SUMMARY OF CALIFORNIA
FORECLOSURE CONSULTANT LAW
California
Civil Code Section 2945-2945.11
A.
Purpose of the Statue (enacted in 1979 and amended in 1980 and 2004)
California Civil Code Section 2945
The intent and purposes of this article are 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.
1.
Protection of
homeowners in foreclosure from fraud, deception, harassment and unfair practices
of self-proclaimed foreclosure consultants.
2.
Foreclosure consultants have charged excessive fees and have historically
performed little or no services.
3.
Homeowners execute an assignment of the surplus of the Trustee’s Sale in
favor of the Foreclosure Consultant resulting in excessive fees paid.
4.
Borrowers frequently lose their homes to Foreclosure Consultants who purchase the homes at a fraction of the cost.
B.
Definition of Foreclosure Consultant
California Civil Code Section 2945.1(a)
1.
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 represent will
in any manner do any of the following:
a.
Stopping or postponing the foreclosure sale;
b.
Obtaining any forbearance from any beneficiary or mortgagee;
c.
Assisting the homeowner in exercising right or reinstatement;
d.
Obtaining any extension of the period within which the owner may
reinstate his or her obligation;
e.
Obtaining 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 in any such deed of trust or mortgage;
f.
Assisting the homeowner in obtaining a loan or advance of funds;
g.
Avoiding or ameliorate the impairment of the owner’s credit
resulting from the recoding of a
notice of default or tee conduct of a foreclosure sale;
h.
Saving the owner’s residence from foreclosure;
i.
Assisting 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;
2.
The following are exempt from the definition of Foreclosure Consultant:
California Civil Code
Section 2945.1(b)
a. Licensed California attorneys;
b. A Prorater;
c. Licensed under the California Residential Mortgage Lending Act;
d. Accountants;
e. Licensees under the California Consumer Finance Law;
f.
DRE-Licensed real estate brokers, provided that no licensed real estate
broker can take fees up front;
g. Banks, industrial loan companies, credit unions, insurance companies,
licensed title or escrow companies and HUD approved Mortgage Companies;
3. Despite the exemptions listed in 2945(b), any person who assists 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 homeowner’s residence is a Foreclosure
Consultant unless he or she is the attorney of the homeowner.
C.
Required Provisions in Contracts with Foreclosure Consultant
California Civil Code Section 2945.2 and
2945.3
1. All contracts between homeowners and persons defined as and not exempted
from the definition of Foreclosure Consultant must contain a three day right of
rescission
a.
Cancellation occurs when the owner gives written notice of cancellation
to the foreclosure consultant at the address specified in the contract.
b.
Notice of cancellation, if given by mail, is effective when deposited in
the mail properly addressed with postage prepaid.
2. Every contract shall be in writing and shall fully disclose the exact
nature of the foreclosure consultant's services and the total amount and terms
of compensation:
a. Required language in 14-point bold type and with the name of the
Foreclosure Consultant.
“NOTICE REQUIRED BY CALIFORNIA LAW
__(name)______ or anyone
working for him or her CANNOT:
1.
Take any money from you[r] or ask you for money until __(name)______
has completely finished doing everything he or she said he or she would do; and
2.
Ask you to sign or have signed any lien, deed of trust or deed.”
b.
The contract shall be written in the same language as principally used by
the foreclosure consultant to describe his or her services or to negotiate the
contract; shall be dated and signed by the owner; and shall contain in immediate
proximity to the space reserved for the owner's signature a conspicuous
statement in a size equal to at least 10-point boldface type, as follows:
"You, the owner, may cancel this transaction at any
time prior to midnight of the third business day after the date of this
transaction. See the attached notice of cancellation form for an explanation of
this right."
D.
Prohibited Practices
California Civil Code Section 2945.4
1.
Collecting or receiving any compensation until after the Foreclosure
Consultant has performed every service the Consultant has contracted to perform;
2.
Claim, demand, charge, collect, or receive any fee, interest, or any
other compensation for any reason which exceeds 10 percent per annum of the
amount of any loan which the foreclosure consultant may make to the owner;
3.
Taking any wages assignment or lien on real property to secure the
payment of compensation;
4.
Receiving any consideration from a third party in connection with
services rendered to a homeowner unless the consideration is fully disclosed;
5.
Acquiring any interest in a residence in foreclosure from an owner with
whom the Foreclosure Consultant has contracted;
6.
Acquiring a Power-of-Attorney from a homeowner;
7.
Induce or attempt to induce any owner to enter into a contract which does
not comply in all respects with Sections
2945.2 and
2945.3;
8.
Entering into an agreement to assist the homeowner in arranging for the
homeowner, the release of surplus funds prior to 65 days after the Trustee’s
Sale is conducted whether the agreement involves direct payment, assignment,
deed, power of attorney, or assignment of claim from a homeowner to the
Foreclosure Consultant or any person designated by the Foreclosure Consultant.
E. Waiver
California Civil Code Section 2945.5
Any waiver by an owner of the provisions of this article
shall be deemed void and unenforceable as contrary to public policy. Any
attempt by a foreclosure consultant to induce an owner to waive his rights shall
be deemed a violation of this article.
F. Penalties for Violation
California Civil Code Section 2945.6 and 2945.7
- Civil penalties for actual damages, reasonable
attorney’s fees and cost, appropriate equitable relief, plus discretionary
exemplary damages equal to at least three times the compensation received by
foreclosure consultant for violations of Section 2945.4(a), (b) or (d), plus
three times the homeowner’s actual damages for violations of Section
2945.4(c), (e), or (g), in addition to any other award of actual or exemplary
(punitive) damages;
- Criminal penalties of up to $10,000 fine, imprisonment
in state prison or county jail for up to a year, or both. (For each
violation).
G. Scope of Liability
California Civil Code Section 2945.9
- A foreclosure consultant is liable for all damages
resulting from any statement made or act committed by the foreclosure
consultant's representative in any manner connected with the foreclosure
consultant's (1) performance, offer to perform, or contract to perform any of
the services described in subdivision (a) of Section
2945.1, (2) receipt of any
consideration or property from or on behalf of an owner, or (3) performance of
any act prohibited by this article.
H. Limiting Liability
California Civil Code Section 2945.10
- Any provision in a contract which attempts or purports
to limit the liability of the foreclosure consultant under Section
2945.9 shall be void
and shall at the option of the owner render the contract void. The
foreclosure consultant shall be liable to the owner for all damages
proximately caused by that provision. Any provision in a contract which
attempts or purports to require arbitration of any dispute arising under this
chapter shall be void at the option of the owner only upon grounds as exist
for the revocation of any contract.
- This section shall apply to any contract entered into on
or after January 1, 1991.
Note:
Foreclosure consultant services performed prior to the
filing of a notice of default are unlawful to the extent they are deemed the
unauthorized practice of law. Negotiating mortgage loan contracts, modifying
terms of mortgage loan documents and related deed of trust documents, which
affect the legal rights and obligations of borrowers, constitute the
unauthorized practice of law.
