Short Sale, Foreclosure and Strategic Default

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Wednesday, December 31, 2008

Anti deficiency statutes, CCP 580b, purchase money loans and home improvement loans

John Bilotta - Administrative Offset Decision - HUD
DECISION and ORDER

Petitioner was notified by Due Process Notice that the Secretary of the U.S. Department of Housing and Urban Development (HUD) intended to seek administrative offset of any Federal payments due to Petitioner or to seek administrative wage garnishment of Petitioner's pay in satisfaction of a delinquent and legally enforceable debt allegedly owed to HUD. Administrative offset is authorized by 31 U.S.C. § 3720A; administrative wage garnishment is authorized by 31 U.S.C. § 3720D. The claimed debt has resulted from a defaulted loan that was insured against non-payment by the Secretary pursuant to Title I of the National Housing Act. 12 U.S.C. § 1703.

Petitioner has made a timely request for a hearing concerning the existence, amount or enforceability of the debt allegedly owed to HUD. The Administrative Judges of this Board have been designated to conduct a hearing to determine whether the debt allegedly owed to HUD is legally enforceable pursuant to 24 C.F.R. § 20.4(b). As a result of Petitioner's request, referral of the debt for offset or issuance of a wage withholding order was temporarily stayed by the Board.
Discussion

31 U.S.C. § 3720A and 31 U.S.C. § 3720D provide Federal agencies with remedies for the collection of debts owed to the United States Government. The burden of proof is on the Government to prove the existence or amount of the alleged debt. 31 C.F.R. § 285(f)(8)(i). The Secretary has filed a Statement with documentary evidence supporting his position that Petitioner is indebted to the Department in a specific amount.

Petitioner does not dispute the existence or amount of the debt incurred pursuant to an installment note insured by the Secretary under Title I of the National Housing Act, 12 U.S.C. § 1703, or that the debt is delinquent. Rather, Petitioner asserts that the debt is not legally enforceable against him because: (1) he "believed the foreclosure covered [Petitioner's] obligation to HUD"; (2) enforceability of the debt would violate "California Anti-Deficiency statutes as reflected in California Code of Civil Procedure sections 580a, 580b, and 580d"; and (3) financial hardship. (Petitioner's letters dated January 13, 1999 and February 20, 1999 respectively).

First, Petitioner contends that he believed the foreclosure sale "covered [Petitioner's] obligation to HUD." (Petitioner's letter dated January 13, 1999). There is no documentary evidence submitted by Petitioner to support this contention. The home improvement note was a separate instrument and was a trust junior to that of the one held by Petitioner. There is no evidence that HUD received proceeds from any subsequent sale of the foreclosed real property. If satisfaction of a senior deed of trust through a foreclosure sale prevents a junior trust holder from enforcing a junior trust deed on the same real property, the junior trust holder may collect the debt, now unsecured, by initiating collection efforts based on the obligations in the loan note. Kimberly S. (King) Thede, HUDBCA No. 89-4587-L74 (April 23, 1990) citing Alan Juel, HUDBCA No. 87-2065-G396 (January 28, 1986). Therefore, the Secretary is entitled to separately enforce the debt against Petitioner under the assigned note.

Second, Petitioner questions the debt "based on the belief that [the debt] is in violation of California Anti-Deficiency statutes as reflected in California Code of Civil Procedure sections 580a, 580b, and 580d." (Petitioner's letter dated February 20, 1999).

Generally, deficiency judgments are unavailable after a trustee's sale of property under a deed of trust. Cal. Code Civ. Proc. § 580(d) (West 1999). However, junior trust deed holders like HUD, who are "sold out" by a senior's foreclosure sale, are not precluded by the one-action rule from pursuing a separate action on their note unless the note constitutes a "purchase money" note. Robert P. Long, HUDBCA No. 97-C-SE-W64 (October 15, 1997) citing Patricia J. Sherban, HUDBCA No. 96-C-SE-V78 (September 12, 1997) and Donald W. Conley v. Robert C. Matthes, 56 Cal. App. 4th 1453, 66 Cal. Rptr. 2d 518 (1997). Where the vendor secures a deed of trust or mortgage to secure the purchase price of real property, such transaction is deemed a purchase money. James T. Palm v. John R. Schilling, 199 Cal. App. 3d 63, 244 Cal. Rptr. 600 (1988); Cal. Code Civ. Proc. § 580(b). In this case, the home improvement loan was not secured towards the purchase of Petitioner's home, but rather to undertake improvements made to the home. The home improvement note does not constitute a purchase money note. Therefore, HUD is not prevented from seeking to enforce the deficiency on the home improvement note after the sale. Only the foreclosing lienholder was barred from taking a deficiency action against Petitioner by virtue of California's anti-deficiency law. In re the Marriage of Oropallo v. Oropallo, 68 Cal.App. 4th 997, 80 Cal. Rptr. 2d 669 (1998).

Furthermore, Section 726 of the California Code of Civil Procedure do not bar a deficiency action on a home improvement note. Section 726 of the California Code of Civil Procedure, under the "one form of action rule," protects the debtor against a multiplicity of suits and compels competitive bidding to test the value of all security for the debt. United Cal. Bank v. Tijerina, 25 Cal. App. 3d 963, 102 Cal. Rptr. 234 (1972). However, the "one form of action" rule of section 726 does not apply to a sold-out junior lienor. Roseleaf Corp. v. Chierighino, 59 Cal. 2d 35, 38-39, 378 P.2d 97, 27 Cal. Rptr. 873 (1963). There is no reason to compel a junior lienor to go through foreclosure and sale when there is nothing left to sell.

Neither Section 580 nor Section 726 of the California Code of Civil Procedure are applicable to a junior lien. Id. Therefore, I find that HUD is not barred by the California Code of Civil Procedure Sections 580 and 726 from taking a deficiency action against Petitioner on the remaining obligation of the home improvement loan.

Finally, Petitioner maintains that the debt is not enforceable against him because of financial hardship. Petitioner states that "[a] wage garnishment would definitely put [Petitioner] out of business . . . and that [Petitioner's] debt load does not leave [Petitioner's] family with any real extra money on a monthly basis." (Petitioner's letter dated January 13, 1999). However, this Board must determine whether, as a matter of law, this debt is legally enforceable against Petitioner. Unfortunately, evidence of hardship, no matter how compelling, cannot be taken into consideration in determining whether the debt is legally enforceable. Anna Filiziana, HUDBCA No. 95-A-NY-T11 (May 21, 1996).

While Petitioner may wish to negotiate repayment terms with the Department, this Board is not authorized to extend, recommend, or accept any payment plan or settlement offer on behalf of the Department. Petitioner may want to discuss this matter with Lester J. West, Director, HUD Albany Financial Operations Center, 52 Corporate Circle, Albany, NY 12203-5121. His telephone number is 1-800-669-5152, extension 4206. A review of Petitioner's financial status may be conducted if Petitioner submits to that HUD Office a Title I Financial Statement (HUD Form 56142).

Petitioner may also request the Department to propose a repayment schedule. If the Department's repayment proposal is unacceptable, Petitioner has a right to seek Board review of the proposal. This Board is authorized to review "the terms of the repayment schedule [if the terms] are unlawful [or] would cause a financial hardship to the debtor . . . ." 31 C.F.R. § 285(f)(8)(ii).

Order

I find the debt which is the subject of this proceeding to be legally enforceable against Petitioner in the amount claimed by the Secretary. The Order imposing the stay of referral of this matter to the IRS for administrative offset or to the U.S. Department of Treasury for issuance of a wage withholding order is vacated.

It is hereby ORDERED that the Secretary is authorized to seek collection of this outstanding obligation by means of administrative offset of any Federal payments due to Petitioner or by means of issuance of a wage withholding order.

Sunday, December 21, 2008

MyFox Los Angeles | FOX 11 Investigates: Loan Modification

Interesting video about California Loan Modification scams



MyFox Los Angeles | FOX 11 Investigates: Loan Modification: "If you're stuck with a sub-prime mortgage and those house payments are getting tougher to make, you might be 'tempted' by a new kind of financial company that promises to help, but be careful! Some of these so-called 'loan modification' firms are racking up complaints from homeowners who say, they got 'nothing' for their money. John Schwada has more in this video report."

Thursday, December 18, 2008

Loan modification vs refi

When the bailout cheerleaders mention every available tool they are not kidding.  Why not let the homeowners appraise their own property. 

Solution for no doc loans - how about - self appraisal refis?


GSEs Look to Follow FHA’s Lead on Streamlined Refis : HousingWire || financial news for the mortgage market
In particular, the GSEs are considering a plan to allow some borrowers to refinance without the use of an updated appraisal.

“If they refinance someone, rather than doing a loan mod, do they need a new appraisal if they already have the credit?” Federal Housing Finance Agency director James Lockhart told reporters after a speech, according to a Bloomberg report. “That’s an issue that’s being discussed. They’re looking at it.”

The same Bloomberg report managed to find analysts, such as Paul Miller at FBR Capital Markets, in a lather over the proposed changes, calling it a “disaster.” Josh Rosner at Graham Fisher & Co. also jumped on the overreaction bandwagon, too. “To refinance loans without any concern for collateral value suggests a world in which no lender would ever hold a loan they refied and no investor would ever buy, unless it carried an explicit federal guarantee,” he told the news service.

Every one of them is missing the point here.

The U.S. Department of Housing and Urban Development has permitted so-called “streamlined refis” without appraisals on FHA loans since the early 1980s, according to a department Web page. It’s a program limited, however, to rate and term refis — no cash-out refis here — and borrowers must be current on their loan. The VA has a similar program.


for more info on san diego loan modification

Tuesday, December 16, 2008

Short Sale warnings - Prosecutors are going after borrowers

Early on in my blogs on the subject of short sale - I warned Realtors that they should be careful about reviewing sellers finances and then submitting them to the bank.  Especially if the sellers fudged on their loan apps.

Now you can see why.

Someone explained on one of my other blogs that these people should have the finances reviewed and possibly submitted under an attorney client privilege. 


Prosecutors Going after Fraudulent Mortgage Borrowers - Seeking Alpha
From Inside Mortgage Finance:

While lenders are coming under increased pressure to help borrowers avoid foreclosure, the U.S. Attorney in San Francisco has launched an effort to pursue fraud cases against subprime borrowers who lied on their loan application.

“In my way of thinking, it didn’t make any sense for us to excuse any one component of the group that was involved in this phenomenon,” said U.S. Attorney Joseph Russoniello. “So while we obviously have an interest in the predatory lending practices, we’re also finding from our investigators that significant numbers of borrowers submitted falsified applications for a mortgage.” [Emph. added]



Sunday, December 14, 2008

example of a bad Loan Modification

Mr. Mortgage is right this is bad loan mod. However if the borrower has a strategy the borrower may be planning on doing a short sale or he or she may cease making to the second into the opening move of a short payoff.


Mr. Mortgage’s Guide to the TRUTH! » Mr Mortgage: Actual IndyMac (Exotic) Loan Modification: "If they would have had these loans out during the bubble years the housing bubble could have grown twice as large.

This borrower is not as bad off as many in the bubble states - they are only 44% or $370k underwater in their home. Their present first mortgage is only slightly higher than the value of $475k. But when you add in the $345k second mortgage that the IndyMac modification lets stay in place, they are $370k upside down.

This modification makes the borrower a renter and debt-prisoner for life. This is not a financial solution for the borrower, rather a structure that lures the borrower into a terrible financial decision because it is cheaper to stay than walk away and rent. All of these new proactive loan modification plans by the law makers, regulators and bank are designed to do just this. A ’solution’ where the borrower still owes $840k on a $475k home and will never be able to refi or sell, should send them running.

While some will take this offer, I am hopeful that the typical home owner is not this ignorant. That is a lot of debt to carry around for life. On the other hand when you have nothing to lose and your only alternative will be foreclosure 6 months down the road, you may just"

Mortgage Loan Modification - borrowers keep defaulting

Ouch! Borrowers Keep Defaulting After Mortgage Modification: Tech Ticker, Yahoo! Finance: "In the first half of this year, borrowers defaulted on modified mortgages at rates higher than almost every estimate. According to the Office of Comptroller of the Currency statistics released today, 36% of borrowers who had their loans modified in the first two quarters of 2008 re-defaulted after just 3 months. After six months, the redefault rate was roughly 56%. After eight months, 58% of borrowers re-defaulted.

'The results were surprising, and not in a good way,' OCC director Dugan said."

Loan Modification - mortgage meltdown part 2

Seller Info: "Loan Modification and the Mortgage Meltdown what will happen to real estate prices | Print |

Loan Modification or short sale, we may be heading for a mortgage meltdown part 2.



Watch CBS Videos Online




for more information on san diego loan modification

Thursday, December 4, 2008

California Short Sale Law - What is a release of mortgage or a release of lien?

If your short sale release says release of mortgage or release of lien and you wonder if you are being released from a deficiency read this from the california codes:


WAIS Document Retrieval
2953. Any express agreement made or entered into by a borrower at the time of or in connection with the making of or renewing of any loan secured by a deed of trust, mortgage or other instrument creating a lien on real property, whereby the borrower agrees to waive the rights, or privileges conferred upon him by Sections 2924, 2924b, 2924c of the Civil Code or by Sections 580a or 726 of the Code of Civil Procedure, shall be void and of no effect. The provisions of this section shall not apply to any deed of trust, mortgage or other liens given to secure the payment of bonds or other evidences of indebtedness authorized or permitted to be issued by the Commissioner of Corporations, or is made by a public utility subject to the provisions of the Public Utilities Act. 2953.1. As used in this section: (a) "Real property security instrument" shall include any mortgage or trust deed or land contract in or on real property. (b) "Subordination clause" shall mean a clause in a real property security instrument whereby the holder of the security interest under such instrument agrees that upon the occurrence of conditions or circumstances specified therein his security interest will become subordinate to or he will execute an agreement subordinating his interest to the lien of another real property security instrument which would otherwise be of lower priority than his lien or security interest. (c) "Subordination agreement" shall mean a separate agreement or instrument whereby the holder of the security interest under a real property security instrument agrees that (1) his existing security interest is subordinate to, or (2) upon the occurrence of conditions or circumstances specified in such separate agreement his security interest will become subordinate to, or (3) he will execute an agreement subordinating his interest to, the lien of another real property security instrument which would otherwise be of lower priority than his lien or security interest.


California short sale info

Tuesday, December 2, 2008

Countrywide Settlement - Loan Modification program and terms

News & Alerts - California Dept. of Justice - Office of the Attorney General
In a nutshell, this settlement will enable eligible subprime and pay-option mortgage borrowers to avoid foreclosure by obtaining a modified and affordable loan. The loans covered by the settlement are among the riskiest and highest defaulting loans at the center of America’s foreclosure crisis. Assuming every eligible borrower and investor participates, this loan modification program will provide up to $3.5 billion to California borrowers as follows:

• Suspension of foreclosures for eligible borrowers with subprime and pay-option adjustable rate loans pending determination of borrower ability to afford loan modifications;

• Loan modifications valued at up to $3.4 billion worth of reduced interest payments and, for certain borrowers, reduction of their principal balances;

• Waiver of late fees of up to $33.6 million;

• Waiver of prepayment penalties of up to $25.6 million for borrowers who receive modifications, pay off, or refinance their loans;

• $27.9 million in payments to borrowers who are 120 or more days delinquent or whose homes have already been foreclosed; and

• Approximately $25.2 million in additional payments to borrowers who, in the future, cannot afford monthly payments under the loan modification program and lose their homes to foreclosure.

More specifically, the modification program covers subprime and pay-option adjustable-rate mortgage loans in which the borrower’s first payment was due between January 1, 2004 and December 31, 2007. The program will be available for loans in default that are secured by owner-occupied property and serviced by Countrywide Financial or one of its affiliates. In addition, the borrower’s loan balance must be 75% or more of the current value of the home, and the borrower must be able to afford adjusted monthly payments under the terms of the modification.

The terms of the modification will vary based on the type of loan, including:

• “Pay-option ARM loans,” in which loan balances increase each month if a borrower makes only a minimum payment. Borrowers may be eligible to have their principal reduced to 95% of their home’s current value and may also qualify for an interest-rate reduction or conversion to an interest-only payment.

• Subprime adjustable-rate loans, such as 2/28 loans. Borrowers may have their interest rate reduced to the initial rate. If the borrower still cannot afford it, the borrower may be eligible for further interest-rate reductions to as low as 3.5%.

• Subprime fixed loans. Borrowers may be eligible for interest-rate reductions.

• “Hope for Homeowners Program.” If they qualify, some borrowers may be placed in loans made through this federal program.

• Alt-A and prime loans. Borrowers who are in default, but have Alt-A and prime loans, may also be considered for modifications, depending on circumstances.


for more info on san diego loan modification

Countrywide Law Suit, Settlement with Attorney general, loan modification

FAQs - Attorney General's Office Lawsuit Against Countrywide - Consumers - California Dept. of Justice - Office of the Attorney General
#
Which borrowers may be eligible for loan modifications?

The settlement provides for loan modifications for eligible borrowers who are 60 days or more delinquent, or become 60 days delinquent, on subprime or pay option loans that they obtained from Countrywide or from a broker working with Countrywide.

Borrowers with these loans may be eligible for modification if the first payment on their loan was due between January 1, 2004 and December 31, 2007, they live in the property that serves as security for the mortgage, they owe 75% or more of the current value of their home, and they can afford the new, lower payment under the modification.
#
I have a Subprime or Pay Option Loan. Does that mean I am eligible for a modification under the Settlement?

The Attorney General’s Office cannot say whether or not a particular borrower will or will not get a modification. That will depend on the borrower’s individual circumstances, including whether the borrower can afford payments on the modified loan.
#
What if I am delinquent on my mortgage but don’t have a Subprime or Pay Option loan?

Countrywide is pledging to evaluate all other borrowers with payment difficulties for possible modifications on a case-by-case basis. If you are having difficulties making payments on your loan but do not have a subprime or pay option loan, you should call Countrywide at (800) 669-6607.
#
When will the modifications start?

On or before December 1, 2008, Countrywide will begin contacting borrowers who may be eligible for modifications.
#
Can I contact Countrywide to ask for a modification?

Under the settlement, Countrywide will contact all borrowers who may be eligible for a modification. However, you can also call Countrywide toll-free at (800) 669-6607 to ask for a modification. If you do call Countrywide, please write down the full name of the person you talk to, and the date and time of your call.
#
I think I should get a modification. Do I have to continue making payments on my Countrywide loan until then?

The settlement does not by itself change your loan payment or allow you to stop making payments. Borrowers who may be considered for a modification will be contacted by Countrywide and also can contact Countrywide at (800)669-6607 with specific questions about their loan.

You should not stop making payments on your loan just because you think you might qualify for a modification. If you have the ability to pay but stop making your payments, you will likely damage your credit, and may significantly harm your chances of actually receiving a modification.
#
What if I am in foreclosure already?

For borrowers who may be eligible for loan modifications, Countrywide is suspending the foreclosure process, and not starting new foreclosures. Even though modifications might not start until December 1, 2008, Countrywide is suspending these foreclosures for now.
#
What loan terms will borrowers receive if they obtain a modification?

Information from an loan modification by an attorney

Friday, November 28, 2008

Loan Modification - Fannie and Freddie have new plans

The Wall Street Journal announced that the two entities will deploying a new faster paced loan modification program designed to avoid foreclosure.

1. There seems to be some questions about whether the program will allow principle reduction.

2. Will it change the re-default rate which so far has been very high. (I have read that it is around 40% withing the first year. (how many more will default next year)

3. Will these loan modifications - effect the borrowers anti-deficiency protections? (You should probably have a lawyer review your documents to see if you would still be protected by California's anti deficiency laws.)

4. What will be done with second loans?

5. This program is for people who are 90 days late. Before a homeowner allows themselves to be 90 days late, they should determine all of their options.

6. This program does not apply to investment properties.

For more information on Loan Modification.

Investing Blog Posts powered by BlogBurst

Investing Blog Posts powered by BlogBurst: "Fannie Mae, Freddie Mac and U.S. officials are expected to announce plans Tuesday to speed up the modification of hundreds of thousands of loans held by the housing finance giants, marking the latest effort to try and prevent more foreclosures, people familiar with the matter said.

The announcement could mark the government’s most assertive use of Fannie Mae and Freddie Mac to help homeowners since the companies were taken over in September.

The streamlined effort will target certain loans that are 90 days or more past due, these people said. The program will aim to bring the ratio of mortgage payments for these homeowners to 38% of their income by modifying interest rates and in some cases forgiving portions of principal debt, these people said.

Borrowers would have to provide a statement or affidavit showing that they have encountered some sort of hardship that has impacted their ability to pay their mortgage. It would only apply to loans made on or before Jan. 1, 2008, and borrowers will be disqualified if they file for bankruptcy. The homes must be owner-occupied and escrows for real estate taxes and insurance must already be set up."

Wednesday, November 26, 2008

FOXNews.com - Fed Aid Sets Off a Rush to Refinance - Local News | News Articles | National News | US News

FOXNews.com - Fed Aid Sets Off a Rush to Refinance - Local News | News Articles | National News | US News: "The Federal Reserve's attempt to stabilize the housing market set off a chain reaction across the U.S. on Tuesday, dropping interest rates and quickly spurring a burst of refinancing activity by borrowers eager to lower their mortgage costs."

For the moment lenders seem to be favoring loan modifications to short sale. It looks like their strategy is to put off the day of reckoning as long as possible. I suppose there is a slight chance they could spread the problem of over price housing over such long period of time, they could let inflation erase the main problem.

That problem being that in many areas there are not enough buyers who can qualify for the homes, seller wish to sell.

Loan Modification

Tuesday, November 18, 2008

california short sales - do you need a real estate lawyer part 1

short sale approvals on San Diego properties are reviewed by an attorney in response to a friendly challenge from another Realtor.

Saturday, November 15, 2008

Mortgage defaults worsen

Freddie Needs $13.8 Billion as Mortgage Defaults Worsen - WSJ.com
Freddie Mac said it will need a $13.8 billion cash infusion from the U.S. Treasury as losses stemming from home-mortgage defaults surge and its future role in the housing market becomes cloudier.

The mortgage titan and its sister company, Fannie Mae, which were taken over by the government in early September, are losing ground in their mission to play a larger role in the mortgage market and to help prop up U.S. home prices. Their share of the U.S. mortgage market is falling, as lenders increasingly make loans insured by the Federal Housing Administration, rather than ones guaranteed by Fannie ...

Friday, November 14, 2008

Loan Modification - Indymac requirements

Must be a first mortgage and must be a loan owned, or securitized and serviced, by IndyMac Federal
Primary residence and owner occupied

IndyMac borrower already seriously delinquent or in default.

IndyMac borrowers at risk of default due to payment resets or changes in the borrowers’ repayment capacities.

Modifications would be designed to achieve sustainable payments at a 38 percent debt-to-income (DTI) ratio of principal, interest, taxes and insurance.

For more information on Loan Modification

Loan Modification - Citibank

According the California Association of Realtors, Citibank has a new program. Form November 11, 2008 to sometime in may 2009:


Must be first mortgage and must be a loan Citi owns.
The property must be the primary residence and owner occupied (owner may own a second home).
The borrower is working in good faith with Citi.
The borrower currently may not be behind on their payments but may require help to stay current.
Current total monthly mortgage payments exceed 38 percent of gross monthly income.

For more information on Loan Modification in California

Loan Modification - Countrywide's foreclosure relief program

Countrywide Financial - Real Estate Mortgage Lender - Home Loans - Equity Loan Mortgages
* Beginning December 1, 2008, Countrywide will proactively contact subprime and Pay Option ARM borrowers whose loans are scheduled for an interest rate change. We will invite them to contact us if they believe they will not be able to afford the new payments.
* Countrywide will not advance foreclosures for eligible borrowers for the time necessary to determine the borrowers' interest in staying in the home and their ability to afford the new terms as well as the investor's willingness to accept a loan modification.
* Countrywide will waive late/delinquency fees for missed payments when modifying loans and will not charge modification fees to borrowers in the participating states.
* When possible, Countrywide will waive prepayment penalties in connection with any workout or refinance, whether or not the new loan is originated with Countrywide.



Eligibility
Borrowers eligible for loan modifications under this program must have received a qualifying subprime mortgage or a Pay Option adjustable rate mortgage prior to December 31, 2007, and the property must be a 1-4 unit owner-occupied residential property. In addition, certain other requirements are set out in the program:

* The borrower is 60 days or more delinquent and the current loan-to-value ratio is 75% or higher;
* The borrower is current today but becomes 60 days or more delinquent at any time prior to June 30, 2012, and the loan-to-value ratio at the time of the modification is 75% or higher;
* The borrower has a subprime hybrid ARM and the borrower is current but reasonably likely to become 60 days or more delinquent as a consequence of a rate reset, and the loan-to-value ratio at the time of the modification is 75% or higher;
* The borrower has a Pay Option ARM and the borrower is current but reasonably likely to become 60 days or more delinquent as a consequence of a rate reset or payment recast based on negative amortization, and the loan-to-value ratio at the time of the modification is 75% or higher.

In addition, customers may be eligible for the early payment default benefit of this program if: (1) the customer has a Countrywide-originated first lien loan; (2) the loan was on or prior to December 31, 2007; (3) the customer's primary residence is the property that secures the loan; (4) the customer has made three or fewer payments over the life of the loan (the borrower's state may expand eligibility); and (5) the customer has either lost his home to foreclosure or is at least 120 days in arrears on mortgage payments.

Loan Modification Program Details
Countrywide will first offer eligible borrowers an FHA refinance under the HOPE for Homeowners Program. If not eligible for that program, Countrywide will offer these specific programs based on product type.

Subprime 2-, 3- 5-, 7- and 10-Year Hybrid ARM borrowers will receive an unsolicited extension/restoration of the introductory rate for five years and an invitation to contact Countrywide for additional relief if affordability concerns persist. Borrowers who cannot afford the introductory rate will be considered on a streamlined basis for a five-year interest rate reduction to as low as 3.5% (based on the affordability equation) and a conversion to a fixed-rate mortgage at the end of five years.

Pay Option ARM borrowers accepting a streamlined loan modification option will have the negative amortization feature eliminated from their loan. The mortgage interest rate will be reduced to as low as 2.5%, and the loan will be converted into either a fixed-rate mortgage or a ten-year interest-only loan. For single property owners who currently have no equity in their homes, Countrywide will write-down the principal balance to as low as 95% of the current value of the property to restore an equity position.

Subprime Fixed-Rate borrowers will receive a streamlined loan modification, by reducing the mortgage interest rate to as low as 2.5% and converting the loan into a fixed-rate or 10-year interest only loan with affordable step rate increases and lifetime cap.

Loan modification programs will provide payments within the limits of an Affordability Equation set out in the agreement and be targeted to equate to 34% of the borrower's household income.


for more information on Loan Modification

Loan Modification Programs - Hope for Homeowners

HOPE for Homeowners
NOTE: Homeowners, contact your existing lender and/or a new lender to discuss how you may qualify for the H4H program.

The HOPE for Homeowners (H4H) program was created by Congress to help those at risk of default and foreclosure refinance into more affordable, sustainable loans. H4H is an additional mortgage option designed to keep borrowers in their homes.

The program is effective from October 1, 2008 to September 30, 2011.

As many as 400,000 homeowners could avoid foreclosure through this program over the next three years. If you are having trouble making your mortgage payments, HOPE for Homeowners may be able to help you, by refinancing your loan into a new 30-year fixed-rate loan with lower payments.

How the Program Works

There are four ways that a distressed homeowner could pursue participation in the HOPE for Homeowners program:

1.
Homeowners may contact their existing lender and/or a new lender to discuss how to qualify and their eligibility for this program.

2.
Servicers working with troubled homeowners may determine that the best solution for avoiding foreclosure is to refinance the homeowner into a HOPE for Homeowners loan.

3.
Originating lenders who are looking for ways to refinance potential customers out from under their high-cost loans and/or who are willing to work with servicers to assist distressed homeowners.

4.
Counselors who are working with troubled homeowners and their lenders to reach a mutually agreeable solution for avoiding foreclosure.


It is envisioned that the primary way homeowners will initially participate in this program is through the servicing lender on their existing mortgage. Servicers that do not have an underwriting component to their mortgage operations will partner with an FHA-approved lender that does.

Step 1: Cost-Benefit Analysis

Lender considerations:

Given their fiduciary responsibilities and financial obligations, lenders will assess their portfolio and perform a cost-benefit analysis to determine the feasibility of offering this program to struggling homeowners.

1.
Affordability versus value: lenders will take a loss on the difference between the existing obligations and the new loan, which is set at 90 percent of current appraised value. The lender may choose to provide homeowners with an affordable monthly mortgage payment through a loan modification rather than accepting the losses associated with declining property values.
2.
Borrower eligibility: Lenders that determine the H4H program is a feasible and effective option for mitigating losses will assess the homeowner’s eligibility for the program:

o
The existing mortgage was originated on or before January 1, 2008;
o
Existing mortgage payment(s) as of March 1, 2008 exceeds 31 percent of the borrowers gross monthly income;
o
The homeowner did not intentionally default, does not have an ownership interest in other residential real estate and has not been convicted of fraud in the last 10 years under Federal and state law; and
o
The homeowner did not provide materially false information (e.g., lied about income) to obtain the mortgage that is being refinanced into the H4H mortgage.

Consumer considerations:

The lender will disclose to the homeowner the benefits of the program:

*
Home retention,
*
New affordable mortgage based on current appraised value,
*
10 percent equity

The lender will also disclose to the homeowner the costs of the program:

*
3 percent upfront mortgage insurance premium and a 1.5 percent annual premium,
*
Equity and appreciation sharing with the Federal government, and<
br/> *
Prohibition against new junior liens against the property unless they are directly related to property maintenance.


For more information on Loan Modification

Homesales decline on economic slowdown

Our office had at least 2 approved short sales in San Diego cancel last month as the buyers did not want to close.  Many people got scared as the Dow was collapsing. 

This stat just confirms what we saw. 

Pending Home Sales Down on Tight Credit and Economic Slowdown
Pending home sales fell on the heels of a strong gain a month earlier as credit tightened and economic conditions deteriorated, according to the National Association of Realtors®.

The Pending Home Sales Index,¹ a forward-looking indicator based on contracts signed in September, declined 4.6 percent to 89.2 from an upwardly revised reading of 93.5 in August, but is 1.6 percent higher than September 2007 when it stood at 87.8.

Lawrence Yun, NAR chief economist, said pending sales have been above year-ago levels for two months in a row. “The month-to-month weakening in pending home sales is understandable, but because the index remains above year-ago levels it means we’re still in a broad period of stabilization,” he said. “Conditions remain mixed around the country, but markets that are showing annual sales gains include Long Island, N.Y.; Boston; Minneapolis; Denver and Washington, D.C., in addition to consistent solid gains in California and Florida.” ²

Saturday, November 8, 2008

California's budget and the economy to effect real estate

Dr. Housing Bubble Blog
Leave it to California to first, stall a budget for a record 85 days only to pass a budget that amounts to kicking the economic shiny can down the pothole-filled road. We may want to save those cans for their redemption value since things are getting progressively worse. Only 6 weeks after being signed, the budget is now facing a stunning $11.2 billion deficit. It took longer to pass the first budget than it took us to once again drive off an economic cliff. What exactly happened here?

Well first, the initial budget passed in September for the 2008-09 fiscal year amounted to a buffet of gimmicks, illusions, and putting your hand in one pocket, taking $20 out and shifting it over to your other pocket deluding yourself that you are now richer. So how did they pass that budget?

*$3.3 billion in sale of authorized Economic Recovery Bonds

*$1.9 billion in changes to accrual accounting

*$5.1 billion of lottery proceeds

*$1.4 billion in other initiatives

*$8 billion in spending cuts

This is what it took to pass a $143 billion budget on September 23. More debt and accounting smoke and mirrors. Nothing really addressed the structural problems facing the state. Barely enough time to catch our breath but here is what awaits California. This comes from the Special Session 2008-09 report:

“Economic conditions have deteriorated dramatically since the Governor signed the 2008 Budget Act of September 23. This deterioration was reflected in General Fund revenue collections for the month of September that came in $923 million below forecast. As a result, California faces a revenue shortfall of $11.2 billion this year. Specifically, the Department of Finance estimates that General Fund revenues will be approximately $567 million lower in 2007-08, $10.7 billion lower in 2008-09, and $13 billion lower in 2009-10 than earlier projections.”

This coming from our government so you know things are actually worse. So where was this supposed and deceptive money going to come from? Let us look at the revenue sources for the state:

Friday, November 7, 2008

Loan Modification - U.S. considering new foreclosure prevention Program

Potential foreclosure plan still being debated - Oct. 30, 2008
NEW YORK (CNNMoney.com) -- The government is expected to announce soon that it will devote up to $50 billion to directly address the source of the financial crisis: bad mortgages and millions of homeowners at risk of foreclosure.

White House spokesman Tony Fratto said on Thursday that "no decisions" have been made on "a number of housing proposals" that the administration has been reviewing "for some time."

But three administration officials indicated to CNN that the new program would be designed to prevent foreclosures by having lenders reduce delinquent borrowers' mortgage payments to affordable levels. In exchange the government would guarantee some percentage of each loan to backstop lenders if borrowers re-default on modified mortgages.

The plan could help up to 3 million homeowners, although that number is not firm, according to the administration sources.

If it comes to fruition, the government's new loan program could trump the efforts of the Hope for Homeowners program put into place on Oct. 1 by the Federal Housing Administration.

Lawmakers spent months fighting over the legislation that created the FHA program before enacting it in July. Lenders may be more likely to participate in the latest government plan if it imposes less stringent requirements.

The Hope for Homeowners program offers full government backing for lenders that agree to write down a mortgage to 90% of a home's appraised value. But the loss to lenders can be greater than 10% because many troubled homeowners are also "under water" because of falling home prices - meaning they owe more on their home than its current market value. So to participate in Hope for Homeowners, lenders in many cases would have to lock in a sizeable loss.

The plan being considered likely would not require such a strict writedown. Instead, it might require that the new payment for the borrower be affordable.


For more information on California Loan Modification

Loan Modification - Stop Forelcosure, Countrywide and Bank of America Programs.

Almost 400,000 Countrywide mortgage holders will get help - USATODAY.com
Nearly 400,000 homeowners will be able to get more affordable loans after Bank of America (BAC) agreed Monday to modify mortgages that originated with its Countrywide Financial unit. The move could be worth more than $8.6 billion and mark the largest predatory lending settlement in history.

Monday's deal settles claims brought by attorneys general in 11 states that accused Countrywide — acquired in July by BofA — of misrepresenting loan terms, loan payment increases and borrowers' ability to afford loans.

Bank of America says it will restructure loans for Countrywide customers holding subprime mortgages and option adjustable-rate loans that permit borrowers to pay only a small portion of interest and principal owed each month. Some might wind up in new fixed-rate loans; others might not.

But the Bank of America deal represents only a fraction of the future defaults and foreclosures facing homeowners. There were more than 2.2 million foreclosure filings in the USA in 2007.

EVEN MORE DETAILS: Read Bank of American's press release

"There could be a couple million more (foreclosures to come), so it begins to put a price tag on the problem and how expensive it is," says economist Joel Naroff at Naroff Economic Advisors.

Pat Lashinsky, CEO of ZipRealty, says as many as 6 million homes will have gone through a short-sale or foreclosure before this housing slump is finished.

Loan Modification Programs - Indymac, Bank of America, Countrywide

Struggling IndyMac borrowers may be in the dark about offer to lower their mortgage payments - Los Angeles Times
The FDIC's experience has implications beyond IndyMac because the loan-modification program there is being looked at as one of the templates for an emerging government plan to help stem foreclosures. That plan would offer loan guarantees to encourage loan companies to alter as much as $500 billion in mortgages to make them more affordable to struggling homeowners.

But you can't help borrowers if you can't reach them. Despite the difficulties it has encountered, the FDIC appears at IndyMac to have been more successful at reaching them than most mortgage companies have been. Horror stories about elusive homeowners abound in the mortgage industry.

Bank of America's Countrywide unit tried to contact one delinquent borrower 150 times before the homeowner called -- in response not to the deluge of letters and phone calls but to news accounts of a new Bank of America plan to modify loans, said Steve Bailey, a mortgage executive at the bank.

Loan Modification - Hope for Homeowners

Expectations lowered for new mortgage aid program - Los Angeles Times
WASHINGTON -- The government expects only 20,000 troubled borrowers will apply to refinance into more affordable home loans by next fall under a new mortgage aid program passed by lawmakers over the summer.

The $300 billion "'Hope for Homeowners" program was launched Oct. 1. Designed by lawmakers eager to respond to the mortgage crisis, the Congressional Budget Office had projected it would let 400,000 troubled homeowners swap risky loans for conventional 30-year fixed rate loans with lower rates.

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But the early results are discouraging: the government received only 42 applications in the program's first two weeks, according to the Federal Housing Administration. The low turnout was first reported by the industry newsletter Housing Wire. Since the applications take about 60 days to process, no loans have been approved yet.

Steve O'Halloran, spokesman for the Department of Housing and Urban Development, called the projection of nearly 20,000 borrowers "an extremely preliminary estimate of early applications for a program that is barely a month old. Borrowers and lenders are continuing to sign up."

Since the program requires lenders to voluntarily reduce the value of a loan and take a loss, it's unclear how many lenders will participate. In addition, the program may be unattractive to some borrowers because those who sell their properties must agree to share some of their profits with the government.

Wednesday, November 5, 2008

Loan Modification - JPMorgan and WAMU

Massive Effort to Save Mortgages - WSJ.com
J.P. Morgan Chase & Co. launched an ambitious plan Friday to modify the terms of $70 billion in mortgages for borrowers who are behind on their payments or soon could be.

The move by the New York bank will cover as many as 400,000 borrowers. They'll be moved into loans carrying lower interest rates, smaller principal amounts or other more-affordable terms.

The changes will particularly focus on a type of loan structured in such a way that the borrower's outstanding balance sometimes grows month after month. J.P. Morgan inherited $54 billion of such loans with its takeover of the beleaguered thrift Washington Mutual Inc. in September.

--

Wamu has to be one of the most disorganized workout departments out there.  Chase is one of the most professional.  It will be nice if they execute on this ambitious plan. 

Friday, October 31, 2008

California Loan Modification and short sale consultants - upfront fees

Member Legal Services
Tel. (213) 739-8282
Fax (213) 480-7724
October 30, 2008

Copyright© 2008 CALIFORNIA ASSOCIATION OF REALTORS® (C.A.R.). Permission is granted to C.A.R. members only to reprint and use this material for non-commercial purposes provided credit is given to the C.A.R. Legal Department. Other reproduction or use is strictly prohibited without the express written permission of the C.A.R. Legal Department. All rights reserved.

(note this on a blog and the author of the blog believes this info is vital to the public. I am not using it for commercial reasons as there are no pay per click ads on this blog. Yes it may result in people contacting me about business - but so could anything else. If CAR wishes for me to take this down. I will do so withing 48 hours. signed John McConnin)

TABLE OF CONTENTS
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).

• For legal services, to check whether someone is licensed to practice law in California, go to the State Bar of California Web site at http://members.calbar.ca.gov/search/member.aspx.

Q 11. Where can homeowners find legitimate help for foreclosure-related matters?

A The conventional wisdom is for homeowners facing foreclosure to contact their lender immediately. Homeowners may also seek the advice of a reputable housing, financial or credit counselor, attorney, or other qualified professional. The U.S. Department of Housing and Urban Development (HUD) has a Guide to Avoiding Foreclosure on its Web site at www.hud.gov/foreclosure/index.cfm. For a list of HUD-approved housing counseling agencies in California, go to
http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm?&webListAction=search&searchstate=CA. Also, the non-profit organization Homeownership Preservation Foundation has a 24/7 toll-free Homeowner’s HOPE Hotline at (999) 995-HOPE or visit its Web site at http://www.995hope.org.

III. FORECLOSURE CONSULTANT LAW

California has very stringent rules for foreclosure consultants who offer to perform certain foreclosure-related services, such as stopping or postponing a foreclosure sale or assisting a homeowner in foreclosure in obtaining a loan. The foreclosure consultant law is a very complicated body of law. However, knowing these rules helps REALTORS® and their clients distinguish between legitimate and illegal enterprises.


A. GENERAL OVERVIEW OF THE FORECLOSURE CONSULTANT LAW

Q 12. What, in a nutshell, is the foreclosure consultant law?

A The foreclosure consultant law generally regulates the activities of people who provide, or offer to provide, foreclosure-related consultation services, such as helping a homeowner stop or postpone a foreclosure sale. This law requires that foreclosure consultant contracts to be in writing in the manner specified (see Questions 33 to 35). It also provides other safeguards for homeowners in foreclosure (see Questions 31 and 32). Most notably, it prohibits a foreclosure consultant from collecting an upfront fee (see Question 40). The law requires representatives of a foreclosure consultant to be bonded real estate licensees (see Questions 41 and 42). Effective July 1, 2009, a foreclosure consultant must also be bonded and registered with the California Department of Justice (see Questions 44 and 45).

Real estate agents are generally exempt from the foreclosure consultant law except when engaging in certain activities, such as acquiring an interest in the property or making a direct loan. The applicability of this law to REALTORS® is discussed in Questions 19 to 25.

Q 13. Is this a new law?

A No. The foreclosure consultant law is not a new law. It was originally enacted in 1979. However, on September 25, 2008, the California legislature enacted major revisions to the law with the passage of Assembly Bill 180 (see Question 32).

Q 14. Where can I find the foreclosure consultant law?

A This law is called the "Mortgage Foreclosure Consultant Law" (but is referred to in this article as foreclosure consultant law) and can be found in section 2945 to 2945.45 of the California Civil Code, available at www.leginfo.ca.gov. References in this legal article are made to the foreclosure consultant law as revised in 2008 and effective July 1, 2009, unless otherwise indicated.

Q 15. What is the purpose of the foreclosure consultant law?

A The purpose of the foreclosure consultant law is to safeguard the public against unscrupulous foreclosure consultants. According to the California legislature, homeowners in foreclosure are susceptible to fraud, deception, harassment, and unfair dealings. Scam artists who offer to help in fact want to take advantage of the homeowners’ predicament. These so-called foreclosure consultants may charge exorbitant fees, and even secure payment by a deed of trust on the home in foreclosure, yet ultimately perform no worthwhile service at all. Homeowners relying on their foreclosure consultants' promises of help may take no other action to stop the foreclosure process. As a result, they may end up losing their homes and their equity, sometimes to the foreclosure consultants who buy the homes at a fraction of their true value. The California legislature intends for the foreclosure consultant law to be liberally construed to prevent these unscrupulous practices. (Cal. Civ. Code § 2945.)

Q 16. Is the foreclosure consultant law different from the home equity sales contracts law for buyers who are investors?

A Yes. The foreclosure consultant law and home equity sales contracts law are similar to each other, but different bodies of law. Both laws pertain to "residences in foreclosure" as defined (see Question 17). However, the foreclosure consultant law generally regulates people who offer to perform foreclosure-related consultation services for residences in foreclosure, whereas the home equity sales contracts law generally regulates investors who offer to buy residences in foreclosure.

More specifically, the home equity sales contracts law imposes certain requirements when all four of the following conditions are met:

• The existing owner occupies the property as a principal residence;

• The property is one-to-four family dwelling units;

• There is an outstanding notice of default recorded against the property; and

• The buyer will not use the property as a personal residence.

(Cal. Civ. Code § 1695.1(b).)

When these four conditions are met and no exemption applies, the law requires a sales contract to provide the seller with a right to cancel within five business days (or by 8 a.m. of the day of the trustee’s sale if sooner) (Cal. Civ. Code § 1695.4). The contract must also be in 10-point bold font and in the same language principally used by the parties to negotiate the sale (Cal. Civ. Code § 1695.2). Furthermore, under the home equity sales contract law, the buyer’s representative must provide proof of a real estate license (Cal. Civ. Code § 1695.17).

To comport with these and other requirements, C.A.R. offers a standard form Notice of Default Purchase Agreement (Form NODPA) and two attachments, the Notice of Cancellation of Notice of Default Purchase Agreement (Form HENC) and the Declaration and Proof of Real Estate License (Form DPL). For more information about home equity sales contracts, REALTORS® may refer to C.A.R.'s legal article NOD and Investor-Buyer Transactions: Home Equity Sales Contracts.

B. APPLICABILITY OF FORECLOSURE CONSULTANT LAW

Q 17. Under what circumstances does the foreclosure consultant law apply?

A The foreclosure consultant law generally applies when someone performs, or offers to perform, foreclosure-related services for compensation for a "residence in foreclosure" (see Question 18). A "residence in foreclosure" is defined as follows:

• The owner occupies the property as a principal residence;

• The property is one to four family dwelling units; and

• There is an outstanding notice of default recorded against the property.

(Cal. Civ. Code § 2945.1(f) (citing Cal. Civ. Code § 1695.1).)

Q 18. What types of activities fall within the scope of the foreclosure consultant law?

A A very broad range of activities fall within the scope of the foreclosure consultant law. In brief, a foreclosure consultant is someone who assists a homeowner with an impending foreclosure. More specifically, the law defines a "foreclosure consultant" as someone who, for compensation, performs or offers to perform any of the following services for an owner of a residence in foreclosure:

• Stopping or postponing the foreclosure sale (Cal. Civ. Code § 2945.1(a)(1));

• Obtaining a forbearance from a lender (Cal. Civ. Code § 2945.1(a)(2));

• Saving the owner's residence from foreclosure (Cal. Civ. Code § 2945.1(a)(8));

• Helping the owner obtain a loan or advance of funds (Cal. Civ. Code § 2945.1(a)(6));

• Avoiding or ameliorating the impairment of the owner's credit resulting from the notice of default or foreclosure sale (Cal. Civ. Code § 2945.1(a)(7));

• Assisting the owner in exercising the right of reinstatement under section 2924c of the California Civil Code (Cal. Civ. Code § 2945.1(a)(3));

• Obtaining an extension for the owner to reinstate his or her obligation (Cal. Civ. Code § 2945.1(a)(4));

• Obtaining a waiver of an acceleration clause contained in a mortgage loan secured by a residence in foreclosure (Cal. Civ. Code § 2945.1(a)(5)); or

• Assisting the owner in obtaining, from the lender or trustee under a power of sale, the remaining proceeds from the foreclosure sale of the owner’s residence (Cal. Civ. Code § 2945.1(a)(9)).

Under the foreclosure consultant law, an "offer to perform" these foreclosure-related services includes any solicitation or representation to perform these services (Cal. Civ. Code § 2945.1(a)).

Foreclosure consultant services also include, but are not limited to, the following:

• Providing debt, budget, or financial counseling of any type (Cal. Civ. Code § 2945.1(e)(1));

• Giving any advice or explanation on curing a default, reinstating an obligation, fully satisfying an obligation, postponing a trustee’s sale, or avoiding a trustee sale (Cal. Civ. Code § 2945.1(e)(7));

• Contacting creditors on the owner’s behalf (Cal. Civ. Code § 2945.1(e)(3));

• Arranging or attempting to arrange for any delay or postponement of a foreclosure sale (Cal. Civ. Code § 2945.1(e)(5));

• Arranging or attempting to arrange for an extension for owner to cure a default and reinstate an obligation under section 2924c of the California Civil Code (Cal. Civ. Code § 2945.1(e)(4));

• Receiving money to pay a creditor of any obligation secured by a lien on the residence in foreclosure (Cal. Civ. Code § 2945.1(e)(2));

• Advising on, or assisting in preparing, any document for filing with a bankruptcy court (Cal. Civ. Code § 2945.1(e)((6)); or

• Arranging or attempting to arrange for the payment by the lender or trustee under power of sale of the remaining proceeds of a foreclosure sale of the owner’s residence, including instances where the owner transfers or assigns such right to the foreclosure consultant or the foreclosure consultant’s designee (Cal. Civ. Code § 2945.1(e)(8)).

Q 19. Is a real estate agent exempt from the foreclosure consultant law?

A In most cases, yes. As a general rule of thumb, a real estate agent who engages in typical real estate licensed activities is exempt from the foreclosure consultant law (but see Question 20). For example, the foreclosure consultant law is unlikely to apply in the typical situation where a listing agent takes a listing for a residence in foreclosure, markets the property for sale, and represents the seller in a subsequent sale. The foreclosure consultant law is also unlikely to apply in the typical situation where a buyer’s agent represents the buyer in purchasing a residence in foreclosure (but see, in contrast, the home equity sales contract law discussed in Question 16). The foreclosure consultant law is also unlikely to apply if a real estate licensee helps a homeowner in foreclosure to modify an existing loan or refinance with a third-party lender.

More specifically, a real estate licensee engaging in licensed activities is exempt from the foreclosure consultant law when making a direct loan as specified (see Question 22) or when all of the following conditions are met:

• The licensee engages in acts whose performance requires a real estate license;

• The licensee is entitled to compensation for the acts performed for selling a residence in foreclosure, or arranging a loan secured by a lien a residence in foreclosure;

• The licensee does not claim, charge, or receive any compensation until the acts have been performed, or cannot be performed because of an owner’s own failure to: (1) disclose any outstanding liens of record or the correct current vested title (under California Business & Professions Code section 10243); or (2) accept an offer to buy or make a loan on the residence in foreclosure from a ready, willing, and able buyer or lender based on the terms in a listing or a loan agreement;

• The licensee does not acquire any interest in a residence in foreclosure directly from the owner other than as a trustee or beneficiary under a deed of trust given to secure the payment of a loan or that compensation; and

• The licensee does not assist the owner in obtaining, from the lender or trustee under a power of a sale, the remaining proceeds from the foreclosure sale of the owner’s residence.

(Cal. Civ. Code § 2945.1(b)(3) and (c). )

Q 20. Under what circumstances could the foreclosure consultant law apply to a real estate agent?

A A real estate agent may implicate the foreclosure consultant law when engaging in any of the following four activities. Stated another way, even though the law is complex, a simple way for REALTORS® to ensure that they do not implicate the foreclosure consultant law is to avoid engaging in any of the following four activities:

• Direct Loan: Making a direct loan for a residence in foreclosure (Cal. Civ. Code § 2945.1(b)(3)) (see Questions 22 and 23);

• Property Interest: Acquiring an interest in a residence in foreclosure (Cal. Civ. Code § 2945.1(b)(3)(D)) (see Question 24);

• Advance Fee: Claiming or receiving any compensation before performing real estate services for a residence in foreclosure (Cal. Civ. Code § 2945.1(b)(3)(C)) (see Questions 25 to 27); or

• Foreclosure Proceeds: Assisting an owner in obtaining the remaining proceeds if any from the foreclosure sale of an owner’s residence (Cal. Civ. Code § 2945.1(c)).

Q 21. In practical terms, what are some examples of situations where the foreclosure consultant law may apply to a real estate agent?

A Let's say, for example, a listing broker offers to lend his or her own money to a homeowner in an exchange for obtaining a listing on a residence in foreclosure. Perhaps the listing broker offers the money to help the homeowner pay to fix up the property for sale or to get the homeowner out of foreclosure. In this situation where the broker makes a direct loan, the foreclosure consultant law may be implicated. For more information about making a direct loan, see Question 22.

As another example, a broker seeks to obtain a listing of a residence in foreclosure. The broker promises the homeowner that, if the broker cannot get the property sold by the date of an upcoming foreclosure sale, the broker will personally buy the property from the seller to avoid foreclosure. This scenario involving the broker acquiring an interest in the residence in foreclosure may implicate the foreclosure consultant law. For more information about acquiring an interest in a residence in foreclosure, see Question 24.

As another example, a couple is not only in foreclosure, but also upside down on their loan. A real estate broker offers to help modify their existing loan with more favorable terms. The broker, however, wants to collect an upfront fee to make sure that he or she gets paid, regardless of whether the lender agrees to the loan modification. This scenario involving an advance fee may implicate the foreclosure consultant law. For more information about advance fees, see Questions 25 and 26.

Q 22. Can a real estate broker make a direct loan without implicating the foreclosure consultant law?

A Yes, if certain requirements are met. A real estate broker can make a direct loan without implicating the foreclosure consultant law, but only if all of the following conditions are met:

• The real estate broker makes a loan of the real estate broker’s own funds;

• The loan is secured by a deed of trust on the residence in foreclosure;

• The broker does not acquire any interest in the residence in foreclosure directly from the owner other than as a beneficiary under the deed of trust;

• The broker makes a good faith attempt to assign the loan and deed of trust to a lender for an amount at least sufficient to cure all of the defaults on obligations which are then subject to a recorded notice of default;

• Any foreclosure sale of the deed of trust must be conducted by a disinterested party. More specifically, the law states that "if a foreclosure sale is conducted with respect to the deed of trust, the person conducting the foreclosure sale [must have] no interest in the residence in foreclosure or in the outcome of the sale and is not owned, controlled, or managed by the lending broker;" and

• The loan is not made for the purpose or effect of avoiding or evading the provisions of this law.

(Cal. Civ. Code § 2945.1(b)(3).)

The foreclosure consultant law does not specifically define what constitutes a "good faith attempt" to assign the loan and deed of trust to a lender.

Q 23. Can a real estate salesperson make a direct loan without implicating the foreclosure consultant law?

A Apparently not. According to the plain reading of the law, the exemption to the foreclosure consultant law for making a direct loan pertains to a real estate broker's own funds, not real estate salesperson (Cal. Civ. Code § 2945.1(b)(3)).

Q 24. Can a real estate agent acquire an interest in a residence in foreclosure without implicating the foreclosure consultant law?

A Probably not. A real estate agent engaging in licensed activities who acquires an interest in a residence in foreclosure implicates the foreclosure consultant law, unless such acquisition is as a trustee or beneficiary under a deed of trust given to secure the payment of a loan or the agent’s compensation (Cal. Civ. Code § 2945.1(b)(3)). To be prudent, any loan made by a real estate agent should comply with the direct loan requirements set forth in Question 22 above.

Q 25. Can a real estate agent collect an advance fee from a homeowner in foreclosure without implicating the foreclosure consultant law?

A No, in most cases. It's a double-edged sword. A real estate agent generally cannot collect an advance fee without implicating the foreclosure consultant law (Cal. Civ. Code § 2945.1(b)(3)(C)). Furthermore, if the foreclosure consultant law is implicated, it prohibits a foreclosure consultant from collecting any compensation until after the foreclosure consultant has fully performed the services as agreed (Cal. Civ. Code § 2945.4(a)).

More specifically, the law does not exempt a real estate agent from the foreclosure consultant law if he or she claims or collects any compensation before the licensed activities have been performed or cannot be performed because the owner fails to: (1) accept an offer from a buyer or lender who is ready, willing and able to buy or lend on terms set forth in a listing or loan agreement; or (2) make loan disclosures under section 10243 of the California Business and Professions Code (Cal. Civ. Code § 2945.1(b)(3)(C)).

Even if the foreclosure consultant law prohibits a real estate agent from collecting an advance fee, it is problematic for an agent to collect an advance fee anyway under general real estate licensing rules (see Question 26). Moreover, even if the foreclosure consultant law generally prohibits a real estate agent from collecting an advance fee, an agent can collect a fee upon performance of the agreed-upon services (see Question 27).

Q 26. What are the requirements for a real estate broker to collect an advance fee under general real estate licensing law?

A A real estate broker cannot collect an advance fee unless certain requirements are met. An advance fee is a fee charged upfront for services not yet performed. An advance fee is broadly defined to include a fee claimed, demanded, charged, received, collected or contracted from a principal for listing real property or negotiating real estate loans (Cal. Bus. & Prof. Code § 10026). Among other things, no less than ten calendar days before collecting an advance fee, a real estate broker must submit to the California Department of Real Estate (DRE) for approval the advance fee agreement and all other materials to be used for advertising, promoting, soliciting, or negotiating the advance fee (10 Cal. Code Reg. § 2970). Furthermore, a broker who collects an advance fee must deposit it into a trust account with a bank or other recognized depository, because the funds are not the broker’s funds (Cal. Bus. & Prof. Code § 10146). Amounts may not be withdrawn on the broker’s behalf until actually expended for the benefit of the principal or five days after a specified accounting is mailed to the principal (10 Cal. Code Reg. § 2972).

For a list of real estate brokers who have received "no objection" letters for their advance fee agreements, go to the DRE Web site at http://www.dre.ca.gov/mlb_adv_fees_list.html.

Q 27. If I do not collect an advance fee, how can I make sure that I get paid when I perform counseling, loan modification, or other real estate services for homeowners in foreclosure?

A Instead of collecting an advance fee, a real estate broker may collect a fee from a homeowner after performing a service that the broker has agreed to provide. The parties may agree in writing that the broker will perform certain services and charge the homeowner a fee upon performance of each distinct service. For loan modification services, a broker and homeowner may agree, for example, that the homeowner will pay a certain dollar amount after the broker provides an initial consultation, another dollar amount after the broker prepares and submits a loan modification package to the lender, and another dollar amount after the broker has negotiated the loan modification with the homeowner's lender. Alternatively, the broker and homeowner may agree that the broker will charge a certain hourly rate for services rendered, and that the broker will collect that fee after performing each hour of work.

In sharp contrast, a foreclosure consultant falling within the foreclosure consultant law is prohibited from claiming or collecting any compensation until after the foreclosure consultant has fully performed each and every service foreclosure consultant contracted to perform or represented he or she would perform (Cal. Civ. Code § 2945.4(a)).

Q 28. Aside from real estate agents, are there any other exceptions to the foreclosure consultant law?

A Yes. Aside from real estate agents, the following is a list of other exemptions to the foreclosure consultant law. Other than an owner’s attorney, however, anyone who assists the owner in obtaining from the lender the remaining proceeds from a foreclosure sale of the owner’s residence is deemed to be a foreclosure consultant (Cal. Civ. Code § 2945.1(c)).

• An attorney rendering legal services who is licensed to practice law in California;

• A licensed accountant (under Cal. Fin. Code §§ 5000 et seq.);

• A person or his or her agent acting under the authority of the Department of Housing and Urban Development (HUD) or other federal or state agency;

• A person doing business under federal or state laws relating to banks, trust companies, savings and loan associations, industrial loan companies, pension trusts, credit unions, insurance companies, title company, escrow company, or HUD-approved mortgagee;

• A finance lender or broker licensed under the California Finance Lenders Law (at Cal. Bus. & Prof. Code §§ 22000 et seq.). The Commissioner of Corporations, however, has the authority to terminate this exclusion, after notice and hearing, for any licensee who has defrauded, deceived, harassed or unfairly dealt with a homeowner in foreclosure;

• A person licensed as a residential mortgage lender or servicer under the California Residential Mortgage Lending Act (at Cal. Fin. Code §§ 50000 et seq.);

• A person who holds or is owed an obligation secured by a lien on any residence in foreclosure when the person performs services in connection with this obligation or lien; or

• A prorater as defined under Cal. Fin. Code §§ 12000 et seq. A prorater is a person who, for compensation, engages in the business of receiving money or evidence of money for the purpose of distribution among creditors to pay a debtor’s obligations (Cal. Fin. Code § 12002.1).

(Cal. Civ. Code § 2945.1(b).)

Q 29. Does the foreclosure consultant law apply to a short sale consultant?

A It depends. A short sale consultant is generally someone who counsels and helps a homeowner sell a property by negotiating with the homeowner’s lender to accept a loan payoff of less than the balance owed. A short sale may or may not involve a residence in foreclosure. If the short sale does involve a residence in foreclosure, and the short sale consultant offers to, for compensation, help the owner by, among other things, stopping or postponing a foreclosure sale, saving the home from foreclosure, or giving advice on satisfying an obligation, the foreclosure consultant law may be implicated (unless one of the exemptions applies). For more information about short sales, C.A.R. offers its members a legal article, Short Sales.

Q 30. Does the foreclosure consultant law apply to a buyer who is a real estate licensee?

A It depends. If a buyer who is a real estate licensee acts on his or her own behalf in an arms-length transaction with a homeowner in foreclosure, the foreclosure consultant law should not apply. A prudent licensee acting as a buyer should not only use C.A.R.'s standard form Seller Non-Agency Agreement (Form SNA) to document the lack of an agency relationship, but should also refrain from acting as the seller’s agent. On the other hand, if a buyer offers to, for example, help the homeowner in an impending foreclosure, the foreclosure consultant law may be implicated depending on the specific circumstances. For applicability of the home equity sales contracts law to buyers who are investors, see Question 16.

C. REQUIREMENTS OF THE FORECLOSURE CONSULTANT LAW

Q 31. What is currently required under the foreclosure consultant law?

A The following is a summary of the current requirements under the foreclosure consultant law:

• Written Contract: Anyone who engages in activities that fall within the scope of the foreclosure consultant law must enter into a written contract with the homeowner in foreclosure in the manner specified (Cal. Civ. Code § 2945.3(a)) (see Questions 33 to 35).

• Notice of Cancellation: The foreclosure consultant must provide the homeowner with a copy of the contract and attached Notice of Cancellation (Cal. Civ. Code § 2945.3(g)) (see Question 37).

• Owner's Right to Cancel: A homeowner may cancel a foreclosure consultant contract if the foreclosure consultant does not provide a written contract in the manner prescribed by law (Cal. Civ. Code § 2945.3(h)). Furthermore, until June 30, 2009, a homeowner has the right to cancel a contract within three business days after signing. Starting July 1, 2009, a homeowner has the right to cancel with five business days after signing (Cal. Civ. Code § 2945.2(a)). See Questions 38 and 39.

• Prohibited Acts: A foreclosure consultant is also prohibited from engaging in certain acts as set forth in Question 40.

• Representatives: A representative of the foreclosure consultant must provide both a written statement and proof that the representative is a bonded real estate licensee (Cal. Civ. Code § 2945.11) (see Questions 41 and 42).

Q 32. What will be required under the recent 2008 amendment to the foreclosure consultant law?

A On September 25, 2008, the California legislature enacted Assembly Bill 180 which includes major revisions to the foreclosure consultant law. The new requirements, effective July 1, 2009, are in addition to the existing requirements set forth in Question 31.

Highlights of the new revisions effective July 1, 2009 are as follows:

• Certificate of Registration: A foreclosure consultant must register with the California Department of Justice (Cal. Civ. Code § 2945.45(a)(1)) (see Question 44);

• Surety Bond: A foreclosure consultant must obtain and maintain a $100,000 surety bond (Cal. Civ. Code § 2945.45(a)(2)) (see Question 45);

• Other Languages: A foreclosure consultant must, depending on the circumstances, provide the homeowner with a copy of the foreclosure consultant contract in certain languages (Cal. Civ. Code § 2945.3(c)) (see Question 37);

• Owner’s Right to Cancel: The new law extends the homeowner’s right to cancel from three business days to five business days after signing a foreclosure consultant contract (Cal. Civ. Code § 2945.2(a)) (see Question 38). The new law also clarifies that notice of cancellation may be given by mail, fax, or e-mail (Cal. Civ. Code § 2945.2(b)) (see Question 39).

• No Power of Attorney: A foreclosure consultant cannot take a power of attorney from the homeowner for any purpose (Cal. Civ. Code § 2945.4(f)).

• No Surplus Funds Contract: A foreclosure consultant cannot enter into an agreement to arrange or assist the homeowner in arranging for the release of surplus funds from a trustee’s sale (Cal. Civ. Code § 2945.4(h)) (see Question 40).

Q 33. What are the requirements of a foreclosure consultant contract?

A A foreclosure consultant contract must meet all the following requirements:

• Must be in writing (Cal. Civ. Code § 2945.3(a)).

• Must fully disclose the exact nature of the foreclosure consultant’s services (Cal. Civ. Code § 2945.3(a)).

• Must fully disclose the total amount and terms of the foreclosure consultant’s compensation (Cal. Civ. Code § 2945.3(a)).

• Until June 30, 2009, the first page of the contract must contain, in a type size no smaller than that generally used in the body of the document, the name and address of the foreclosure consultant to whom a notice of cancellation is to be mailed. Effective July 1, 2009, the first page of the contract must contain, in a type size no smaller than that generally used in the body of the document, the name, mailing address, e-mail address and fax number of the foreclosure consultant to whom a notice of cancellation is to be sent. (Cal. Civ. Code § 2945.3(e).)

• Must contain, on the first page of the contract, in a type size no smaller than that generally used in the body of the document, the date the homeowner signed the contract (Cal. Civ. Code § 2945.3(e)).

• Must contain certain language as set forth in Questions 34 and 35.

• Must be dated and signed by the owner (Cal. Civ. Code § 2945.3(d)).

• Any provision in a contract which attempts to require arbitration of any dispute arising under the foreclosure consultant law shall be void, at the owner’s option, on the same grounds as contract revocation (Cal. Civ. Code § 2945.10(a)).

Q 34. What is the exact wording required in a foreclosure consultant contract?

A A foreclosure consultant contract must contain the language set forth in the table below with the blank spaces completed (Cal. Civ. Code § 2945.3). The formatting requirements for these contractual provisions are set forth in Question 35.


Part A

NOTICE REQUIRED BY CALIFORNIA LAW

______________________________ (Name) or anyone working for him or her CANNOT:
(1) Take any money from you or ask you for money until ______________________________ (Name) has completely finished doing everything he or she said he or she would do; and
(2) Ask you to sign or have you sign any lien, deed of trust, or deed.

Part B

You, the owner, may cancel this transaction at any time prior to midnight of the third business day after the date of this transaction. See the attached notice of cancellation form for an explanation of this right.

Attachment A (Effective Until June 30, 2009)

NOTICE OF CANCELLATION

_____________________________
(Enter date of transaction) (Date)

You may cancel this transaction, without any penalty or obligation, within three business days from the above date.

To cancel this transaction, mail or deliver a signed and dated copy of this cancellation notice, or any other written notice, or send a telegram to
_____________________________________________________
(Name of mortgage foreclosure consultant)
at
_____________________________________________________ (Address of mortgage foreclosure consultant’s place of business)

NOT LATER THAN MIDNIGHT OF ________________________
(Date)

I hereby cancel this transaction

____________________________________ (Date)

____________________________________ (Owner’s signature)


[Please Note: Effective July 1, 2009, the above statutorily-required language changes. The words “third” and "three" must be replaced by “fifth” or "five" respectively, and the Addendum must include some additional language.]

Addendum A (Effective July 1, 2009)

NOTICE OF CANCELLATION
_____________________________
(Enter date of transaction) (Date)

You may cancel this transaction, without any penalty or obligation, within five business days from the above date.

To cancel this transaction, mail or deliver a signed and dated copy of this cancellation notice, or any
other written notice, or send a telegram,
to __________________________________________________
(Name of foreclosure consultant)
at __________________________________________________
(Address of foreclosure consultant's place of business)

You may also cancel by sending a facsimile (fax) of a signed and dated copy of this cancellation notice,
or any other written notice, to the following number:
_____________________________________________________
(Facsimile telephone number of foreclosure consultant's place of business)

You may also cancel by sending an e-mail canceling this transaction to the following e-mail address:
_____________________________________________________
(E-mail address of foreclosure consultant's business)

I hereby cancel this transaction
____________________________________________.
(Date)

___________________________________________''
(Owner's signature)

Q 35. What are the formatting requirements for the language in Question 34?

A The required language of a foreclosure consultant contract, as indicated in the answer to Question 34, must be formatted in the following manner:

• Part A must be completed and printed in at least 14-point boldface type immediately above Part B (Cal. Civ. Code § 2945.3(b)).

• Part B must be a conspicuous statement in at least 10-point bold type and in immediate proximity to the space reserved for the owner’s signature (Cal. Civ. Code § 2945.3(c)).

• Attachment A must be completed in duplicate and captioned “Notice of Cancellation.” It must be in at least 10-point type and attached to the contract, but easily detachable. It must be written in the same language as used in the contract. (Cal. Civ. Code § 2945.3(f)).

Q 36. Does C.A.R. offer a standard form foreclosure consultant agreement?

A No. C.A.R. does not currently offer a standard form agreement that comports with the requirements of the foreclosure consultant law.

Q 37. What are the requirements for delivering a foreclosure consultant contract to the homeowner?

A The foreclosure consultant must provide the homeowner with a copy of the contract and the attached notice of cancellation (Cal. Civ. Code § 2945.3(g)). Also, the foreclosure consultant contract must be written in the same language as principally used by the foreclosure consultant to describe his or her services or to negotiate the contract (Cal. Civ. Code § 2945.3(c)).

Additionally, effective July 1, 2009, the homeowner must, before signing the foreclosure consultant contract, be given a copy of a completed contract written in any other language used in any communication between the foreclosure consultant and homeowner (Cal. Civ. Code § 2945.3(c)). Also effective July 1, 2009, if the foreclosure consultant principally uses English to describe his or her services or to negotiate the contract, the foreclosure consultant must notify the homeowner orally and in writing before the homeowner signs the contract that the owner has the right to ask for a completed copy of the contract in Spanish, Chinese, Tagalog, Vietnamese, or Korean (Cal. Civ. Code § 2945.3(c)).

Q 38. What is a homeowner’s right to cancel a foreclosure consultant contract?

A Until June 30, 2009, a homeowner has the right to cancel a foreclosure consultant contract until midnight of the third business day after the owner signs the contract. Starting July 1, 2009, a homeowner has the right to cancel until midnight of the fifth business day after the owner signs the contract (Cal. Civ. Code § 2945.2(a)). For the purpose of this law, a "business day" is defined as any calendar day except Sunday or the following business holidays: New Year's Day, Washington's Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day, and Christmas Day (Cal. Civ. Code § 1689.5).

Q 39. What constitutes a proper cancellation under the owner’s right to rescind?

A Until June 30, 2009, cancellation occurs when the owner gives written notice of cancellation to the foreclosure consultant at the address specified in the foreclosure consultant contract. The owner’s notice of cancellation need not take the particular form as provided with the contract. However expressed, the owner’s notice of cancellation is effective if it indicates the owner’s intent not to be bound by the contract. If the notice of cancellation is given by mail, it is effective when deposited in the mail properly addressed with postage prepaid.

Starting July 1, 2009, cancellation occurs when the owner gives written notice of cancellation to the foreclosure consultant by mail at the address specified in the contract, or by fax or e-mail at the number or address identified in the contract. The owner’s notice of cancellation need not take the particular form as provided with the contract. However expressed, the owner’s notice of cancellation is effective if it indicates the owner’s intent not to be bound by the contract. If notice of cancellation is given by mail, it is effective when deposited in the mail properly addressed with postage prepaid. If given by fax or e-mail, the notice of cancellation is effective when successfully transmitted. (Cal. Civ. Code § 2945.2.)

Q 40. What is a foreclosure consultant prohibited from doing?

A A foreclosure consultant is prohibited from, among other things, engaging in any of the following activities:

• No Advance Fees: A foreclosure consultant cannot claim, demand, charge, collect, or receive any compensation until after the foreclosure consultant has fully performed each and every service the foreclosure consultant contracted to perform or represented he or she would perform (Cal. Civ. Code § 2945.4(a)).

• No Interest in Subject Property: A foreclosure consultant cannot acquire any interest in a residence in foreclosure from an owner with whom the foreclosure consultant has contracted. Any such interest acquired is voidable, except as against a bona fide purchaser or encumbrancer for value and without notice of a violation of this article. Knowing that the property was "residential real property in foreclosure" does not constitute notice of a violation of this article. This rule does not abrogate any duty of inquiry which exists as to rights or interests of persons in possession of residential real property in foreclosure. (Cal. Civ. Code § 2945.4(e).)

• No Secured Payment: A foreclosure consultant cannot take any wage assignment, real property lien, personal property lien, or other security for the payment of compensation. Any such security shall be void and unenforceable. (Cal. Civ. Code § 2945.4(c).)

• No Mortgage Broker Fee Over 10%: A foreclosure consultant cannot claim, demand, charge, collect, or receive any fee, interest, or other compensation for any reason which exceeds 10% per annum of the amount of any loan which the foreclosure consultant may make to the owner (Cal. Civ. Code § 2945.4(b)).

• No Undisclosed Fees: A foreclosure consultant cannot receive any consideration from any third party in connection with services rendered to an owner unless that consideration is fully disclosed to the owner (Cal. Civ. Code § 2945.4(d)).

• No Power of Attorney: A power of attorney generally authorizes a person to act on another person’s behalf. Until June 30, 2009, a foreclosure consultant cannot take any power of attorney from a homeowner, except to inspect documents as provided by law. Beginning July 1, 2009, a foreclosure consultant cannot take any power of attorney from an owner for any purpose whatsoever. (Cal. Civ. Code § 2945.4(f).)

• No Invalid Contract: A foreclosure consultant cannot induce or attempt to induce any owner to enter into a contract which does not comply with the foreclosure consultant law (Cal. Civ. Code § 2945.4(g)).

• No Surplus Funds Contract: Until June 30, 2009, a foreclosure consultant cannot, within 65 days after a trustee’s sale, enter into an agreement to arrange or assist the owner in arranging for the release of surplus funds (which are funds remaining after a trustee’s sale). Moreover, such an agreement must comply with certain requirements. Effective July 1, 2009, a foreclosure consultant cannot, at any time, enter into an agreement to arrange or assist the owner in arranging for the release of surplus funds. (Cal. Civ. Code § 2945.4(h).)

Q 41. Who is a “representative” of the foreclosure consultant?

A A “representative” of the foreclosure consultant is a person who in any manner solicits, induces, or causes any homeowner to contract with a foreclosure consultant, to pay any consideration, or to transfer title to the residence in foreclosure to the foreclosure consultant. A representative is also someone who solicits, induces, or causes any member of the owner’s family or household to induce or cause any owner to pay any consideration or transfer title to the residence in foreclosure to the foreclosure consultant. (Cal. Civ. Code § 2945.9.)

Q 42. What does the law require for representatives of a foreclosure consultant?

A Any representative (as defined in Question 41) deemed to be the agent or employee of the foreclosure consultant shall be required to do all of the following:

• Provide the homeowner with written proof that the representative has a valid current California Real Estate Sales License (Cal. Civ. Code § 2945.11(a)(1));

• Provide the homeowner with written proof that the representative is bonded by an admitted surety insurer in an amount equal to at least twice the fair market value of the real property that is the subject of the contract (Cal. Civ. Code § 2945.11(a)(1)); and

• Provide all parties to the contract (before transfer of any interest in the property) with a written statement, under penalty of perjury, that the representative has the required real estate license and bond, and has provided the owner with written proof of same (Cal. Civ. Code § 2945.11(a)(2)).

Any failure to comply with these requirements for representatives of the foreclosure consultant shall, at the option of the owner, render the contract void and the foreclosure consultant shall be liable to the owner for all damages proximately caused by noncompliance (Cal. Civ. Code § 2945.11(b)). A foreclosure consultant is also generally liable for damages resulting from any statement made or acts committed by his or her representative (Cal. Civ. Code § 2945.9).

Any provision in a contract which attempts to limit the foreclosure consultant’s liability for these requirements pertaining to representatives shall be void and, at the owner’s option, render the contract void. The foreclosure consultant shall be liable to the owner for damages proximately caused by that limitation of liability provision. (Cal. Civ. Code § 2945.10(a).)

Q 43. Does a foreclosure consultant have to be a real estate licensee?

A Possibly so. Although the foreclosure consultant law specifically requires a representative of the foreclosure consultant to have a real estate license, it does not specifically state that the foreclosure consultant must have a real estate license. In any event, under general licensing laws, a real estate broker’s license is required for anyone who, for compensation or in expectation of compensation, does or negotiates to do certain activities for another (Cal. Bus. & Prof. Code § 10131). Such activities include, among other things, negotiating loans or performing services for borrowers or lenders in connection with loans secured by real property (Cal. Bus. & Prof. Code § 10131(d)). If a foreclosure consultant falls within these parameters and undertakes any of these tasks, and no exemption applies, a real estate license is required.

Q 44. What is the new registration requirement for a foreclosure consultant?

A Effective July 1, 2009, a person must not take any action as a foreclosure consultant unless the person registers with the California Department of Justice and is issued and maintains a certificate of registration. The registration must include, without limitation, the following:

• All the names, addresses, telephone numbers, Internet Web sites, and e-mail addresses used or proposed to be used for foreclosure consulting;

• Statement that the person has not been convicted of (or pled nolo contendere to) any crime involving fraud, misrepresentation, dishonesty, or a violation of the foreclosure consultant law;

• Statement that the person has not been held liable in a civil judgment for fraud, misrepresentation, violation of the foreclosure consultant law, unfair competition (Cal. Bus. & Prof. Code § 17200), or false or misleading advertising (Cal. Bus. & Prof. Code § 17500);

• Copies of all advertising and promotional materials, including print, electronic, telephone scripts, broadcasts, and other statements used or proposed to be used for foreclosure consulting; and

• Copy of the requisite bond (see Question 45).

Furthermore, a foreclosure consultant must file with the Department of Justice an update of certain material changes to the registration information (Cal. Civ. Code § 2945.45(a)(1)).

The Department of Justice may refuse to issue or revoke a certificate of registration if someone does any of following:

• Makes any misstatement in the registration form;

• Is held liable for fraud, misrepresentation, unfair competition, or false or misleading advertising;

• Commits any violation of the foreclosure consultant law; or

• Fails to maintain the requisite bond (see Question 45).

(Cal. Civ. Code § 2945.45(c).)

Q 45. What is the new bond requirement for a foreclosure consultant?

A Effective July 1, 2009, a foreclosure consultant must obtain and maintain a $100,000 surety bond from a corporate surety admitted to do business in California. The bond shall be made in favor of the State of California for the benefit of homeowners for damages caused by the foreclosure consultant. The bond must be filed with the Department of Justice and the Secretary of State. (Cal. Civ. Code § 2945.45(a)(2)).)

Q 46. Can an owner waive any of the requirements of the foreclosure consultant law?

A No. Any waiver by an owner of the provisions of the foreclosure consultant law shall be deemed void and unenforceable as contrary to public policy. Any attempt by the foreclosure consultant to induce an owner to waive his or her rights is a violation of this law. (Cal. Civ. Code § 2945.5.)

Q 47. What is the potential liability for violating the foreclosure consultant law?

A An owner may, among other things, bring a civil action against a foreclosure consultant who violates the foreclosure consultant law. The owner may recover actual damages, reasonable attorneys’ fees and costs, and appropriate equitable relief. Furthermore, a court not only has the discretion to award exemplary damages, but for certain violations, the court must award exemplary damages equal to three times the compensation received by the foreclosure consultant (or actual damages suffered by the owner). The violations for which a court must award exemplary damages are those pertaining to improper advance fees (§ 2945.4(a)), exorbitant mortgage broker fees (§ 2945.4(b)), and undisclosed fees (§ 2945.4(d)) (see Question 40). An owner has four years from the date of the alleged violation to bring such action. (Cal. Civ. Code § 2945.6.)

Furthermore, any person who violates the provisions set forth in the answer to Question 40 above may be criminally punished by one year imprisonment, plus a fine of $10,000 (Cal. Civ. Code § 2945.7).

Additionally, effective July 1, 2009, a person who fails to comply with the certificate of registration and surety bond requirements may be punished by a fine up to $25,000 for each violation, plus one-year imprisonment.

IV. ADDITIONAL INFORMATION

Q 48. Where does someone report a foreclosure-related scam?

A The following is a list of government enforcement agencies and other organizations for reporting fraud activities. Some of these agencies and organizations are also excellent resources for obtaining more information about foreclosure-related fraud.

Office of the Attorney General
California Department of Justice
Attn. Public Inquiry Unit
P. O. Box 944255
Sacramento, California 94244-2550
(916) 322-3360
(800) 952-5225 (in California only)
http://ag.ca.gov/consumers/mailform.htm (Consumer complaints)

California Department of Real Estate
P. O. Box 187000
Sacramento, California 95818-7000
(916) 227-0864
http://www.dre.ca.gov/cons_complaint.html (Consumer complaints)

Federal Bureau of Investigation (FBI) Headquarters
J. Edgar Hoover Building
935 Pennsylvania Avenue, NW
Washington, D.C. 20535-0001
(202) 324-3000
Or contact your local FBI field office
https://tips.fbi.gov/ (FBI tips and public leads)

Department of Housing and Urban Development (HUD) Headquarters
HUD Office of Inspector General Hotline (GFI)
451 7th Street, SW
Washington, D.C. 20410
(800) 347-3735
Or contact your local HUD field office
http://www.hud.gov/offices/oig/hotline/ (Office of Inspector General hotline)

Federal Trade Commission
Consumer Response Center
600 Pennsylvania Avenue, NW
Washington, D.C. 20580
(877) 382-4357
http://www.ftc.gov/ftc/contact.shtm

Better Business Bureau
The Council of Better Business Bureaus
4200 Wilson Boulevard, Suite 800
Arlington, Virginia 22203-1838
Contact your local bureau
http://www.bbb.org/

Q 49. Where can I obtain more information about foreclosure scams?

A Some of these agencies and organizations listed in Question 48 are good resources of foreclosure-related scams. Another commonly cited resource is the National Consumer Law Center’s publication "Dreams Foreclosed: The Rampant Theft of Americans' Homes Through Equity-Stripping Foreclosure 'Rescue' Scams," available at http://www.consumerlaw.org/news/ForeclosureReportFinal.pdf.

Q 50. Where can I obtain more information?

A This legal article is just one of the many legal publications and services offered by C.A.R. to its members. For a complete listing of C.A.R.'s legal products and services, please visit C.A.R. Online at www.car.org.

Readers who require specific advice should consult an attorney. C.A.R. members requiring legal assistance may contact C.A.R.'s Member Legal Hotline at 213.739.8282, Monday through Friday, 9:00 a.m. to 6:00 p.m. C.A.R. members who are broker-owners, office managers, or Designated REALTORS® may contact the Member Legal Hotline at 213.739.8350 to receive expedited service. Members may also fax or e-mail inquiries to the Member Legal Hotline at 213.480.7724 or legal_hotline@car.org. Written correspondence should be addressed to:
CALIFORNIA ASSOCIATION OF REALTORS®
Member Legal Services
525 South Virgil Avenue
Los Angeles, California 90020