STATE OF ARIZONA

Is a license required?

Currently there are no licensure requirements regarding loan modifications, however, the Arizona Department of Financial Institutions made a statement that “Arizona law prohibits deceptions and misrepresentations, including concealing an essential or material fact in the course of the mortgage business. In addition, the AG of Arizona is working with the AZ legislature to enact provisions in the law to protect consumers from fraudulent loan modification companies.

State specific loan modification law?

No.

Effect of becoming a licensed Mortgage Broker?

A mortgage broker must be licensed by the DFI. A mortgage broker is defined as a person…who for compensation or in the expectation of compensation either directly or indirectly makes, negotiates or offers to make or negotiate a mortgage loan. A.R.S. §6-901 (8). A.A.C. R20-4-102 defines directly or indirectly makes, negotiates, or offers to make or negotiate as:

1. providing consulting or advisory services in connection with a mortgage loan transaction.
2. providing assistance in preparing an application for a mortgage loan transaction…regardless of whether the person providing assistance directly contacts any potential investor or lender. [1]

Processing a Loan

Is an advance fee permitted?

Is a written agreement required?

The “Practice of Law”

However, “directly or indirectly makes, negotiates, or offers to make or negotiate” does not include:
• Modifying, renewing, or replacing a mortgage loan… already funded, if:
• the parties to and security for the loan are the same as the original loan immediately before the modification, renewal, or replacement, and
• if no additional funds are advanced and
• no increase is made in the credit limit on an open-ended loan.
• Replacing a loan means making a new loan simultaneously with terminating an existing loan.[2]

The DFI reports that some companies offering loan modification rapidly move into areas of activity that do require a license. The DFI is contemplating revisions to R20-4-102 to increase the agency’s jurisdiction over loan modification companies, but all Rule change packages are currently on hold. Therefore, the DFI does not currently have jurisdiction over loan modification companies if the activity involves modifying, renewing, or replacing a loan if the parties to and security for the loan are the same as the original loan immediately before the modification, renewal, or replacement, and no additional funds are advanced and no increase is made in the credit limit on an open-ended loan.

Additionally, pursuant to A.R.S. §32-2155(C) a real estate licensee may not collect compensation for rendering services in negotiating mortgage loans unless the real estate licensee has a mortgage broker’s license or is an employee, officer or partner of a corporation or partnership which holds a mortgage broker license.

Yes.[3]

Absent some statutory exception, Arizona contract law generally requires nothing more than the existence of an offer, acceptance, consideration, and sufficient specificity of the terms in order to have an enforceable contract. This means that oral contracts are just as enforceable as written contracts, though frequently more difficult to prove.

This is not true where the contract concerns the purchase and sale of real estate. There, the Statute of Frauds, codified in Arizona at A.R.S. Section 44-101(6), requires that contracts for the sale of real property be written and signed to be enforceable.

Arizona courts have consistently held that only the signature of the "party to be charged" is required. In other words, the contract must be signed by the party against whom enforcement is sought but does not necessarily have to be signed by the charging party. For example, a seller of real estate who never signed the sales contract may successfully maintain an action against a buyer who did sign the contract.

Any amendments to the contract must also be written and signed to be enforceable. Because of the requirements of the Statute of Frauds, parties buying or selling real estate in Arizona are advised to demand written confirmation of all the terms and conditions of the real estate transaction. Frequently, agents and brokers may make representations and assurances to buyers and sellers and suggest that a written modification is unnecessary. Buyers and sellers should avoid the temptation to rely upon such assurances and ensure that all important matters are reduced to writing and signed by the other party. [4]

Arizona Supreme Court Rule 31 prohibits the unauthorized practice of law. The “practice of law” is defined in part as providing legal advice or services to or for another by:
• Preparing any document in any medium intended to affect or secure legal rights for a specific person or entity;
• Preparing or expressing legal opinions
• Negotiating legal rights or responsibilities for a specific person or entity
• Providing legal services by “preparing any document in any medium intended to affect or secure legal rights for a specific person or entity”
• Negotiating legal rights or responsibilities for a specific person or entity.

Thus, if the services provided in the loan modification program involve services affecting legal rights within the scope of Rule 31, the activity could constitute the practice of law.

(Article 26 provides that: Any person holding a valid license as a real estate broker or a real estate salesman regularly issued by the Arizona State Real Estate Department when acting in such capacity as broker or salesman for the parties, or agent for one of the parties to a sale, exchange, or trade, or the renting and leasing of property, shall have the right to draft or fill out and complete, without charge, any and all instruments incident thereto including, but not limited to, preliminary purchase agreements and earnest money receipts, deeds, mortgages, leases, assignments, releases, contracts for sale of realty, and bills of sale.) [5]

Where can I file a complaint against an Arizona mortgage company or mortgage broker?

Complaints against these entities should be filed with the Arizona Department of Financial Institutions.

Arizona Department of Financial Institutions
2910 North 44th Street, Suite 310
Phoenix, AZ 85018
602.255.4421
800.544.0708 (In–State Toll Free)

Does Civil Liability exist?

A broker or salesperson risks potential civil liability arising from participation in loan modification programs. A homeowner who was directed to a loan modification company or represented in a loan modification by a broker or salesperson may thereafter bring a claim if the loan modification fails, resulting in foreclosure or other damages, or if the homeowner determines that a mortgage loan could have been obtained at a lower rate or at a lower cost.

Generally, the designated broker is vicariously liable for a salesperson acting within the scope of the salesperson’s employment. See e.g., A.A.C. R4-28-301(H). However, when a salesperson is acting solely on the salesperson’s own behalf, and not acting on behalf of the designated broker, the designated broker should have no liability for the salesperson’s actions. See e.g., Pruitt v. Pavelin, 141 Ariz. 195, 206, 685 P.2d 1347, 1356 (App. 1984). However, because of the potential liability and the possibility that loan modification activities on behalf of a homeowner could be construed as being within the scope of the salesperson’s employment, many employing brokers, as a matter of policy, limit or prohibit a salesperson’s involvement in these programs.
 
In addition, a broker’s errors and omissions (“E & O”) insurance will likely not cover any claims by a homeowner arising out of the acceptance of fees in connection with a loan modification program. E & O insurance coverage is generally limited to conduct as a real estate salesperson or broker. Thus, any real estate broker or salesperson becoming involved with a loan modification program should obtain additional E & O insurance to cover these activities. [6]

Arizona Resources

Department of State Website:

http://adjustmyloan.com/About-Us/ (ARIZONA LOAN MODIFICATION COMPANY)

http://aarnews.com/2009/05/loan-modification-programs/ (AAR Newsletter from General Counsel on Loan Modifications in Arizona)

http://azdfi.gov/ (Department of Financial Institutions- DFI)

Judy Moss- Mortgage Examiner at DFI: (602) 771-2841

Attorney General of Arizona office: 

The rules shall become legally effective immediately, on the date the Attorney

General’s office files them with the Secretary of State’s office. Here is the context

and reasoning for requiring that these new rules must be effective as soon as the

Attorney General approves them.

This rulemaking is compelled by this State’s enactment of SB1028 in last year’s

legislative session. That Arizona legislation enacted A.R.S. §§ 6-991 through 6-

991.08. Those statutes are an expression of the legislature’s determination that

2

regulation of loan originators is necessary to the public peace, health, and safety of

both the Arizona mortgage lending industry and of Arizona consumers. A.R.S. § 41-

1032(A)(1). The statutes require the Department of Financial Institutions (“DFI”) to

license, supervise, and regulate 5,000 to 8,000 loan originators who practice their

occupation in Arizona beginning January 1, 2010. A.R.S. § 6-991.03.

http://az.gov/webapp/portal/