Having the inglorious reputation for recording some of the highest foreclosures rates in the country is not the kind of honor that California welcomes. But on October 11, 2009 that all changed when Governor Schwarzenegger signed several new laws into effect with the purpose of clamping down on real estate fraud and especially mortgage fraud.
Note: SB – Senate Bill AB – Assembly Bill
#1 SB 239 – mortgage fraud committed by mortgage brokers or even direct lender loan officers used to be . . . yawn . . . de rigeur in some circles. In the Golden Days of just a few years ago, Washington Mutual, aka WaMu, drank its own Kool-aid by pressuring independent home appraisers to pump up home valuations so that the bank could make more on loan origination fees and give more bonuses to its fat cats. Ever hear of any of those loan officers or fat cats being criminally prosecuted? That’s about to change with this new law, which punishes mortgage fraud with hard jail time. Borrowers: be on the look-out for an insert in your loan package that states the FBI investigates cases of suspected mortgage fraud.
#2 SB 94 – it’s about time the government jumped into the latest rainmaker: loan modifications. If you’re thinking of getting one, ask the person doing the loan modification for you what they did before. Many of these people once wrote subprime loans, meaning they were part of the original problem. Do you trust those same scoundrels to help you with your loan modification? Many victims of loan modification fraud found out that after they scraped together the several thousand dollars demanded by “mortgage rescue” firms, that the firms did little or nothing to help the borrower. This new bill forbids loan modification firms and attorneys from charging upfront fees. Some attorneys have made the career-ending mistake of renting out their licenses to these firms in exchange for a piece of the action. Many are now being investigated for misconduct and a few have either relinquished their licenses; others could have their licenses either suspended or even revoked. Under the new law, loan modification firms must also disclose to borrowers that they can receive the same or similar assistance from government-sponsored consumer counseling services.
#3 AB 260 – this new laws bans negative amortization loans. A not insignificant number of homeowners have gotten boiled in hot water by neg-am loans, which on their monthly mortgage statement gave borrowers the “option” (check this box to commit financial suicide) to pay less than a fully-amortized loan. The difference, of course, is added to the principle balance so that the borrower’s mortgage actually increased every month. The other part of this law requires loan offers to consider the borrower’s finances before setting high loan origination fees that are charged to originate the loan. What a novel concept: requiring loan officers to have a fiduciary duty to their borrowers.
#4 AB 329 – after the development of the reverse mortgage industry quickly came its dark cousin: reverse mortgage fraud. This new law mandates that lenders advise borrowers in writing to seek financial counseling before they sign a reverse mortgage contract. And the lender must state, again in writing, if the lender has an interest in the mortgage counseling service to which they refer the borrower.
#5 AB 957 – this new law prohibits a seller who purchases a property at a foreclosure sale, or the foreclosing bank that has regained title, from requiring that the new buyer of the property purchase escrow services and title insurance from firms chosen by the seller. Banks with REO properties often get volume discounts from providers of these services, which is why they have insisted on using their own services. The way banks are now getting around this is to allow the buyer to chose their own title and escrow – but the buyer has to pay for the services, which normally the seller picks up.
#5 SB 407 – this law requires the plumbing fixtures in property transfers to meet minium water conservation standards before the property transfers to the new owner. The City of Los Angeles already requires low-flow shower heads and toilets to be installed in the effort to preserve water. This new law is so important that it doesn’t go into effect for four (4) years . . .