The following is an excerpt from the legal department of the California Association of Realtors.
I think these conclusions are suspect with with respect to short sale consultants. But, a lot of people ask me about upfront fees - so I thought I would post this article.
Short Sales
I think these conclusions are suspect with with respect to short sale consultants. But, a lot of people ask me about upfront fees - so I thought I would post this article.
Short Sales
Q 12. What is a short sale consultant?
A A short sale consultant is someone who advises on short sales. Depending on the agreement between the parties involved, the typical short sale consultant assists a homeowner or listing agent to prepare a short sale application package, submit it to the homeowner’s lender, and negotiate with the lender on the homeowner’s behalf to approve the short sale.
Q 13. Does a short sale consultant have to be a real estate licensee?
A Yes. Generally, if a short sale consultant negotiates real estate loans or performs services for borrowers or lenders, both the short sale consultant and the short sale consulting company must be properly licensed with the California Department of Real Estate (DRE). More specifically, unless an exemption applies, a real estate license is required for someone who, for compensation or in expectation of compensation, does or negotiates to do any of the following acts on behalf of another:
• Solicits borrowers or lenders for loans secured by real property;
• Negotiates loans secured by real property;
• Performs services for borrowers, lenders or note holders for loans secured by real property; or
• Collects payments for loans secured by real property.
(Cal. Bus. & Prof. Code § 10131(d).)
To check someone’s license status with the DRE, go to its Web site at http://www2.dre.ca.gov/PublicASP/pplinfo.asp.
Certain exemptions to the licensing laws may apply. For example, a real estate license is not required if someone merely performs clerical or administrative services, such as assembling a short sale package as long as final determination as to its completeness is made by the broker (see 10 Cal. Code of Reg. § 2841 which lists other permissible clerical activities). For other exemptions to the licensing laws, see C.A.R.’s legal articles, Licensing Guide for REALTORS® and Licensing Chart for REALTORS®.
Q 14. Can a licensed short sale consultant collect an advance fee?
A No, 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 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 DRE the advance fee agreement and all other materials to be used for advertising, promoting, soliciting, or negotiating the advance fee (10 Cal. Code of Reg. § 2970). Furthermore, if a Notice of Default has been recorded against a property involving one-to-four owner occupied residential units, an advance fee is prohibited for foreclosure-related consulting services under the foreclosure consultant law (Cal. Civ. Code § 2945 et seq.). 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 15. If a real estate broker collects an advance fee, does it have to be handled in a special way?
A Yes. A real estate broker who collects an advance fee must deposit it in a trust account with a bank or other recognized depository. Amounts may not be withdrawn for the agent’s behalf until actually expended for the benefit of the principal or five days after a verified accounting as specified is mailed to the principal in compliance with Section 2972 of Title 10 of the California Code of Regulations. (Cal. Bus. & Prof. Code § 10146.)
