As we move into 2011, it may be helpful to review new laws that may affect California real estate brokers and salespersons. The following laws were enacted by the California legislature and signed by Governor Schwarzenegger during the 2009/2010 legislative session.
Prohibition on a Broker’s Ability to Collect Advance Fees
Prior existing law restricts a California real estate broker or salesperson’s ability to collect advance fees for services that require a real estate license. Brokers seeking to collect advance fees must first get DRE approval of the fee contract. Assembly Bill 1762 clarified that the restrictions do not apply to (1) residential rental security deposits; (2) residential rental applicant screening fees; (3) fees to cover advertising expenses; and (4) certain written “limited service” contracts which are presented as stand-alone services, to be performed on a task-by-task basis, and for which compensation is received as each separate, contracted-for task is completed.
Foreclosure Consultant Law
Prior existing law requires foreclosure consultants to register with the Department of Justice before providing foreclosure consulting services, and precludes them from charging or receiving any compensation before fully completing their services. Assembly Bill 2325 extends these restrictions to forensic loan audits, whereby a person arranges an audit of any obligation secured by a lien on a residence in foreclosure. A forensic loan auditor is thus prohibited from collecting fees prior to performing all services. Licensed real estate brokers, lawyers, mortgage brokers, lenders and other specified professions are exempt from the Foreclosure Consultant Law.
Limits on Short-Seller Liability to First Lenders
Under prior law, homeowners who sell their homes by short-sale could be required to pay their lenders the balance due on the loan after short-sale proceeds were deducted. Senate Bill 931 limits a lender’s ability to collect this deficiency from the homeowner. The lender may not pursue the homeowner for the balance owed where (1) the dwelling consists of four or fewer units; (2) the lender is a first lien holder; and (3) the lender consented to the short-sale in writing. Once the first lien holder gives its written consent, the homeowner is released from any obligation to pay the remaining loan deficiency. The law does not apply if the borrower committed fraud with respect to the short-sale or intentionally damaged the property.
Criminal Penalties for Unlicensed Mortgage Origination Services
SB 1137 makes it a crime for any person to act as a mortgage loan originator (MLO) without a MLO license endorsement from the Department of Real Estate. The bill also makes it a crime to advertise that you are a real estate salesperson if you do not hold a real estate license, or to advertise MLO services if you do not hold a MLO license endorsement. In addition, the bill precludes a real estate broker from employing or compensating any real estate licensee for engaging in any activity for which a (MLO) license endorsement is required, if that licensee does not have a MLO license endorsement. Loan servicing is not considered a MLO service for purposes of this law.
Tenant Rights in Foreclosed Properties
In 2008, the Governor signed a law that when a residential property is foreclosed upon, any tenants must receive sixty days notice before they may be evicted. In 2009, the United States Congress passed the Protecting Tenants at Foreclosure Act, which requires that after foreclosure, the new owner must generally honor the tenant’s lease until the end of the lease term. SB 1149 provides that tenants who are living in foreclosed homes must be informed of these rights in a cover sheet attached to any eviction notice served within one year of a foreclosure sale.