CA Senate Bill 94

Legislation

State: California
Signed: October 11, 2009

Effective: October 11, 2009
Chapter: 630

Summary

Reacting to what has become a very troubling development in the mortgage finance and real estate industry, Senate Bill 94 prohibits any person, including a real estate licensee or attorney from offering or negotiating foreclosure rescue or loan modification services from charging an advance fee before performing all services provided in the contract for services and requires a specific written notification be included in the contract for such services so homeowners can know that the services of these intermediaries are not required. This new law should signal a warning to California Notaries and Signing Agents not to accept offers for assignments from firms who engage in these unscrupulous practices.

Affects

Amends Sections 10026, 10085, 10133.1, and 10177 of, adds Section 10147.6 to, and adds and repeals Sections 6106.3 and 10085.6 of, the Business and Professions Code; amends Section 2945.1 of, adds Section 2944.6 to, and adds and repeals Section 2944.7 of, the Civil Code, and amends Section 22161 of the Financial Code.

Changes

Until January 1, 2013, prohibits any person, including a real estate licensee, 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 paid by a borrower, from demanding or receiving any pre-performance compensation, requiring any security, lien or wage assignment as collateral for final compensation or taking a power of attorney for any purpose from a borrower.
Provides that the above-mentioned provision does not apply to actions taken by a person who offers loan modification or other loan forbearance services for a loan owned or serviced by that person, including, but not limited to, collecting principal, interest, or other charges under the terms of a loan, before the loan is modified, including charges to establish a new payment schedule for a nondelinquent loan.
Requires any person, including a real estate licensee, 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, as specified, for a fee or other compensation paid by a borrower, to provide a specified 14-point bold type statement regarding loan modification fees.
Until January 1, 2013, makes a violation of the above-mentioned provisions a public offense punishable by a fine of up to $10,000, by imprisonment of up to one year, or both, and, if committed by a business entity, by a fine of up to $50,000.
Until January 1, 2013, makes it an action for the imposition of discipline against a California attorney to violate either of the above-mentioned provisions.
Specifies that a real estate licensee and a finance lender are excluded from the definition of a foreclosure consultant when acting under the authority of that person’s license and would delete the Real Estate Commissioner’s authority to terminate the finance lender’s exclusion.
Contains other provisions.

Analysis

We are reporting on Senate Bill 94 because lately the NNA has been contacted by many Notaries and Signing Agents asking whether they should accept assignments from “foreclosure rescue” and “loan modification” companies seeking to intervene between a homeowner and lender by providing services to renegotiate a mortgage or postpone or preclude foreclosure. In research conducted by the NNA, a growing number of states are enacting laws prohibiting any such firm from collecting advance fees prior to performing the services outlined in the contract with the homeowner. One very unfortunate and unscrupulous business practice is for a foreclosure rescue firm to collect a fee of several thousand dollars in advance and never provide the services in the contract. Notaries and Signing Agents have wondered if participating in these schemes exposes them to liability or to prosecution for criminal offenses.

SB 94 makes collecting an advance fee by any person 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, including a real estate licensee and California attorney, a crime punishable by a fine of up to $10,000 or imprisonment of up to one year for individuals, or both, and a fine of up to $50,000 for businesses. The bill also requires the following very specific notification to be provided in a contract for loan modification services in 14-point type: “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.” A violation of this provision also carries the same penalties as the previously-described provision.

Can a Notary or Signing Agent be prosecuted for simply picking up a check for an advanced fee when working for one of these loan modification companies? The new law seems to place the emphasis on whether the person negotiates, attempts to negotiate, arranges or offers the loan modification or foreclosure services. Since a Signing Agent performs clerical and courier-type functions only and renders no advice to customers, it is possible that the statue may not apply to them. However, because this new law prohibits the collection of any type of advance fee and additionally prohibits the taking of a power of attorney for any purpose, Notaries and Signing Agents should never agree to perform an assignment for a foreclosure rescue company that asks the Notary or Signing Agent to pick up a check for advance fees or notarize a power of attorney for such a client.

Read Senate Bill 94.