50000-50006
(c) Notwithstanding subdivision (b), any person who provides
services pursuant to paragraph (9) of subdivision (a) is a
foreclosure consultant unless he or she is the owner's attorney.
basically means all others are foreclosure consultants unless they are an attorney
(d) "Person" means any individual, partnership, corporation,
limited liability company, association or other group, however
organized.
This means you cannot hide behind a company to get around the California Foreclosure Consultant Law Section 2945
(e) "Service" means and includes, but is not limited to, any of
the following:
(1) Debt, budget, or financial counseling of any type.
(2) Receiving money for the purpose of distributing it to
creditors in payment or partial payment of any obligation secured by
a lien on a residence in foreclosure.
(3) Contacting creditors on behalf of an owner of a residence in
foreclosure.
(4) Arranging or attempting to arrange for an extension of the
period within which the owner of a residence in foreclosure may cure
his or her default and reinstate his or her obligation pursuant to
Section 2924c.
(5) Arranging or attempting to arrange for any delay or
postponement of the time of sale of the residence in foreclosure.
(6) Advising the filing of any document or assisting in any manner
in the preparation of any document for filing with any bankruptcy
court.
(7) Giving any advice, explanation or instruction to an owner of a
residence in foreclosure which in any manner relates to the cure of
a default in or the reinstatement of an obligation secured by a lien
on the residence in foreclosure, the full satisfaction of that
obligation, or the postponement or avoidance of a sale of a residence
in foreclosure pursuant to a power of sale contained in any deed of
trust.
(8) Arranging or attempting to arrange for the payment by the
beneficiary, mortgagee, trustee under a power of sale, or counsel for
the beneficiary, mortgagee, or trustee, of the remaining proceeds to
which the owner is entitled from a foreclosure sale of the owner's
residence in foreclosure. Arranging or attempting to arrange for the
payment shall include any arrangement where the owner transfers or
assigns the right to the remaining proceeds of a foreclosure sale to
the foreclosure consultant or any person designated by the
foreclosure consultant, whether that transfer is effected by
agreement, assignment, deed, power of attorney, or assignment of
claim.
Basically means that almost anything you do for a person in foreclosure is covered by this act
(f) "Residence in foreclosure" means a residence in foreclosure as
defined in Section 1695.1.
Let me save you the work in looking this section up:
1695.1 (b) "Residence in foreclosure" and "residential real property in
foreclosure" means residential real property consisting of one- to
four-family dwelling units, one of which the owner occupies as his or
her principal place of residence, and against which there is an
outstanding notice of default, recorded pursuant to Article 1
(commencing with Section 2920) of Chapter 2 of Title 14 of Part 4 of
Division 3.
(g) "Owner" means a property owner as defined in Section 1695.1.
Again, let me do the honors: 1695.1 (f) "Property owner" means the record title owner of the
residential real property in foreclosure at the time the notice of
default was recorded.
(h) "Contract" means any agreement, or any term thereof, between a
foreclosure consultant and an owner for the rendition of any service
as defined in subdivision (e).
This next section discusses the owners rights you must respect if the California Foreclosure Consultant Law Applies to you.
2945.2. (a) In addition to any other right under law to rescind a
contract, an owner has the right to cancel such a contract until
midnight of the third "business day" as defined in subdivision (e) of
Section 1689.5 after the day on which the owner signs a contract
which complies with Section 2945.3.
(b) Cancellation occurs when the owner gives written notice of
cancellation to the foreclosure consultant at the address specified
in the contract.
(c) Notice of cancellation, if given by mail, is effective when
deposited in the mail properly addressed with postage prepaid.
(d) Notice of cancellation given by the owner need not take the
particular form as provided with the contract and, however expressed,
is effective if it indicates the intention of the owner not to be
bound by the contract.
2945.3. (a) Every contract shall be in writing and shall fully
disclose the exact nature of the foreclosure consultant's services
and the total amount and terms of compensation.
For all intensive purposes this sounds just like the Advance Fee Agreement that the DRE requires DRE licensed brokers to have.
(b) The following notice, printed in at least 14-point boldface
type and completed with the name of the foreclosure consultant, shall
be printed immediately above the statement required by subdivision
(c):
"NOTICE REQUIRED BY CALIFORNIA LAW
_____________________________ or anyone working
(Name)
for him or her CANNOT:
(1) Take any money from you or ask you for money
until ________________________________________ has
(Name)
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."
Since California DRE Brokers are not exempt under this law, it means DRE brokers cannot accept any advance fee from any homeowner who is in foreclosure (meaning a notice of default has been filed). For those rare brokers who have an advance fee agreement in place you will probably recognize this language.
The bottom line is that the law in California is clear, if a homeowner is in foreclosure there is no collecting of any fees up front. If you are a home-owner who has paid a broker a fee while you were in foreclosure contact us, there is a very strong possibility that we will be able to get your money back.
(c) The contract shall be written in the same language as
principally used by the foreclosure consultant to describe his or her
services or to negotiate the contract; shall be dated and signed by
the owner; and shall contain in immediate proximity to the space
reserved for the owner's signature a conspicuous statement in a size
equal to at least 10-point boldface type, as follows: "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."
(d) The contract shall contain on the first page, in a type size
no smaller than that generally used in the body of the document, each
of the following:
(1) The name and address of the foreclosure consultant to which
the notice or cancellation is to be mailed.
(2) The date the owner signed the contract.
(e) The contract shall be accompanied by a completed form in
duplicate, captioned "notice of cancellation," which shall be
attached to the contract, shall be easily detachable, and shall
contain in type of at least 10-point the following statement written
in the same language as used in the contract:
"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 foreclosure consultant)
at
__________________________________________________
(Address of foreclosure consultant's place of
business)
NOT LATER THAN MIDNIGHT OF _______________________.
(Date)
I hereby cancel this transaction
__________________________________________________.
(Date)
________________________________________________"
(Owner's signature)
(f) The foreclosure consultant shall provide the owner with a copy
of the contract and the attached notice of cancellation.
(g) Until the foreclosure consultant has complied with this
section, the owner may cancel the contract.
(h) After the 65-day period following the foreclosure sale, the
foreclosure consultant may enter into a contract to assist the owner
in arranging, or arrange for the owner, the release of funds
remaining after the foreclosure sale ("surplus funds") from the
beneficiary, mortgagee, trustee under a power of sale, or counsel for
the beneficiary, mortgagee, or trustee. However, prior to entering
into that contract, the foreclosure consultant shall do all of the
following:
(1) Prepare and deliver to the owner a notice in 14-point boldface
type and substantially in the form set forth below.
(2) Obtain a receipt executed by each owner and acknowledged
before a notary public, acknowledging a copy of the notice set forth
below.
"NOTICE TO OWNER
____________________ ________________________
(Date of Contract) (Date signed by Owner)
____________________________
(Date of Foreclosure Sale)
You may be entitled to receive all or a portion
of the surplus funds generated from the
foreclosure sale of your real property located
at: __________________________, California on
_________________________without paying any fees
or costs of any kind to a third party. You
should check directly with the trustee or
beneficiary who conducted the foreclosure sale
of your property to determine the name, address,
and telephone number of the party to whom you
can direct inquiries regarding filing a claim
for surplus funds without paying a fee to a
third party. No person or entity may require you
to enter into any agreement requiring the
payment of a fee to that person or entity in
order to receive the surplus funds from
the foreclosure sale to which you may be
entitled during the 65 days after the date of
the trustee's sale."
The following sections clearly set forth violations of the California Foreclosure Consulting Law Section 2945
2945.4. It shall be a violation for a foreclosure consultant to:
(a) Claim, demand, charge, collect, or receive any compensation
until after the foreclosure consultant has fully performed each and
every service the foreclosure consultant contracted to perform or
represented that he or she would perform.
If you are a California Licensed Real Estate Broker and have accepted an advance fee from an owner in foreclosure who has received a notice of default you are in clear violation of the California Foreclosure Consulting Law Section 2945
(b) Claim, demand, charge, collect, or receive any fee, interest,
or any other compensation for any reason which exceeds 10 percent per
annum of the amount of any loan which the foreclosure consultant may
make to the owner.
(c) Take any wage assignment, any lien of any type on real or
personal property, or other security to secure the payment of
compensation. That security shall be void and unenforceable.
(d) Receive any consideration from any third party in connection
with services rendered to an owner unless that consideration is fully
disclosed to the owner.
(e) Acquire any interest in a residence in foreclosure from an
owner with whom the foreclosure consultant has contracted. Any
interest acquired in violation of this subdivision shall be voidable,
provided that nothing herein shall affect or defeat the title of a
bona fide purchaser or encumbrancer for value and without notice of a
violation of this article. Knowledge that the property was
"residential real property in foreclosure," does not constitute
notice of a violation of this article. This subdivision may not be
deemed to abrogate any duty of inquiry which exists as to rights or
interests of persons in possession of residential real property in
foreclosure.
(f) Take any power of attorney from an owner for any purpose,
except to inspect documents as provided by law.
(g) Induce or attempt to induce any owner to enter into a contract
which does not comply in all respects with Sections 2945.2 and
2945.3.
(h) Enter into an agreement to assist the owner in arranging, or
arrange for the owner, the release of surplus funds prior to 65 days
after the trustee's sale is conducted, whether the agreement involves
direct payment, assignment, deed, power of attorney, or assignment
of claim from an owner to the foreclosure consultant or any person
designated by the foreclosure consultant.
2945.5. Any waiver by an owner of the provisions of this article
shall be deemed void and unenforceable as contrary to public policy.
Any attempt by a foreclosure consultant to induce an owner to waive
his rights shall be deemed a violation of this article.
ok, so now what are the penalties where a DRE licensed broker accepts an advance fee from a owner in foreclosure who has received a notice of default in violation of the California Foreclosure Consulting Law Section 2945?
2945.6. (a) An owner may bring an action against a foreclosure
consultant for any violation of this chapter. Judgment shall be
entered for actual damages, reasonable attorneys' fees and costs, and
appropriate equitable relief. The court also may, in its
discretion, award exemplary damages and shall award exemplary damages
equivalent to at least three times the compensation received by the
foreclosure consultant in violation of subdivision (a), (b), or (d)
of Section 2945.4, and three times the owner's actual damages for any
violation of subdivision (c), (e), or (g) of Section 2945.4, in
addition to any other award of actual or exemplary damages.
Wow, the Court shall award exemplary (which means punitive damages) in certain circumstances. According a violation of the California Foreclosure Consulting Law Section 2945 can be a costly mistake.
(b) The rights and remedies provided in subdivision (a) are
cumulative to, and not a limitation of, any other rights and remedies
provided by law. Any action brought pursuant to this section shall
be commenced within four years from the date of the alleged
violation.
2945.7. Any person who commits any violation described in Section
2945.4 shall be punished by a fine of not more than ten thousand
dollars ($10,000), by imprisonment in the county jail for not more
than one year, or in the state prison, or by both that fine and
imprisonment for each violation. These penalties are cumulative to
any other remedies or penalties provided by law.
Wow, a 10k fine and possible imprisonment. Amazing. the California Foreclosure Consulting Law Section 2945 packs some serious penalties and has serious legal teeth. And yet strangely most brokers seem to be unaware of this law and are taking advance fees from homeowners who have recieved a notice of default.
2945.8. If any provision of this article or the application thereof
to any person or circumstance is held to be unconstitutional, the
remainder of the article and the application of such provision to
other persons and circumstances shall not be affected thereby.
2945.9. (a) A foreclosure consultant is liable for all damages
resulting from any statement made or act committed by the foreclosure
consultant's representative in any manner connected with the
foreclosure consultant's (1) performance, offer to perform, or
contract to perform any of the services described in subdivision (a)
of Section 2945.1, (2) receipt of any consideration or property from
or on behalf of an owner, or (3) performance of any act prohibited by
this article.
This seems to suggest that California Licensed Real Estate Broker is liable under this article for acts of his/her agents and representatives.
This could have SERIOUS ramifications if you are a California Licensed Real Estate Broker and have agents working in branch offices doing loan modifications.
(b) "Representative" for the purposes of this section means a
person who in any manner solicits, induces, or causes (1) any owner
to contract with a foreclosure consultant, (2) any owner to pay any
consideration or transfer title to the residence in foreclosure to
the foreclosure consultant, or (3) 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.
2945.10. (a) Any provision in a contract which attempts or purports
to limit the liability of the foreclosure consultant under Section
2945.9 shall be void and shall at the option of the owner render the
contract void. The foreclosure consultant shall be liable to the
owner for all damages proximately caused by that provision. Any
provision in a contract which attempts or purports to require
arbitration of any dispute arising under this chapter shall be void
at the option of the owner only upon grounds as exist for the
revocation of any contract.
(b) This section shall apply to any contract entered into on or
after January 1, 1991.
2945.11. (a) Any representative, as defined in subdivision (b) of
Section 2945.9, deemed to be the agent or employee or both the agent
and the employee of the foreclosure consultant shall be required to
provide both of the following:
(1) Written proof to the owner that the representative has a valid
current California Real Estate Sales License and 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.
(2) A statement in writing, under penalty of perjury, that the
representative has a valid current California Real Estate Sales
License, that the representative is bonded by an admitted surety
insurer in an amount equal to at least twice the value of the real
property that is the subject of the contract and has complied with
paragraph (1). The written statement required by this paragraph
shall be provided to all parties to the contract prior to the
transfer of any interest in the real property that is the subject of
the contract.
(b) The failure to comply with subdivision (a) 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 the failure to comply.
(877) 276-5084
Morals of the Story:
(1) California Brokers You Need to Have a Well Drafted Advance Fee Agreement in Place if you want to accept an Advance Fee from homeowners for loan modification services. I can drft these for you give me a call. It will likely be the best money you have ever spent.
(2) Even with an advance fee agreement in place, you need to make sure you do not accept any money up-front from an owner facing foreclosure as evidenced by a notice of default. This means you better ask, check and verify. You can check the County Recorder where your Client's property is as a back-up method.
(3) If you have collected an advance fee legally (with a DRE approved advance fee agreement in place) and the owner receives a notice of default, you should not collect or withdraw any money from your Client's Trust Account. Leave the money in there until your services are complete.
(4) Penalties for non-compliance with the California Foreclosure Consulting Law Section 2495 are staggering including attorney fees, a 10k fine, jail time, and punitive damages
(5) You can be held liable for the acts of your agents and representatives. If you have a branch office in place you better know what's going on. You have a duty to supervise and if your agents and representatives violate the California Foreclosure Consulting Law Section 2495 you will find yourself in ver hot water.
To learn more about our services please contact us at (877) 276-5084
The Law Offices of Steven C. Vondran.
California Office
620 Newport Center Drive, Suite 1100
Newport Beach, CA 92660
www.vondranlaw.com
Arizona Office
2415 E. Camelback Road
Suite 700
Phoenix, Arizona 85016
www.vondranlaw.com
Other Services we Provide: Advance Fee Agreements; Loan Audits, Incorporation Services, LLC's, Partnership & Branch Office Agreements, Business and Real Estate Litigation/Arbitration, Real Estate Zoning, Eminent Domain, Broker Audits, DRE licensing and discipline hearings, Contracts, Internet and eBusiness Issues.
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