Super Sunday in Sacramento

On Oct. 11, 2009, on a Super Sunday, the governor signed into law seven major changes in real estate lending and sales laws. Some of these changes will affect us in the following ways:

SB 94. Loan modification disclosure. This one is big. Effective immediately, attorneys and loan modification firms are prohibited from charging upfront fees to homeowners in exchange for future loan modification services. Loan mod firms will also be required to disclose to their clients that they can receive similar services for free via a government-approved nonprofit loan counseling agency. The State Bar of California, alarmed by the number of attorneys preying on vulnerable homeowners, has set up a 10-person loan modification task force. “I have never seen a crisis of this magnitude,” says interim chief counsel Russell Weiner. “The number of attorneys using their law licenses to essentially take money from unwary but trusting consumers is astounding.” The task force has 738 active investigations underway. At least 16 attorneys are under investigation for misconduct related to loan modification. Three attorneys have resigned, and the state bar is seeking to place four other lawyers on involuntary inactive status. We will be seeing less TV ads and fewer billboard signs as the law clamps down.

AB 260. Higher-priced mortgage loans. This law forbids special fees that encourage loan officers to originate high-risk loans. This law goes into effect Jan. 1, 2010 and will impose a fiduciary duty upon loan officers, requiring that they consider the borrower’s finances before their own profits. In my opinion, it has been an outrageous disservice to their customers for a loan officer to seek points and origination fees and other compensation in the amount of 2.5 percent to 3 percent of the loan amount. This new law also prohibits negative amortization loans, which offer minimum payments that are lower than the actual interest-only rate inside the contract.

AB 957. Title insurance. This law prohibits someone who acquires title to residential property at a foreclosure sale from requiring, as a condition of selling or receiving offers on that property, that the new buyer purchase title insurance and escrow services from a company chosen by the seller. In other words, the buyer’s agent can choose which title company will be used. It is too soon to know how REO lenders and their agents will respond to this law.

SB 407. Plumbing fixtures in property transfers. This law requires that all plumbing fixtures in commercial and residential structures meet minimum water-conservation standards prior to transfer of ownership. This law goes into effect on Jan 1, 2014.

SB 239. Increasing the penalties for mortgage fraud. This new law is a big one too. Any buyer or person(s) doing a refinance and/or their agents who are found guilty of committing mortgage fraud can be sent to jail. When you sign a loan package, there is a included document stating that the FBI investigates suspected mortgage fraud. Do not take this disclosure lightly if you are thinking about committing mortgage fraud or assisting someone else commit fraud. The old saying — “Who is going to find out?” — doesn’t apply anymore.

AB 329. Reverse mortgages. This law states that lenders must advise reverse loan applicants, in writing, to seek financial counseling before entering into a reverse mortgage agreement. Lenders are not permitted to refer prospective borrowers to mortgage counseling agencies or to pay counseling service fees without first obtaining written informed consent from the borrower. And the lender must state if there are potential conflicts of interest.

Other California laws not signed on Super Sunday to be aware of are:

SB 804. Mobilehome residency. This law was passed on Aug. 6, 2009. The management of a mobile home is prohibited from requiring any mobile home park occupant to use a management specified broker, dealer, or other agent for the purchase or installation of a replacement mobile home inside the park.

Nonresident property owner’s withholding of funds. Beginning Jan. 1, 2010, California property managers who disburse the net proceeds from properties that they manage to owners who are not residents of California must withhold 7 percent of all disbursements exceeding $1,500 annually. These withheld funds are to be sent to the Franchise Tax Board.

An idea to toss around. It is looking more likely that short-sale discounts will in the not-too-distant future become the primary avenue for lenders who wish to force solvent owners to pay without taking (through foreclosure), inventorying and then reselling REOs. What if principal balance reductions of existing loans also became lender-simplified and lender-approved to the point whereby a real estate agent who is negotiating a listing for a short sale property could also offer her or his services, upon a contingency payment basis as well and as an alternative to the short sale, to help organize the paperwork in the homeowner’s process of applying for a reduction in outstanding loan balance. This way, the homeowner might be able to get lower monthly mortgage payments, stay in the home, the property would not have to be sold at a reduced price, the agent would receive a contingency fee for services rendered, and neighborhood property values would not be harmed? Isn’t this a good idea? Stay tuned.

(Robert Fields is a loan agent with Sequoia Pacific Mortgage. He can be reached at 338-1196.)