NEW REAL ESTATE LAWS THAT EFFECT CALIFORNIA

On October 11th, Governor Schwarzenegger signed a mountain of legislation into California law. Apparently, the State has finally had enough of the abuses in the lending business that have resulted in the current financial crisis that we are all suffering. I cannot address each of the changes here, since there were so many of them, but some of the major changes include:

SB 36 Requires a real estate license endorsement from the Commissioner in order to engage in the business of a Mortgage Loan Originator. Penalties apply if a real estate licensee fails to obtain a license endorsement before conducting business as a Mortgage Loan Originator, and authorizes the Commissioner to suspend or revoke a real estate license for a failure to pay these penalties. Applicants for a license endorsement as a Mortgage Loan Originator must furnish specified background information to the Nationwide Mortgage Licensing System and Registry. This new law sets standards for issuance and renewal of a license endorsement to act as a Mortgage Loan Originator, including satisfying specified educational requirements. Real estate licensees must annually submit business activities reports, and other reports that may be required, to the Commissioner. The Commissioner also may examine the affairs of real estate brokers, including those who obtain a license endorsement as a Mortgage Loan Originator. The Commissioner is required to report violations of the provisions regulating real estate brokers and mortgage loan originators to the Nationwide Mortgage Licensing System and Registry. Recipients of a license endorsement as a Mortgage Loan Originator must use or disclose a specified unique identifier provided by the Nationwide Mortgage Licensing System and Registry in their advertisements and solicitations. No person is required to have a Mortgage
Loan Originator license under the California Finance Lenders Law or the California Residential Mortgage Lending Act before July 1, 2010, nor a Mortgage Loan Originator license endorsement under the Real Estate Law before December 1, 2010;


AB 260 "Higher-Priced Mortgage Loans" are a new category of regulated loans - defined as those secured by the consumer's principal dwelling (Residential 1-4 units) with an APR that exceeds the average prime offer rate (the average APR that is offered to low risk borrowers as set and published at least weekly by the Federal Reserve Board) by 1.5 or more percentage points for loans secured by a First lien on a dwelling, or by 3.5 or more percentage points for subordinate loans. The new rules regarding higher-priced mortgage loans apply to both DRE licensed and CFL lenders;

* Negative Amortization on higher-priced mortgage loans is prohibited;
* Prepayment Penalties for higher-priced mortgage loans are limited - licensees cannot charge more than 2 percent of the principal balance prepaid for prepayment of the loan during the first 12 months after the loan is made, or 1 percent of the principal balance prepaid for prepayment of the loan during the second 12 months following loan consummation. If a licensee violates this provision, they can receive no commission, fees, points, or other compensation in connection with the loan;
* Licensees cannot divide any loan transaction into separate parts for the purpose and with the intent of evading the provisions of this new law. This Bill clearly confirms that a mortgage broker owes their client(s) a fiduciary duty, and it emphasizes and expands the penalties that licensees may receive for making any false, deceptive, or misleading statements or representations regarding higher-priced mortgage loans, The Bill authorizes DRE, the Department of Corporations, or the Attorney General to enforce the provisions regulating higher-priced mortgage loans. Civil penalties of up to $10,000 may be imposed against a licensee who willfully and knowingly violates the provisions of this law, and any violation(s) would nullify prepayment penalties or yield spread premiums that violate the limits set forth above. The statute provides that Mortgage brokers must place the economic interest of the borrower ahead of his or her own economic interest;
* Your license may be revoked or suspended if you: knowingly authorize, direct, connive at, or aid in the publication, advertisement, distribution, or circulation of a material false statement or representation concerning your designation or certification of special education, credential, trade organization membership, or business, or concerning a business opportunity or a land or subdivision, offered for sale. Your license may also be in jeopardy if you willfully use the term "Realtor" or a trade name or insignia of membership in a real estate organization of which you are not a member;
* DRE penalties are also imposed if you fail to disclose to the buyer of real property, in a transaction in which the you are an agent for the buyer, the nature and extent of your direct or indirect ownership interest in that real property. The direct or indirect ownership interest in the property by a person related to the licensee by blood or marriage, by an entity in which the licensee has an ownership interest, or by any other person with whom the licensee has a special relationship also must be disclosed to the buyer.
* A mortgage broker who arranges only higher-priced mortgage loans must disclose that fact to a borrower, both orally and in writing, at the time of initially engaging in mortgage brokerage services with that borrower;
* A mortgage broker who provides mortgage brokerage services shall not steer, counsel, or direct a borrower to accept a loan at a higher cost than that for which the borrower could qualify based upon the loans offered by the persons with whom the broker regularly does business;
* No licensed person shall recommend or encourage default on an existing loan or other debt prior to and in connection with the closing or planned closing of a higher-priced mortgage loan that refinances all or any portion of the existing loan or debt;
* Violation of federal RESPA, the federal TRUTH IN LENDING ACT, the federal HOME OWNERSHIP EQUITY PROTECTION ACT, the Franchise Investment Law, the Corporate Securities Law of 1968,or other federal laws or regulations now constitute a violation of State licensing laws too;
* If a licensee makes a higher-priced mortgage loan in violation with the terms set forth above, but is acting in good faith, they have 90 days after the loan closes to: (1) Notify the borrower of the compliance failure, (2) Tender appropriate restitution, and (3) Offer to make the loan compliant with the law's requirements or change the terms of the loan to benefit the borrower so that the loan is no longer a higher-priced mortgage loan, at the borrower's option;
* In addition, the new law makes it a felony to commit fraud on a loan application;
* The new law applies to all higher-priced mortgage loans originated on or after July 1, 2010.

Many of the violations set forth above, regarding licensees' conduct, were already illegal, and licensees know that they are subject to discipline for violations of these laws and regulations. But the State is now getting more serious about enforcing these provisions, and many new limitations and penalties have been imposed by AB 260.

SB 239 modifies the Penal Code to create a new crime, a felony, for those who commit fraud on loan applications. A person commits mortgage fraud if, with the intent to defraud, the person does any of the following: (1) Deliberately makes any misstatement, misrepresentation, or omission during the mortgage lending process with the intention that it be relied on by a mortgage lender, borrower, or any other party to the mortgage lending process, (2) Deliberately uses or facilitates the use of any misstatement, misrepresentation, or omission, knowing the same to contain a misstatement, misrepresentation, or omission, during the mortgage lending process with the intention that it be relied on by a mortgage lender, borrower, or any other party to the mortgage lending process, (3) Receives any proceeds or any other funds in connection with a mortgage loan closing that the person knew resulted from a violation of paragraph (1) or (2) of this subdivision, (4) Files or causes to be filed with the recorder of any county in connection with a mortgage loan transaction any document the person knows to contain a deliberate misstatement, misrepresentation, or omission. Effective January 1, 2010;

AB 329 The Reverse Mortgage Elder Protection Act of 2009 imposes additional new disclosure requirements (clearer and more information) for reverse mortgages. This law becomes effective January 1, 2010;

SB 237 creates a program which requires registration of appraisal management companies, which are defined as, any person or entity that satisfies all of the following conditions: (A) Maintains an approved list or lists, containing 11 or more independent contractor appraisers licensed or certified pursuant to this part, or employs 11 or more appraisers licensed or certified pursuant to this part, (B) Receives requests for appraisals from one or more clients, (C) For a fee paid by one or more of its clients, delegates appraisal assignments for completion by its independent contractor or employee appraisers. This law makes any provision under the Real Estate Appraisers' Licensing and Certification Law that relates to appraisal management companies inoperative 60 days after the effective date of any federal law that mandates the registration or licensing of appraisal management companies with an entity other than the state regulatory authority with jurisdiction over appraisers. Effective January 1, 2010;

AB 957 The Buyer's Choice Act gives buyers of residential 1-4 unit properties at a foreclosure sale the power to choose the escrow officer and title company, rather than being forced to use the lender's services. The penalty for a seller violating this statute is damages equal to three times the cost of the escrow services or title insurance policy. This statute went into effect on October 11, 2009;

AB 1160 Requires lenders to provide to borrowers loan documents for mortgages to be written in the same language as that in which the negotiations primarily took place: Spanish, Chinese, Tagalog, Vietnamese or Korean. Becomes operative beginning on July 1, 2010 or 90 days after issuance of a form, whichever occurs later. This law does not change a real estate broker's obligations to their client(s);