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SACRAMENTO – Attorney General Edmund G. Brown Jr. has issued a consumer alert warning California homeowners to avoid individuals and businesses that charge up up-front fees for foreclosure relief services in light of a just-enacted state law that makes this "abusive practice" subject to prosecution.
"Over the past two years, unscrupulous attorneys and real estate brokers have abused their trusted roles and exploited desperate homeowners seeking to avoid foreclosure," Brown said. "The loophole that allowed this abusive practice to continue has now been closed, and homeowners should avoid any person charging up-front fees for foreclosure relief services."
Last week, Gov. Arnold Schwarzenegger signed into law Senate Bill 94, which immediately makes it unlawful for any licensed attorney or real estate agent "who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower … to claim, demand, charge, collect, or receive any compensation until after the [attorney or agent] has fully performed each and every service the licensee contracted to perform or represented that he, she, or it would perform."
Until now, licensed attorneys and real estate brokers could charge advance fees under certain limited circumstances. Foreclosure scam artists often sought to exploit this exception. The new law closes this loophole.
Brown has made it a top priority to protect homeowners and combat loan modification fraud in California. In August, threatening possible criminal and civil prosecution, he ordered 386 mortgage foreclosure consultants to register with his office and post $100,000 bond. Brown also ordered more than two dozen foreclosure assistance companies to substantiate suspect claims made on the Internet and in direct mail advertising.
This action followed a nationwide sweep in July that led to lawsuits against 21 individuals and 14 companies who ripped off thousands of homeowners seeking mortgage relief. In total, Brown has sought court orders to shut down more than 30 companies and has brought criminal charges and obtained lengthy prison sentences for dozens of deceptive loan modification consultants.
Loan modification consultants continue to exploit homeowners desperate for relief. This year, Brown's office has received more than 2,500 complaints against loan modification consultants and their businesses. This is a dramatic jump from 2008, when less than 200 complaints were filed.
As part of today's consumer alert, Brown offered the following tips to homeowners:
Don't pay up-front fees. Foreclosure consultants are prohibited by law from collecting money before services are performed.
Don't ignore letters from your lender or loan servicer. Responding to those letters is your best bet for saving your house.
Don't transfer title or sell your house to a "foreclosure rescuer." Beware! This is a scam to convince homeowners they can stay in the home as renters and buy their home back later. It might also be part of a fraudulent bankruptcy filing. Either way, a scammer can then evict the victim and take the home.
Don't pay your mortgage payments to anyone other than your lender or loan servicer. Mortgage consultants often keep the money for themselves.
Never sign any documents without reading them first. Many homeowners think that they are signing documents for a loan modification or for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict them.
If someone demands an upfront fee for foreclosure assistance services, you can report them to the Attorney General's office at 1-800-952-5225, or file a complaint online at: www.ag.ca.gov/consumers/general.php .
For more information on the Brown's action against loan modification fraud visit: http://ag.ca.gov/loanmod .
The text of Senate Bill 94 can be found at www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0051-0100/sb_94_bill_20091011_chaptered.html .
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These bills aim to strengthen California’s reverse mortgage laws by providing senior homeowners with greater consumer protections when considering reverse mortgage agreements, make it a felony to commit fraud in connection with a mortgage application and promote responsibility and accountability in the real estate market.
“Fraudulent mortgage practices have become more prevalent as a result of the national foreclosure crisis that negatively impacted California’s housing market and economy,” said Governor Arnold Schwarzenegger. “This legislation helps crack down on abusive lending practices by giving law enforcement the tools to effectively investigate mortgage fraud crimes and provides Californians with greater consumer protections to promote homeownership in a safe and accountable environment.”
The governor signed the following bills:
AB260 by Assemblymember Ted Lieu (D-Torrance) will enact the Higher-Priced Mortgage Loan Law which would codify a fiduciary duty for mortgage brokers, authorize California’s mortgage regulators to apply specified federal mortgage lending laws and regulations to their licensees and cap prepayment penalties and yield spread premiums on higher-priced loans.
SB 36 by Senator Ron Calderon (D-Montebello) to establish standardized licensing requirements for all individual loan originators who offer or negotiate residential mortgages.
SB 239 by Senator Fran Pavley (D-Santa Monica) to make it a felony to commit fraud in connection with a mortgage application. This bill makes individuals who engage in mortgage fraud guilty of a public offense punishable by imprisonment in the state prison or in a county jail up to one year. The bill also provides law enforcement with the necessary tools to make it easier to obtain a search warrant for real estate records and documents believed to contain evidence of mortgage fraud.
AB 329 by Assemblymember Mike Feuer (D-Los Angeles) to establish the Reverse Mortgage Elder Protection Act of 2009 to provide senior homeowners with greater consumer protections to ensure that they are fully informed about the consequences of entering into a reverse mortgage agreement. Specifically, the bill requires lenders to provide prospective borrowers with a clear and informative written disclosure statement and a written checklist pertaining to the risks and suitability of a reverse mortgage, prior to borrower attending loan counseling.
SB 237 by Senator Ron Calderon (D-Montebello) to create a registration program for appraisal management companies (AMCs) and prohibits any person or entity from acting in the capacity of an AMC without first obtaining a certificate for registration from the Office of Real Estate Appraisers.
AB 957 by Assemblymember Cathleen Galgiani (D-Livingston) to mandate that buyers of foreclosed homes would have the choice of using a local escrow office to handle the transaction. It also prohibits a seller of residential property from requiring the buyer to use an escrow service company or purchase title insurance chosen by the seller and would also prohibit a seller of residential property from, without good cause, disapproving the use of a title or escrow company chosen by the buyer.
AB 1160 by Assemblymember Paul Fong (D-Cupertino) to require mortgage loan documents to be translated into the language the verbal negotiations were conducted. Mortgage documents would be translated into Spanish, Chinese, Tagalong, Korean and Vietnamese languages.
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SB 2 extends, from 2011 to 2016, the Pierce's Disease Control Program within the California Department of Food and Agriculture, and expands the program’s research component to include designated new pests and diseases affecting grapes grown in the state.
The research is paid for by funds which the winegrape growers assess upon themselves.
The Wiggins bill calls for a referendum of the state’s winegrape growers in order to continue the industry assessment.
In the late 1990s, Pierce's Disease, which has been present in California for more than 100 years, threatened to cause sizable damage to grapes due to the arrival of the glassy-winged sharpshooter.
The glassy-winged sharpshooter carries the bacterium Xylella fastidiosa, which causes Pierce's Disease in grapes, almonds, oleander and citrus fruits. The insect feeds on a plant's water producing elements.
When a plant develops Pierce's Disease, its ability to draw in moisture is hindered and the plant will either die or become un-productive.
In response to this threat to the grape industry, the Legislature passed bills that led to the creation of an advisory task force on the Pierce's Disease issue in 1999.
In 2000, the Pierce's Disease Control Program was created as a partnership between the California Department of Food and Agriculture (CDFA), county agriculture commissioners, United States Department of Agriculture, University of California, local agencies, industry and agriculture organizations to combat the spread and find solutions for Pierce's Disease and the glassy-winged sharpshooter.
Wiggins, who chairs the Senate Select Committee on California’s Wine Industry, said the program has "proven to be a very successful effort to control the spread of Pierce's Disease and the Glassy-winged Sharpshooter. The disease and the threat of its spread still remain, making it vital that we continue this essential effort."
Assemblywoman Noreen Evans (D-Santa Rosa), who chairs the Assembly Select Committee on Wine, is principal co-author of SB 2, as is Assemblyman Wesley Chesbro (D-Eureka).
Evans said the Pierce’s Disease Control Program "has not only kept this pest under control, it has resulted in a sustained reduction of the sharpshooter population. It shows how government and business can work together effectively. This success was the best argument to keep the program going."
Supporters of SB 2, including the California Association of Winegrape Growers, Family Winemakers of California and the Wine Institute, state that the great inter-governmental and industry coordination through the Pierce's Disease Control Program has proven an excellent model for pest control programs.
By extending the research funding of the program to include other significant pests and diseases threatening California grape growers, they assert, California will be able to build on the success of the Pierce's Disease Control Program to combat other significant pests to grapes grown in the state.
SB 2 was also backed by, among others, the California Agricultural Commissioners and Sealers Association, California Farm Bureau Federation, Lodi District Grape Growers Association, Inc., Paso Robles Wine Country Alliance, and the Sonoma County Winegrape Commission.
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Small businesses and disabled veteran business enterprises make up 98 percent of all California enterprises, employ over half of our workforce and are projected to create 99 percent of the state’s future jobs.
A recent study commissioned by the Procurement Division of the Department of General Services found that these firms produce about 50 percent more overall California economic impact for each dollar spent than large enterprises.
“Small businesses are the backbone of California’s economy and will be the force that drives our economic recovery – and I am proud to sign legislation that expands their ability to create jobs,” said Schwarzenegger. “Making small businesses and disabled veteran businesses eligible for more of the state’s $10 billion in annual contracts and billions more in federal stimulus dollars will help drive California down the road to economic recovery and create jobs at a time when we need them the most.”
Specifically, AB 31 expands an existing streamlined contracting process called the SB/DVBE Option to enhance small business (SB) and disabled veteran business enterprise (DVBE) participation in state contracts.
Current law allows state departments to contract directly with these firms for goods and services contracts or purchases between $5,000 and $100,000 and up to $147,000 for public works contracts. AB 31 increases the allowable thresholds in both areas to $250,000.
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