The nitty gritty on SB 94

I found a very good, factual article on SB 94 courtesy of 360 Realty in Los Angeles.

The new law prohibits any person (including real estate licensees) who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform residential mortgage loan modifications or other forms of mortgage loan forbearance, for a fee or other compensation, from: claiming, demanding, charging, collecting or receiving any compensation until after the licensee has performed each and every service the licensee contracted to perform or represented that they would perform. In addition, licensees cannot take any wage assignment, any lien secured by real or personal property, or any other kind of security to secure payment of compensation in association with their acts. Moreover, no licensee can take any Power of Attorney from any borrower, for any purpose. This part of the law applies to 1-4 residential units only. Violation of this provision would constitute a misdemeanor, with a fine of up to $10,000, plus up to one year in jail. If the violator is a corporation, the maximum fine increases to $50,000. These remedies are in addition to any others imposed elsewhere in the law. The bill specifically exempts parties who own or are servicing the loan in question before the terms of the loan are modified.

Further, the new bill requires any person, including licensees, to provide the following written disclosure in at least 14 point bold type regarding loan modification fees prior to entering into any fee agreement with a borrower:
It is not necessary to pay a third party to arrange for a loan modification or other form of forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge. A list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) is available from your local HUD office or by visiting www.hud.gov.

If loan modification or other loan forbearance services are negotiated or offered in Spanish, Chinese, Tagalog, Vietnamese, or Korean, a translated copy of the statement above must be given to the borrower in that foreign language. A real estate licensee who violates this new law would be subject to discipline by the Department of Real Estate, and violation of this provision would also constitute a misdemeanor, with a maximum fine of $10,000, and up to one year in jail. If the violator is a corporation, the fine increases to $50,000. These remedies are in addition to any other imposed elsewhere in the law. The bill specifically exempts parties who own the loan or are servicing it before the terms of that loan are modified.

The definition of the term, "Advance Fee" has been significantly changed. Now, an Advance Fee includes any fee, regardless of the form, that is claimed, demanded, charged, received, or collected by a licensee from a principal before fully completing each and every service the licensee contracted to perform, or represented would be performed. Advance Fees now include: a fee for a listing, an advertisement or an offer to sell or lease property (other than in a newspaper of general circulation), issued primarily to promote the sale or lease of a business opportunity or real estate, or for a referral to real estate brokers or salesmen, or for soliciting borrowers or lenders for, or to negotiate loans on, business opportunities or real estate. Thus, licensees must be much more careful about how they charge for services they render. The law now requires real estate licensees to submit all Advance Fee materials to the Real Estate Commissioner before they are used (including contract forms, letters, cards used to solicit prospective sellers, and radio and TV ads), if they are intended to be used to solicit prospective owners and sellers to enter into an Advance Fee Agreement. All materials must be submitted to the Real Estate Commissioner for approval at least 10 calendar days before the materials are used. If the Commissioner finds that the materials are deceptive, the licensee may be Ordered not to use them. The fine for violations of the Advance Fee law has been increased from $1,000 to $2,500, plus violators may spend up to six months in jail. In addition, a violation could result in discimplinary procedures with the Department of Real Estate.

Existing law defines a "Foreclosure Consultant" as any person who (after the recording of a Notice of Default) solicits, represents or offers to perform for compensation or who performs any service for compensation which the person in any manner represents will in any manner do any of the following: (1) Stop or postpone a foreclosure sale; (2) Obtain any forbearance from any beneficiary or mortgagee; (3) Assist the owner to exercise their right to reinstate the existing loan; (4) Obtain any extension of the period within which the owner may reinstate his or her obligation; (5) Obtain any waiver of an acceleration clause contained in any promissory note or contract secured by a deed of trust or mortgage on a residence in foreclosure or contained that deed of trust or mortgage; (6) Assist the owner to obtain a loan or advance of funds; (7) Avoid or improve the owner's credit resulting from the recording of a notice of default or the conduct of a foreclosure sale; (8) Save the owner's residence from foreclosure; (9) Assist the owner in obtaining from the beneficiary, mortgagee, trustee under a power of sale, or counsel for the beneficiary, mortgagee, or trustee, the remaining proceeds from the foreclosure sale of the owner's residence. This bill excludes real estate licensees and California Finance Lenders (CFL) licensees from the definition of a Foreclosure Consultant, when they are acting under the authority of that license. Under the new law, CFL licensees are now prohibited from making materially false or misleading statements or representations to borrowers about the terms or conditions of that borrower's loan when making or brokering a loan. Senate Bill 94 remains effective until January 1, 2013, and it will expire at that time unless further action is taken by the California Legislature.