I.
Introduction
II. Foreclosure-Related Scams (Questions 1 to 11)
III. Foreclosure Consultant Law
A. General Overview of the Foreclosure Consultant Law (Questions
12 to 16)
B. Applicability of the Foreclosure Consultant Law (Questions
17 to 30)
C. Requirements of the Foreclosure Consultant Law (Questions 31
to 47)
IV. Additional Information (Questions 48 to 50)
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).
Q 11. Where can homeowners find legitimate
help for foreclosure-related matters?
A The conventional wisdom is for homeowners
facing foreclosure to contact their lender immediately. Homeowners
may also seek the advice of a reputable housing, financial or
credit counselor, attorney, or other qualified professional. The
U.S. Department of Housing and Urban Development (HUD) has a Guide
to Avoiding Foreclosure on its Web site at www.hud.gov/foreclosure/index.cfm.
For a list of HUD-approved housing counseling agencies in California,
go to http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?&webListAction=search&searchstate=CA.
Also, the non-profit organization Homeownership Preservation Foundation
has a 24/7 toll-free Homeowner’s HOPE Hotline at (999) 995-HOPE
or visit its Web site at http://www.995hope.org.
III. FORECLOSURE CONSULTANT LAW
California has very stringent rules for
foreclosure consultants who offer to perform certain foreclosure-related
services, such as stopping or postponing a foreclosure sale or
assisting a homeowner in foreclosure in obtaining a loan. The
foreclosure consultant law is a very complicated body of law.
However, knowing these rules helps REALTORS® and their clients
distinguish between legitimate and illegal enterprises.
A. GENERAL OVERVIEW OF THE FORECLOSURE CONSULTANT LAW
Q 12. What, in a nutshell, is the foreclosure
consultant law?
A The foreclosure consultant law generally
regulates the activities of people who provide, or offer to provide,
foreclosure-related consultation services, such as helping a homeowner
stop or postpone a foreclosure sale. This law requires that foreclosure
consultant contracts to be in writing in the manner specified
(see Questions 33 to 35). It also provides other safeguards for
homeowners in foreclosure (see Questions 31 and 32). Most notably,
it prohibits a foreclosure consultant from collecting an upfront
fee (see Question 40). The law requires representatives of a foreclosure
consultant to be bonded real estate licensees (see Questions 41
and 42). Effective July 1, 2009, a foreclosure consultant must
also be bonded and registered with the California Department of
Justice (see Questions 44 and 45).
Real estate agents are generally exempt
from the foreclosure consultant law except when engaging in certain
activities, such as acquiring an interest in the property or making
a direct loan. The applicability of this law to REALTORS®
is discussed in Questions 19 to 25.
Q 13. Is this a new law?
A No. The foreclosure consultant law is
not a new law. It was originally enacted in 1979. However, on
September 25, 2008, the California legislature enacted major revisions
to the law with the passage of Assembly Bill 180 (see Question
32).
Q 14. Where can I find the foreclosure
consultant law?
A This law is called the "Mortgage
Foreclosure Consultant Law" (but is referred to in this article
as foreclosure consultant law) and can be found in section 2945
to 2945.45 of the California Civil Code, available at www.leginfo.ca.gov.
References in this legal article are made to the foreclosure consultant
law as revised in 2008 and effective July 1, 2009, unless otherwise
indicated.
Q 15. What is the purpose of the foreclosure
consultant law?
A The purpose of the foreclosure consultant
law is to safeguard the public against unscrupulous foreclosure
consultants. According to the California legislature, homeowners
in foreclosure are susceptible to fraud, deception, harassment,
and unfair dealings. Scam artists who offer to help in fact want
to take advantage of the homeowners’ predicament. These
so-called foreclosure consultants may charge exorbitant fees,
and even secure payment by a deed of trust on the home in foreclosure,
yet ultimately perform no worthwhile service at all. Homeowners
relying on their foreclosure consultants' promises of help may
take no other action to stop the foreclosure process. As a result,
they may end up losing their homes and their equity, sometimes
to the foreclosure consultants who buy the homes at a fraction
of their true value. The California legislature intends for the
foreclosure consultant law to be liberally construed to prevent
these unscrupulous practices. (Cal. Civ. Code § 2945.)
Q 16. Is the foreclosure consultant law
different from the home equity sales contracts law for buyers
who are investors?
A Yes. The foreclosure consultant law and
home equity sales contracts law are similar to each other, but
different bodies of law. Both laws pertain to "residences
in foreclosure" as defined (see Question 17). However, the
foreclosure consultant law generally regulates people who offer
to perform foreclosure-related consultation services for residences
in foreclosure, whereas the home equity sales contracts law generally
regulates investors who offer to buy residences in foreclosure.
More specifically, the home equity sales
contracts law imposes certain requirements when all four of the
following conditions are met:
• The existing owner occupies the
property as a principal residence;
• The property is one-to-four family
dwelling units;
• There is an outstanding notice
of default recorded against the property; and
• The buyer will not use the property
as a personal residence.
(Cal. Civ. Code § 1695.1(b).)
When these four conditions are met and
no exemption applies, the law requires a sales contract to provide
the seller with a right to cancel within five business days (or
by 8 a.m. of the day of the trustee’s sale if sooner) (Cal.
Civ. Code § 1695.4). The contract must also be in 10-point
bold font and in the same language principally used by the parties
to negotiate the sale (Cal. Civ. Code § 1695.2). Furthermore,
under the home equity sales contract law, the buyer’s representative
must provide proof of a real estate license (Cal. Civ. Code §
1695.17).
To comport with these and other requirements,
C.A.R. offers a standard form Notice of Default Purchase Agreement
(Form NODPA) and two attachments, the Notice of Cancellation of
Notice of Default Purchase Agreement (Form HENC) and the Declaration
and Proof of Real Estate License (Form DPL). For more information
about home equity sales contracts, REALTORS® may refer to
C.A.R.'s legal article NOD and Investor-Buyer Transactions: Home
Equity Sales Contracts.
B. APPLICABILITY OF FORECLOSURE CONSULTANT
LAW
Q 17. Under what circumstances does the
foreclosure consultant law apply?
A The foreclosure consultant law generally
applies when someone performs, or offers to perform, foreclosure-related
services for compensation for a "residence in foreclosure"
(see Question 18). A "residence in foreclosure" is defined
as follows:
• The owner occupies the property
as a principal residence;
• The property is one to four family
dwelling units; and
• There is an outstanding notice
of default recorded against the property.
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)
[Please Note: Effective July 1, 2009, the above statutorily-required
language changes. The words “third” and "three"
must be replaced by “fifth” or "five" respectively,
and the Addendum must include some additional language.]
Addendum A (Effective July 1, 2009)
NOTICE OF CANCELLATION
_____________________________
(Enter date of transaction) (Date)
You may cancel this transaction, without
any penalty or obligation, within five business days from the
above date.
To cancel this transaction, mail or deliver
a signed and dated copy of this cancellation notice, or any
other written notice, or send a telegram,
to __________________________________________________
(Name of foreclosure consultant)
at __________________________________________________
(Address of foreclosure consultant's place of business)
You may also cancel by sending a facsimile
(fax) of a signed and dated copy of this cancellation notice,
or any other written notice, to the following number:
_____________________________________________________
(Facsimile telephone number of foreclosure consultant's place
of business)
You may also cancel by sending an e-mail
canceling this transaction to the following e-mail address:
_____________________________________________________
(E-mail address of foreclosure consultant's business)
I hereby cancel this transaction
____________________________________________.
(Date)
Q 35. What are the formatting requirements
for the language in Question 34?
A The required language of a foreclosure
consultant contract, as indicated in the answer to Question 34,
must be formatted in the following manner:
• Part A must be completed and printed
in at least 14-point boldface type immediately above Part B (Cal.
Civ. Code § 2945.3(b)).
• Part B must be a conspicuous statement
in at least 10-point bold type and in immediate proximity to the
space reserved for the owner’s signature (Cal. Civ. Code
§ 2945.3(c)).
• Attachment A must be completed
in duplicate and captioned “Notice of Cancellation.”
It must be in at least 10-point type and attached to the contract,
but easily detachable. It must be written in the same language
as used in the contract. (Cal. Civ. Code § 2945.3(f)).
Q 36. Does C.A.R. offer a standard form
foreclosure consultant agreement?
A No. C.A.R. does not currently offer a
standard form agreement that comports with the requirements of
the foreclosure consultant law.
Q 37. What are the requirements for delivering
a foreclosure consultant contract to the homeowner?
A The foreclosure consultant must provide
the homeowner with a copy of the contract and the attached notice
of cancellation (Cal. Civ. Code § 2945.3(g)). Also, the foreclosure
consultant contract must be written in the same language as principally
used by the foreclosure consultant to describe his or her services
or to negotiate the contract (Cal. Civ. Code § 2945.3(c)).
Additionally, effective July 1, 2009, the
homeowner must, before signing the foreclosure consultant contract,
be given a copy of a completed contract written in any other language
used in any communication between the foreclosure consultant and
homeowner (Cal. Civ. Code § 2945.3(c)). Also effective July
1, 2009, if the foreclosure consultant principally uses English
to describe his or her services or to negotiate the contract,
the foreclosure consultant must notify the homeowner orally and
in writing before the homeowner signs the contract that the owner
has the right to ask for a completed copy of the contract in Spanish,
Chinese, Tagalog, Vietnamese, or Korean (Cal. Civ. Code §
2945.3(c)).
Q 38. What is a homeowner’s right
to cancel a foreclosure consultant contract?
A Until June 30, 2009, a homeowner has
the right to cancel a foreclosure consultant contract until midnight
of the third business day after the owner signs the contract.
Starting July 1, 2009, a homeowner has the right to cancel until
midnight of the fifth business day after the owner signs the contract
(Cal. Civ. Code § 2945.2(a)). For the purpose of this law,
a "business day" is defined as any calendar day except
Sunday or the following business holidays: New Year's Day, Washington's
Birthday, Memorial Day, Independence Day, Labor Day, Columbus
Day, Veterans' Day, Thanksgiving Day, and Christmas Day (Cal.
Civ. Code § 1689.5).
Q 39. What constitutes a proper cancellation
under the owner’s right to rescind?
A Until June 30, 2009, cancellation occurs
when the owner gives written notice of cancellation to the foreclosure
consultant at the address specified in the foreclosure consultant
contract. The owner’s notice of cancellation need not take
the particular form as provided with the contract. However expressed,
the owner’s notice of cancellation is effective if it indicates
the owner’s intent not to be bound by the contract. If the
notice of cancellation is given by mail, it is effective when
deposited in the mail properly addressed with postage prepaid.
Starting July 1, 2009, cancellation occurs
when the owner gives written notice of cancellation to the foreclosure
consultant by mail at the address specified in the contract, or
by fax or e-mail at the number or address identified in the contract.
The owner’s notice of cancellation need not take the particular
form as provided with the contract. However expressed, the owner’s
notice of cancellation is effective if it indicates the owner’s
intent not to be bound by the contract. If notice of cancellation
is given by mail, it is effective when deposited in the mail properly
addressed with postage prepaid. If given by fax or e-mail, the
notice of cancellation is effective when successfully transmitted.
(Cal. Civ. Code § 2945.2.)
Q 40. What is a foreclosure consultant
prohibited from doing?
A A foreclosure consultant is prohibited
from, among other things, engaging in any of the following activities:
• No Advance Fees: A foreclosure
consultant cannot claim, demand, charge, collect, or receive any
compensation until after the foreclosure consultant has fully
performed each and every service the foreclosure consultant contracted
to perform or represented he or she would perform (Cal. Civ. Code
§ 2945.4(a)).
• No Interest in Subject Property:
A foreclosure consultant cannot acquire any interest in a residence
in foreclosure from an owner with whom the foreclosure consultant
has contracted. Any such interest acquired is voidable, except
as against a bona fide purchaser or encumbrancer for value and
without notice of a violation of this article. Knowing that the
property was "residential real property in foreclosure"
does not constitute notice of a violation of this article. This
rule does not abrogate any duty of inquiry which exists as to
rights or interests of persons in possession of residential real
property in foreclosure. (Cal. Civ. Code § 2945.4(e).)
• No Secured Payment: A foreclosure
consultant cannot take any wage assignment, real property lien,
personal property lien, or other security for the payment of compensation.
Any such security shall be void and unenforceable. (Cal. Civ.
Code § 2945.4(c).)
• No Mortgage Broker Fee Over 10%:
A foreclosure consultant cannot claim, demand, charge, collect,
or receive any fee, interest, or other compensation for any reason
which exceeds 10% per annum of the amount of any loan which the
foreclosure consultant may make to the owner (Cal. Civ. Code §
2945.4(b)).
• No Undisclosed Fees: A foreclosure
consultant cannot receive any consideration from any third party
in connection with services rendered to an owner unless that consideration
is fully disclosed to the owner (Cal. Civ. Code § 2945.4(d)).
• No Power of Attorney: A power of
attorney generally authorizes a person to act on another person’s
behalf. Until June 30, 2009, a foreclosure consultant cannot take
any power of attorney from a homeowner, except to inspect documents
as provided by law. Beginning July 1, 2009, a foreclosure consultant
cannot take any power of attorney from an owner for any purpose
whatsoever. (Cal. Civ. Code § 2945.4(f).)
• No Invalid Contract: A foreclosure
consultant cannot induce or attempt to induce any owner to enter
into a contract which does not comply with the foreclosure consultant
law (Cal. Civ. Code § 2945.4(g)).
• No Surplus Funds Contract: Until
June 30, 2009, a foreclosure consultant cannot, within 65 days
after a trustee’s sale, enter into an agreement to arrange
or assist the owner in arranging for the release of surplus funds
(which are funds remaining after a trustee’s sale). Moreover,
such an agreement must comply with certain requirements. Effective
July 1, 2009, a foreclosure consultant cannot, at any time, enter
into an agreement to arrange or assist the owner in arranging
for the release of surplus funds. (Cal. Civ. Code § 2945.4(h).)
Q 41. Who is a “representative”
of the foreclosure consultant?
A A “representative” of the
foreclosure consultant is a person who in any manner solicits,
induces, or causes any homeowner to contract with a foreclosure
consultant, to pay any consideration, or to transfer title to
the residence in foreclosure to the foreclosure consultant. A
representative is also someone who solicits, induces, or causes
any member of the owner’s family or household to induce
or cause any owner to pay any consideration or transfer title
to the residence in foreclosure to the foreclosure consultant.
(Cal. Civ. Code § 2945.9.)
Q 42. What does the law require for representatives
of a foreclosure consultant?
A Any representative (as defined in Question
41) deemed to be the agent or employee of the foreclosure consultant
shall be required to do all of the following:
• Provide the homeowner with written
proof that the representative has a valid current California Real
Estate Sales License (Cal. Civ. Code § 2945.11(a)(1));
• Provide the homeowner with written
proof that the representative is bonded by an admitted surety
insurer in an amount equal to at least twice the fair market value
of the real property that is the subject of the contract (Cal.
Civ. Code § 2945.11(a)(1)); and
• Provide all parties to the contract
(before transfer of any interest in the property) with a written
statement, under penalty of perjury, that the representative has
the required real estate license and bond, and has provided the
owner with written proof of same (Cal. Civ. Code § 2945.11(a)(2)).
Any failure to comply with these requirements
for representatives of the foreclosure consultant shall, at the
option of the owner, render the contract void and the foreclosure
consultant shall be liable to the owner for all damages proximately
caused by noncompliance (Cal. Civ. Code § 2945.11(b)). A
foreclosure consultant is also generally liable for damages resulting
from any statement made or acts committed by his or her representative
(Cal. Civ. Code § 2945.9).
Any provision in a contract which attempts
to limit the foreclosure consultant’s liability for these
requirements pertaining to representatives shall be void and,
at the owner’s option, render the contract void. The foreclosure
consultant shall be liable to the owner for damages proximately
caused by that limitation of liability provision. (Cal. Civ. Code
§ 2945.10(a).)
Q 43. Does a foreclosure consultant have
to be a real estate licensee?
A Possibly so. Although the foreclosure
consultant law specifically requires a representative of the foreclosure
consultant to have a real estate license, it does not specifically
state that the foreclosure consultant must have a real estate
license. In any event, under general licensing laws, a real estate
broker’s license is required for anyone who, for compensation
or in expectation of compensation, does or negotiates to do certain
activities for another (Cal. Bus. & Prof. Code § 10131).
Such activities include, among other things, negotiating loans
or performing services for borrowers or lenders in connection
with loans secured by real property (Cal. Bus. & Prof. Code
§ 10131(d)). If a foreclosure consultant falls within these
parameters and undertakes any of these tasks, and no exemption
applies, a real estate license is required.
Q 44. What is the new registration requirement
for a foreclosure consultant?
A Effective July 1, 2009, a person must
not take any action as a foreclosure consultant unless the person
registers with the California Department of Justice and is issued
and maintains a certificate of registration. The registration
must include, without limitation, the following:
• All the names, addresses, telephone
numbers, Internet Web sites, and e-mail addresses used or proposed
to be used for foreclosure consulting;
• Statement that the person has not
been convicted of (or pled nolo contendere to) any crime involving
fraud, misrepresentation, dishonesty, or a violation of the foreclosure
consultant law;
• Statement that the person has not
been held liable in a civil judgment for fraud, misrepresentation,
violation of the foreclosure consultant law, unfair competition
(Cal. Bus. & Prof. Code § 17200), or false or misleading
advertising (Cal. Bus. & Prof. Code § 17500);
• Copies of all advertising and promotional
materials, including print, electronic, telephone scripts, broadcasts,
and other statements used or proposed to be used for foreclosure
consulting; and
• Copy of the requisite bond (see
Question 45).
Furthermore, a foreclosure consultant must
file with the Department of Justice an update of certain material
changes to the registration information (Cal. Civ. Code §
2945.45(a)(1)).
The Department of Justice may refuse to
issue or revoke a certificate of registration if someone does
any of following:
• Makes any misstatement in the registration
form;
• Is held liable for fraud, misrepresentation,
unfair competition, or false or misleading advertising;
• Commits any violation of the foreclosure
consultant law; or
• Fails to maintain the requisite
bond (see Question 45).
(Cal. Civ. Code § 2945.45(c).)
Q 45. What is the new bond requirement
for a foreclosure consultant?
A Effective July 1, 2009, a foreclosure
consultant must obtain and maintain a $100,000 surety bond from
a corporate surety admitted to do business in California. The
bond shall be made in favor of the State of California for the
benefit of homeowners for damages caused by the foreclosure consultant.
The bond must be filed with the Department of Justice and the
Secretary of State. (Cal. Civ. Code § 2945.45(a)(2)).)
Q 46. Can an owner waive any of the requirements
of the foreclosure consultant law?
A No. Any waiver by an owner of the provisions
of the foreclosure consultant law shall be deemed void and unenforceable
as contrary to public policy. Any attempt by the foreclosure consultant
to induce an owner to waive his or her rights is a violation of
this law. (Cal. Civ. Code § 2945.5.)
Q 47. What is the potential liability for
violating the foreclosure consultant law?
A An owner may, among other things, bring
a civil action against a foreclosure consultant who violates the
foreclosure consultant law. The owner may recover actual damages,
reasonable attorneys’ fees and costs, and appropriate equitable
relief. Furthermore, a court not only has the discretion to award
exemplary damages, but for certain violations, the court must
award exemplary damages equal to three times the compensation
received by the foreclosure consultant (or actual damages suffered
by the owner). The violations for which a court must award exemplary
damages are those pertaining to improper advance fees (§
2945.4(a)), exorbitant mortgage broker fees (§ 2945.4(b)),
and undisclosed fees (§ 2945.4(d)) (see Question 40). An
owner has four years from the date of the alleged violation to
bring such action. (Cal. Civ. Code § 2945.6.)
Furthermore, any person who violates the
provisions set forth in the answer to Question 40 above may be
criminally punished by one year imprisonment, plus a fine of $10,000
(Cal. Civ. Code § 2945.7).
Additionally, effective July 1, 2009, a
person who fails to comply with the certificate of registration
and surety bond requirements may be punished by a fine up to $25,000
for each violation, plus one-year imprisonment.
IV. ADDITIONAL INFORMATION
Q 48. Where does someone report a foreclosure-related
scam?
A The following is a list of government
enforcement agencies and other organizations for reporting fraud
activities. Some of these agencies and organizations are also
excellent resources for obtaining more information about foreclosure-related
fraud.
Office of the Attorney General
California Department of Justice
Attn. Public Inquiry Unit
P. O. Box 944255
Sacramento, California 94244-2550
(916) 322-3360
(800) 952-5225 (in California only) http://ag.ca.gov/consumers/mailform.htm
(Consumer complaints)
California Department of Real Estate
P. O. Box 187000
Sacramento, California 95818-7000
(916) 227-0864 http://www.dre.ca.gov/cons_complaint.html
(Consumer complaints)
Federal Bureau of Investigation (FBI) Headquarters
J. Edgar Hoover Building
935 Pennsylvania Avenue, NW
Washington, D.C. 20535-0001
(202) 324-3000
Or contact your local FBI field office https://tips.fbi.gov/ (FBI
tips and public leads)
Department of Housing and Urban Development
(HUD) Headquarters
HUD Office of Inspector General Hotline (GFI)
451 7th Street, SW
Washington, D.C. 20410
(800) 347-3735
Or contact your local HUD field office http://www.hud.gov/offices/oig/hotline/
(Office of Inspector General hotline)
Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, D.C. 20580
(877) 382-4357 http://www.ftc.gov/ftc/contact.shtm
Better Business Bureau
The Council of Better Business Bureaus
4200 Wilson Boulevard, Suite 800
Arlington, Virginia 22203-1838
Contact your local bureau http://www.bbb.org/
Q 49. Where can I obtain more information
about foreclosure scams?
A Some of these agencies and organizations
listed in Question 48 are good resources of foreclosure-related
scams. Another commonly cited resource is the National Consumer
Law Center’s publication "Dreams Foreclosed: The Rampant
Theft of Americans' Homes Through Equity-Stripping Foreclosure
'Rescue' Scams," available at http://www.consumerlaw.org/news/ForeclosureReportFinal.pdf.
Q 50. Where can I obtain more information?
A This legal article is just one of the
many legal publications and services offered by C.A.R. to its
members. For a complete listing of C.A.R.'s legal products and
services, please visit C.A.R. Online at www.car.org.
Readers who require specific advice should
consult an attorney.
Written correspondence should be addressed
to:
CALIFORNIA ASSOCIATION OF REALTORS®
Member Legal Services
525 South Virgil Avenue
Los Angeles, California 90020