Governor Schwarzenegger recently signed several hundred bills into law, including many that will impact the real estate industry. SB 94 is an urgency measure that takes effect immediately.
SB 94 prohibits advance fees for loan modifications and clarifies the real estate broker exemption from the mortgage foreclosure consultant act. This new law, that expires January 1, 2013, prohibits any person, including licensed real estate brokers and attorneys who negotiate, attempt to negotiate, arrange, attempt to arrange, or otherwise offer to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower related to mortgages and deeds of trust secured by residential real property containing one to four dwelling units to do any of the following:
- Claim, demand, charge, collect, or receive any compensation until after the licensee has fully performed each and every service the licensee contracted to perform or represented that he/she/it would perform.
- Take any wage assignment, any lien of any type on real or personal property, or any other security to secure the payment of compensation.
- Take any power of attorney from the borrower for any purpose.
The new language in California Business & Professions Code Section 10026 that defines "Advance Fee" has been modified to clarify that services may not be divided into phases to avoid the new law: "Neither an advance fee nor the services to be performed shall be separated or divided into components for the purpose of avoiding the application of this section."
Loan modification agreements entered into and advance fees already collected on or before October 11, 2009 are not affected. Any advance fees collected after October 11, 2009 must be fully refunded to the clients. Even if the DRE issued a "no objection" letter, licensees may no longer collect advance fees despite an executed loan modification agreement.
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