Florida's brand new foreclosure fraud law - the good, the bad, and the ugly

By
Real Estate Agent with Sand Dollar Realty Group, Inc. BK627826

If you are not aware yet, Governor Crist just signed into law House Bill 643 the Foreclosure Fraud law.  You can read the final version of the bill by clicking on "Enrolled" on the legislative website or simply clicking here.  

In general, I am against anything regulating free trade and capitalism.  The more regulation out there, the more expensive and difficult it is to do business.  This in turn reduces competition thus giving members of the general public less choices and higher prices.  If you don't believe me, just think of how lack of competition and high taxes and regulation have affected gas prices.

   

The good - I do believe this new law does more good than bad.  It is specifically targeting people who contact someone in foreclosure. It gives a homeowner special protection if they intend to retain any interest in the property after the closing occurs.  It also requires that the homeowner receive specific written disclosures notifying them of their rights with a "cooling off" period.  It also protects the homeowner from someone who might take money from them and then sort of disappear.  People do need to be protected from unscrupulous vultures who would take advantage of a vulnerable situation.  

The bad - The law requires a special written addendum with specific deadlines, timelines, and cancellation periods.  While this is good for the homeowner it is discouraging for the Realtor, investor, or entrepreneur who may be legitimately trying to help them out while still making a profit.  It allows wishy-washy owners to change their mind, shop the contract, etc. It also puts an additional burden of paperwork and disclosures onto everyone's backs. Like we need any more paperwork. 

The ugly - As with any law there can be "unintended consequences" as I learned in my little stint of lobbying in Washington a few weeks ago.  Here are the unintended consequences that I see:

1.     It specifically targets sale and repurchase agreements.  By placing restrictions in this area and limiting "unconscionable" profits to only a 17% markup, it basically eliminates repurchases altogether.  Any investor who has ever bought and re-sold a property (i.e. Flip This House) knows that 17% will barely cover the closing costs and holding costs during the period.  Thus sale and repurchase agreements will most likely become extinct and the homeowner loses one possible option that they used to have.  It also eliminates investors buying properties "subject to" the existing financing unless the homeowner moves out and does not retain an interest.

2.    Additional paperwork and disclosures will discourage some investors and Realtors from even fooling with the whole process.  Short sales and foreclosures are always iffy situations at best.  By putting this additional wrinkle with severe penalties attached to it, many people who might otherwise try to intervene in this situation will just stand aside and let the property get repossessed by the foreclosing lender.  Why do a short sale if you risk the chance that the homeowner might hire some ambulance chasing attorney to come track you down later on because you didn't fill out the papers correctly?

3.    By disallowing upfront fees to be paid from the homeowner, many Realtors, attorneys, and other short sale service providers will lose interest in trying to work with the homeowner.  Since we know that somewhere between 50% and say 80% of all short sale or negotiation attempts with lenders fail, there are less and less people willing to work for free on these negotiations.  The bottom line is that this new regulation will chase off some of the legitimate business people from the foreclosure arena. That cannot be good in a time when foreclosures are high and buyers are few.

4.    AND PROBABLY THE MOST UGLY OF ALL: Unless you do a title search verifying a lis pendens has not been recorded, you could violate this law unintentionally.  If you sign a listing agreement or a purchase contract with someone and a lis pendens is recorded, from what I read in the law, you have to get this disclosure signed. Even if the property goes into foreclosure after you listed it, you apparently need to get the disclosure signed prior to a contract.  If not you are subject to huge penalties. There is no exemption for licensed real estate associates/brokers (correction 6/1/08: as Cyd pointed out below FS 501.212 may exempt sales associates and appraisers, but I am still not 100% positive about all this) or just average Joe owner occupant buyers.  Talk about scary consequences. 

So that is the way I see it.  I don't have all the answers, but hopefully this analysis has at least helped to enlighten you on the subject.  My question is, "Do we really need any more laws on the books?" It doesn't matter, but this one has passed.

Also just because you don't live or work in Florida, do not think this does not affect you.  There is a similar federal bill in Washington right now sponsored by Senator Herb Kohl that is in the works.  Here is the link.

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(Copyright © 2008. Sand Dollar Realty Group, Inc. All rights reserved.)

Rob Arnold, ABR, CPL, CRB, GRI, Managing real estate broker, Licensed mortgage broker, Notary Public

407-389-7318 / 1-877-389-7318    www.SDRhouses.com/   www.WeBuyHousesFlorida.com/

Your full service and investor friendly Realtor in Orlando. Learn to invest in Central Florida real estate and Orlando real estate. Investor mentoring and counseling available. I also provide flat fee MLS listings, For Sale By Owner, and menu-based services in most parts of Central & South Florida, the Space Coast, and the Treasure Coast including Orlando, Winter Park, Maitland, Ocoee, Winter Garden, Apopka, Altamonte Springs, Casselberry, Longwood, Winter Springs, Oviedo, Lake Mary, Sanford, Deltona, Debary, Deland, Mount Dora, Eustis, Clermont, Kissimmee, Winter Haven, Lakeland, Tampa, Sarasota, Bradenton, Miami-Dade, Fort Lauderdale, West Palm Beach, Port Saint Lucie, Melbourne, Daytona Beach, Ocala, Gainesville, Volusia, Brevard, and more.

We sell properties, list properties, and we buy houses cash throughout Central Florida and the metro Orlando area. 

 

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Rainer
11,701
Cyd Weeks
Palmcoasting.com Real Estate Corp - Palm Coast, FL
Realtor Palm Coast, Fl

I'm not an attorney, that's for sure.  But it appears to me that the law is to protect the seller and his homestead.   Full disclosure laws are already in place for the Realtor® and the homeowner to follow.  FAR already has supplied us with the appropriate forms for a short sale.  I know that I use them when I list a short sale (which is rarely, trust me)  and most of the Realtors® in my area are requiring they accompany any offer.  A title search completes that process and disclosure requirement, I would assume.   The law applies to unlicensed people who are not governed by licensing laws, the equity of the seller in his property and those that might be in a position to take advantage of the situation and/or perpetrate mortgage fraud.  And again, from what I am reading, it has to be their primary residence.   I don't see how it applies to a "regular" resale or short sale involving an attorney or licensed mortgage broker or licensed sales associates/brokers.  

I'm still waiting for Richard to address my email.  Or any other attorney on the board.  Where are the attorneys when you need 'em?   lol   

Jun 01, 2008 02:47 PM #14
Rainmaker
1,010,446
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Cyd- At least we have 4 months until this becomes law.  I am sure FAR will address this issue, so that Realtors know what if anything we should be doing different.

Jun 01, 2008 02:59 PM #15
Anonymous
Mike

"What about an attorney that wants to represent a person in foreclosure?  If they are not successful, do they have to refund their retainer? "

 

From the language of the bill, it appears that an attorney representing a homeowner ina  foreclosure lawsuit would NOT BE ALLOWED to collect a retainer.  This is a disaster for homeowners who want legal help in court... I wonder how much of this was the home-loan industry wreaking their retaliation for the famous Lents case... http://southflorida.bizjournals.com/southflorida/stories/2008/01/07/story2.html

Jun 03, 2008 02:13 PM #16
Rainmaker
1,010,446
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Cyd - I have talked with a few people including an attorney about this law.  The consensus that I have gotten so far is that the legislature tried to exempt Realtors and attorneys in this law, but the law has some vague areas in it.  Realtors may be exempt with the listing agreement part, but not from the purchase & sale contract part.  They might still need to use the disclosure form when a contract is actually signed and if they screw it up the purchaser could be subject to a 15K fine.  Attorneys might have a problem collecting an upfront retainer, but not if they collect the money on the back end when it closes.  What a big mess?!?!

Mike - You may be right.  Bill McCullom who drafted this law is an attorney.  What was he thinking???

Jun 03, 2008 03:07 PM #17
Rainer
11,701
Cyd Weeks
Palmcoasting.com Real Estate Corp - Palm Coast, FL
Realtor Palm Coast, Fl

I think perhaps it's time to go to the horses mouth, don't you?  I'm going to shoot off an email up to the powers that be and if I have time to sit on hold forever give FAR a call.  :)

Jun 04, 2008 12:32 AM #18
Anonymous
Mark Warda, Attorney, Land Trust Service Corporation

Did you notice that the profit is limited not just to 17%, but to 17% "per annum" which is less than 1-1/2% per month. So if you're only in for 2 months you can make almost 3% profit!!! 

Jun 04, 2008 04:56 PM #19
Rainmaker
1,010,446
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Mark - Thank you for posting.  I have read many of your land trust books and actually listed a few properties of your customers that were using your land trust service. I did not think of that scenario that you mentioned.  It just makes a sale and purchase-back that much less desiarable.  I honestly don't know anybody doing the purchase-back transactions, but on occasion I have allowed the owner to rent the proeprty back from me temporarily in order to let them have time to find a new place to live or to finish off a school year.

Jun 05, 2008 02:21 AM #20
Rainer
32,233
Sidney Jimenez
Keller Williams - Miramar, FL
CDPE, Short Sale Expert, 954-665-9449,

This law excludes any agreement between the lender and the homeowner. (i.e. a Short Sale) The law is meant to curtail the fraud being made by companies that will either have the homeowner sign the property over to them or directly purchase the property from them while charging an upfront fee in order to avoid a foreclosure. The Realtors services are to sell the home with the consent of the lender before the foreclosure takes place. Those two vastly different scenarios.

It is a bit more vague for lawyers.

Jun 08, 2008 03:34 AM #21
Rainmaker
1,010,446
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Sidney - The lenders have a clear exemption.  The real estate brokers have a questionable exemption.  The buyer clearly is not exempt -- the law throws ALL buyers into the equation not just companies commiting fraud -- ALL buyers.  In a short sale transaction in addition to the lender, typically a real estate broker or sales associate is brokering the deal, and a buyer is trying to buy the property.  If the real estate broker and the buyer could incur severe fines because of an improper form or a missed deadline, that may just scare them out of the equation.

 

Jun 08, 2008 12:14 PM #22
Rainer
32,233
Sidney Jimenez
Keller Williams - Miramar, FL
CDPE, Short Sale Expert, 954-665-9449,

ROB--Your interpretation seem to be way off base. How exactly did you make that assumption as the law reads. It is clear to me that the real estate transactions in the sale of a property between the homeowner and the lender is not impacted by this new law.

Jun 08, 2008 12:58 PM #23
Rainmaker
1,010,446
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Sidney - Read the definition of "foreclosure rescue consultant" on page 3 line 82. The definition is very broad regarding "foreclosure-related rescue services" and "payment of money or other valuable consideration".  Then read the exemptions of page 4.  Exemption 1 excludes certain professionals in certain specific instances (Real estate brokers and associates are exempted in specific instances according to FS 501.212), but not in all instances.  Exemption 2 excludes someone working for HUD.  Exemption 3 excludes someone working for certain non-profit groups. Exemption 4 is a lienholder. Exemption 5 is a bank. Exemption 6 is a mortgage broker or lender. I don't see where it mentions exempting a purchaser anywhere. Just because the lender is exempt and the Realtor may be exempt in certain instances, where does it say the purchaser is exempt???  Couldn't the "other valuable consideration" be the purchase of the seller's property???

Now on page 5 line 116 read the definition of "foreclosure-related rescue services" .  The definition includes anything to do with stopping, delaying, avoiding, or curing a foreclosure.  Wouldn't that definition include a sale??? I think it clearly would.  A sale would stop and cure a foreclosure.

Now go to page 6 and read the prohibited acts on line 146. "In the course of offering foreclosure-related rescue services, a foreclosure rescue consultant may not:" Letter A requires a written disclosure with specific deadlines. Letter B regulates the fee or commission. The penalty for making a mistake could be a 15K fine.

Even if the Realtor was exempt, if the purchaser wasn't exempt, but the Realtor messed up with the form or the various deadlines and the purchaser got fined 15K, who is the purchaser going to go after???

Who is this law targeting?  To me it is anyone who is not exempt that is trying to stop a foreclosure from happening in return for making a profit or equity out of the transaction.

Sorry for making this response long.  I have already been in several meetings with Realtors and investors on this subject last week.  The above are the conclusions we have continued to come to. Luckily we have 4 months to prepare for this law.

 

Jun 08, 2008 01:35 PM #24
Rainmaker
1,010,446
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

I did just a little checking online because I know others have written about this new law.

The Florida Attorney General's office wrote something on the State's website regarding this new law.  Here is the link.  In the last paragraph it says that "the buyer (investor) " must make certain disclosures to the seller. 

The Attorney General is clearly stating the word "buyer" on this website, so I do not see how the buyer could be exempt.  Now if a Realtor is involved in the transaction who do you think the buyer is going to hold accountable to get the paperwork and deadlines correct?

Jun 08, 2008 01:56 PM #25
Rainer
32,233
Sidney Jimenez
Keller Williams - Miramar, FL
CDPE, Short Sale Expert, 954-665-9449,

ROB--You're making it more complicated that it really is. The Realtors performance in the transaction is not to cure the foreclosure. It is to sell the home before a foreclosure can take place. The agreement is made between the lender and the seller with the service of the Realtor is to market and sell the property. The foreclosure rescue consultant or foreclosure related services is not the sale of the home but the attempt to procure a settlement by either signing over the deed or sell the property to the person or entity doing the curing of the foreclosure. That transaction does not include the lender and it is performed between the seller and the consultant.

You are reading too much into the law and extrapulating more than is necessary.

"Equity purchaser" means any person who acquires a

69 legal, equitable, or beneficial ownership interest in any

70 residential real property as a result of a foreclosure-rescue

71 transaction. The term does not apply to a person who acquires

72 the legal, equitable, or beneficial interest in such property:

73 1. By a certificate of title from a foreclosure sale

74 conducted under chapter 45;

75 2. At a sale of property authorized by statute;

76 3. By order or judgment of any court;

77 4. From a spouse, parent, grandparent, child, grandchild,

78 or sibling of the person or the person's spouse; or

79 5. As a deed in lieu of foreclosure, a workout agreement,

80 a bankruptcy plan, or any other agreement between a foreclosing

81 lender and a homeowner.

A short sale is an agreement between a foreclosing lender and a homeowner. You're extrapulating certain words and it taking the entire concept out of context.

 

Jun 08, 2008 03:10 PM #26
Rainer
32,233
Sidney Jimenez
Keller Williams - Miramar, FL
CDPE, Short Sale Expert, 954-665-9449,

ROB--Again this law is aimed at the "consultants" that are having the homeowners either sign over the deed to them or sell the home to them and actually collect a monthly payment in order for the homeowners to stay in the property. In those instances the homeowner is losing ownership of the home. The buyer in this case is the investor or "consultant"

The law is clear in differentiating the actions of the "consultants" to the transaction between the homeowner and the lender with a Realtor doing the sale of the home and being compensated by the lender and not the homeowner.

 

Jun 08, 2008 03:17 PM #27
Rainer
11,701
Cyd Weeks
Palmcoasting.com Real Estate Corp - Palm Coast, FL
Realtor Palm Coast, Fl

A call to FAR would clear all this up for us non-lawyers.  :)

Jun 08, 2008 03:37 PM #28
Rainmaker
1,010,446
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Sidney - The "equity purchaser" part only affects transactions where the seller retains an interest in the property after the closing.  The "foreclosure consultant" part is much more broad reaching and has less exemptions.  

I agree with Cyd though.  It is time to just wait until FAR comes out with specific guidelines. 

Jun 09, 2008 01:52 AM #29
Rainer
32,233
Sidney Jimenez
Keller Williams - Miramar, FL
CDPE, Short Sale Expert, 954-665-9449,

The "Consultant" is very clear. It is someone that portrays themselves as a savior and charge THE HOMEOWNER for their services. A Realtor, in a short sale, does not get paid by the homeowner because compensation comes from the lender. In the event it is a regular sale that the homeowner is trying to prevent foreclosure then the Realtor is perfoming and being conpensated to sell the property and not the prevention of the foreclosure itself althought that is an indirect result.

 

(b) "Foreclosure-rescue consultant" means a person who

83 directly or indirectly makes a solicitation, representation, or

84 offer to a homeowner to provide or perform, in return for

85 payment of money or other valuable consideration

Again, I see the intent as to assist the homeowner to understand the process by which these consultants try to stave off foreclosure. They will tell the homeowner that they can stay in the home and all they need to so is sign over the deed or agree to a monthly payment plan after the "consultant" or "equity purchaser" buys the property. This has no intention to restrict the real estate market as it pertains to the sale of the home whereas the lender and homeowner agree to the terms.

(1) LEGISLATIVE FINDINGS AND INTENT.--The Legislature

47 finds that homeowners who are in default on their mortgages, in

48 foreclosure, or at risk of losing their homes due to nonpayment

49 of taxes may be vulnerable to fraud, deception, and unfair

50 dealings with foreclosure-rescue consultants or equity

51 purchasers. The intent of this section is to provide a homeowner

52 with information necessary to make an informed decision

53 regarding the sale or transfer of his or her home to an equity

54 purchaser. It is the further intent of this section to require

55 that foreclosure-related rescue services agreements be expressed

56 in writing in order to safeguard homeowners against deceit and

57 financial hardship; to ensure, foster, and encourage fair

58 dealing in the sale and purchase of homes in foreclosure or

59 default; to prohibit representations that tend to mislead; to

60 prohibit or restrict unfair contract terms; to provide a

61 cooling-off period for homeowners who enter into contracts for

62 services related to saving their homes from foreclosure or

63 preserving their rights to possession of their homes; to afford

64 homeowners a reasonable and meaningful opportunity to rescind

65 sales to equity purchasers; and to preserve and protect home

66 equity for the homeowners of this state.

You guys may be right, but I think this is being ripped apart and taken out of context as to it's intent. The real estate market is already regulated and these changes would have taken place without gov't intervention. If in fact this was about Realtors, the FAR would have come out with a warning or a the very least a blueprint as to the affects within the Realtor community. The NAR would have been voicing their displeasure to put these restrictions on Realtor and we would have had thousands of Realtors protesting in Tallahassee. I didn't see any of that.

Keep us updated, I'm curious to see the final outcome.

Jun 09, 2008 02:41 AM #30
Rainmaker
1,010,446
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Sidney - I don't claim to know all the answers that is why it will be good to see what FAR says about this.  I do know quite a few Realtors, an appraiser, and an attorney that charge the homeowner retainer fees to negotiate short sales.  If you read the "original" version of the bill it had clear exemptions for owner occupants, attorneys, and real estate brokers.  In my opinion, this allowed it to slip under the radar of alot of the Realtors groups because they did not anticipate the exemptions would get changed in the final version.  In the "enrolled" version that was signed by the governor, the legislature pulled these exemptions out and made the bill refer to FS 501.212.   

My colleague Andy Tolbert who teaches seminars and runs a local investment association apparently also questions these exemptions. There are a lot more questions then answers.  We definitely need some clarification on this new law.

Jun 09, 2008 03:06 AM #31
Rainmaker
1,010,446
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

Just an update for all.

I did get a phone call back from FAR's attorney today.  They apparently were unaware that this bill was passed into law in its current amended version.  Apparently FAR did not realize that changes were made in committee tweaking the exemptions.

I asked the attorney what she thought about Realtors or short sales being exempt.  She said the group of attorneys were still reviewing it and would get back with me, but at this point she thought that Realtors and short sale transactions are NOT exempt because of the weird way the exemptions read.  I will post a new blog article once they get back with me. 

Jun 12, 2008 12:58 PM #32
Rainer
11,701
Cyd Weeks
Palmcoasting.com Real Estate Corp - Palm Coast, FL
Realtor Palm Coast, Fl

It is not only disappointing but scary that FAR is that far (no pun intended) behind the times.   Thank you for the update.  :)

Jun 12, 2008 01:13 PM #33
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