STATE OF CALIFORNIA

Is a license required?

Yes.  In California, a real estate broker license is required to conduct loan modification activities unless exempt under the Foreclosure Consultant Act (see attached as Schedule A)..  

State specific loan modification law?

Yes.  On January 1, 2009 the Foreclosure Consultant Act (the “Act”) went into effect. 

The Act provides that once a Notice of Default has been issued in connection with a homeowner’s property, California views services related to mortgage modification and foreclosure avoidance as services being offered by a “Foreclosure Consultant” and therefore regulated under the Foreclosure Consultant Act. 

§2945.1. Ca. Stat. states in part as follows:

“Foreclosure consultant” means any person who makes any solicitation, representation, or offer to any owner to perform for compensation or who, for compensation, performs any service which the person in any manner represents will in any manner do any of the following:

   (1) Stop or postpone the foreclosure sale.

   (2) Obtain any forbearance from any beneficiary or mortgagee.

   (3) Assist the owner to exercise the right of reinstatement provided in Section 2924c.

   (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 ameliorate the impairment of 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.

A foreclosure consultant must register with the Department of Justice in accordance with certain requirements, and to obtain and maintain a surety bond of $100,000. Failure to do so is a crime. 

The Act seeks to require that foreclosure consultant service agreements be expressed in writing; to safeguard the public against deceit and financial hardship; to permit rescission of foreclosure consultation contracts; to prohibit representations that tend to mislead; and to encourage fair dealing in the rendition of foreclosure services.

Effect of becoming a licensed Mortgage Broker?

Prior to the issuance of a Notice of Default, a licensed mortgage broker may conduct mortgage modification services.  A mortgage broker would be subject to the provisions of California’s Business & Professions Code in connection with the regulation of mortgage brokers. 

Once a Notice of Default has been issued a mortgage broker would also be subject to the provisions of the Act. 

Is an advanced fee permitted?

Yes.

An advanced fee may be collected if, (i) it is prior to the issuance of a Notice of Default, (ii) you are a licensed mortgage broker, and (iii) the advanced fee agreement has been previously submitted to the California Department of Real Estate (“DRE”) for approval and you have received a “no-objection” letter back from the DRE.          

No.  

An advanced fee may not be collected if, it is subsequent to the issuance of a Notice of Default and you are not an attorney operating within your normal practice area. 

Is a written agreement required?

Yes. 

If a Notice of Default has not been recorded against the subject property, an agreement is necessary and must state what services will be performed, when they will be performed and how much will be paid. The agreement must first be submitted to the DRE for review and the broker must receive permission to use it and collect the advance fee.

Yes.

If a Notice of Default has been recorded against the subject property. (See Act  §2945.3)

Department of Real Estate Website

http://www.dre.ca.gov/