The California Foreclosure Consultant Act

by Mikey Hall and Steven Hall

The California Foreclosure Consultant Act - Summary

If you are, or are about to be, in default on your home mortgage, and are approached by an individual or company that is offering to, in some fashion, save your home from foreclosure. you should consult with an attorney, or at least read the law and do your research, before you sign a contract or pay any money.

California Civil Code sections 2945 through 2945.11 contain a law called the "California Foreclosure Consultant Act." This law outlines the responsibilities of individuals or companies who fall within the legislature’s definition of a "Foreclosure Consultant."

If a Notice of Default has been recorded against your home, this law will prevent a foreclosure consultant (even a real estate licensee) from charging an advance fee (in any form) to help you work out a loan modification or in some other fashion avoid foreclosure. Attorneys licensed in California rendering services in the course of their legal practice are exempt from this law.

If a Notice of Default hasn’t been recorded on your home it may be permissible for a California real estate broker to assist you in obtaining a loan modification. Although in this narrow circumstance the broker can ask for advance payment they must provide you with a written contract which satisfies certain specific statutory requirements.

Moreover, the contract must have been previously submitted to the California Department of Real Estate for review and received a "no objection letter" regarding its use. Real estate brokers who do not charge an advance fee for loan modifications or similar services are not required by the DRE to obtain a "no objection letter." However, their work must be completed before they’re paid.

You should know that there are agencies, attorneys, and real estate licensees who will assist you with your loan workout for a fee payable after the work is completed.

California Civil Code Section 2945 - Legislative Findings and Intent

The California legislature has found that individuals facing a foreclosure are sometimes subject to unfair dealings by foreclosure consultants. As a result, the legislature has passed this act with the intention (among other things) of requiring that foreclosure consultant service agreements be in writing to safeguard against deceit, and to permit the homeowner to cancel the agreement, to encourage fair dealing, and prohibit representations that tend to mislead.

The legislature goes out of its way to explicitly state that the law "shall" (not "may" or "should") be liberally construed to effect the legislative intent. This is good news for the owner and bad news for those who want to take advantage of owners in financial trouble.

Civil Code Section 2945.1 - Definitions

This section defines a "Foreclosure Consultant as anyone who offers for compensation to perform any service which "the person in any manner represents will in any manner do any of the following."

• Postpone or stop the foreclosure sale
• Obtain any forbearance
• Assist in the reinstatement of the loan
• Obtain extensions to reinstate the loan
• Obtain any waiver of an acceleration clause
• Save the residence from foreclosure
• Avoid or repair adverse credit reports resulting from a foreclosure sale
• To assist in recovering residual proceeds from the foreclosure sale of the owner’s residence.

After setting forth in rather lose language who qualifies as a Foreclosure Consultant, the legislative lists some narrow and specific exceptions to the law, foremost of which are attorneys who are rendering service in their practice as an attorney at law.

Civil Code Section 2945.2 - Right to Cancel

Under this section the owner is given 3 business days to cancel the contract and specifies the method of notice of cancellation.

Civil Code Section 2945.3 - Writings Required

This section requires that every contract be in writing, specifies the elements, language, and print size of the contract. This section also requires specific notice be given to the owner regarding the prohibition against advance fees or requiring liens or title transfers. The section even specifies the wording of a Notice of Cancellation to be given to the owner, as well as a notice regarding recovery of surplus funds after foreclosure sale.

Civil Code Section 2945.4 and 2945.5 - Violations of the Act and Waivers

Section 2945.4 sets forth the acts which will constitute a violation of the law. This particular section will define for you the things the Foreclosure Consultant isn’t allowed to do. If you have any doubts about what a Foreclosure Consultant can’t do, it would be worth your while to read this section. The next section (2945.5) voids any waivers of the owner’s rights under the Act and even makes it a violation of the act for the Foreclosure Consultant to obtain a waiver from the owner.

Civil Code Sections 2945.6 through 2945.11 - Rights and Liabilities Under the Act

These section lay out the owner’s rights against the Foreclosure Consultant for any violation of the chapter, as well as the damages available to the owner, including but not limited to treble damages and attorney’s fees. These sections also set forth the potential criminal penalties and fines available against the Foreclosure Consultant for any violations of the act.

But Wait There’s More - Assembly Bill No. 180

AB 180, which becomes operative on July 1, 2009, amends sections 2945.2, 2945.3, and 2945.4 and adds section 2945.45 to the Civil Code. The net effect will be an even tighter set of laws governing Foreclosure Consultants.

For example, the new law will extend the owner’s right to cancel the contract from 3 business days to 5 business days and makes it easier to deliver notice of the cancellation. The new law will prevent the Foreclosure consultant from obtaining a power of attorney from the owner for any purpose.

Once operative the new law will require a Foreclosure Consultant to register with the Department of Justice and maintain a surety bond of $100,000.00. The Department of Justice will have the power to refuse to issue, or to revoke a Foreclosure Consultant’s registration. A violation of these provisions will be a crime. These changes will effectively give the Department of Justice oversight over California Foreclosure Consultants.

If you are approached by an individual or company (non attorney, non law firm) who is offering to assist you in any way to workout a loan modification for your home, remember to do your homework. Consult with an attorney licensed in the state of California, the California Department of Real Estate or the Office of the California Attorney General - Department of Justice Department.

While there are reputable Foreclosure Consultants it pays to be well informed.

DISCLAIMER

This article is intended to be a general discussion only, and must not be considered legal advice. Your use of it does not create an attorney-client relationship. Any liability that might arise from your use or reliance on this article, or any of its links, is expressly disclaimed. This blog is not legal, loan, accounting or tax advice, and is not to be acted on as such, it was outdated the moment it was written, and is subject to change without notice. If you are dealing with a potential foreclosure or short-sale, you are advised to consult the appropriate licensed professional.

Mailto: AskMikeyHall@gmail.com