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(Reprinted with permission from REOMAC, the official publication of the Association of REO Managers of California)
Mark Twain said it best when he quipped: "No mans life, liberty, or pocketbook are safe while the legislature is in session". Last year California endured considerable social and physical upheaval, and the legislature reacted in typical fashion by making it more expensive and adding additional burdens to conducting business as usual in California. The following summarizes only a few of the important new laws that will affect REO managers and mortgage bankers this coming year.
One of the biggest changes was Chapter 994, the Residential Mortgage Lending Act. The act creates a new license and regulatory scheme for residential mortgage lenders, covering every aspect of mortgage banking in California. One of the benefits to a residential mortgage lending license is that a corporation may act as the licensee, eliminating the need to license each loan agent or branch office. Although a California broker's license will still be needed to broker loans, they can be funneled to a licensee within the company. Loan servicers are also required to be licensed. This law is designed to ease the complexities of licensure and regulation previously controlled by the Department of Real Estate.
Civil Section 2954.7 permits a borrower to cancel mortgage guarantee insurance provided that the principal unpaid balance does not exceed 75% of the original sale price of the property or 75% of the current fair market value as appraised. As amended, the current fair market value of the property must be equal to or greater than the original appraised value. The borrower must be current on payments and must not have been more than 30 days in default at any one time during the past 24 months. Note that these changes only apply to loans executed on or after March 1, 1995. For loans executed prior to that date, the cancellation may occur only if the unpaid balance on the loan does not exceed 75% of either the sale price of the property at the time of origination or the current fair market appraised value.
Civil Code Section 2079 and 2079.3 requires a licensed real estate broker, and now salespersons, to make a diligent and competent visual inspection of the property offered for sale and to disclose to a prospective purchaser all facts materially affecting the value or desirability of the property. However, this does not include inspection of areas normally inaccessible and now excludes any requirement to inspect off-sight areas or matters of public record (liens, permits concerning title or use of the property). Brokers and salespersons are also required to comply with regulations imposing standards of professional conduct adopted pursuant to the Business and Professions Code. The major change here is that the standards of professional conduct which provide grounds for suspension or revocation of a license now become legal obligations.
Chapter 500 authorizes the Department of Real Estate to levy a fine upon licensees for employing or compensating unlicensed persons to solicit borrowers or lenders or negotiate loans secured by real property. This applies to subdivisions as well. The statue was designed to, hopefully, put an end to the practice of fee spliting between unlicensed and licensed persons and to the practice of paying finder's fees to unlicensed persons.
Civil Code Section 1689.14 was added to the Civil Code. It provides that any home solicitation contract or offer for the repair or restoration of residential premises damaged by a disaster that is signed within 7 business days of the disaster, is void unless the contract is solicited by the buyer, his agent, or insurance representative. Section 1689.6 gives the buyer the right to cancel a home solicitation contract within 7 business days after execution.
Chapter 658 affects condominium earthquake insurance and provides that every policy of residential property insurance or policy endorsement covering an individually owned condominium unit for loss or damage shall disclose, in the declarations, if there is no coverage for loss assessment or if it limits or changes loss assessment coverage in the policy issued to the association. The Insurance Commissioner will, by subsequent regulation, specify the language that is required for any disclosure mandated by this new statute.
The foreclosure statute, Civil Code 2924(g) was amended to require a new notice of sale after more than three postponements. Mortgagees are advised to check their records before proceeding with unlawful detainer proceedings until they have confirmed that the foreclosure has been properly conducted.
Civil Codes 2941 and 2943 dealing with reconveyance of mortgages were amended. Now optically imaged reproduced documents may be sent to the trustee in lieu of the original documents. The trustee may execute the reconveyance using optically reproduced documents in lieu of the original, provided that the optical storage media is of a specified type.
One of the more perplexing changes was the addition of Code of Civil Procedure, 715.050 dealing with unlawful detainer writs. Previously, marshals would only enforce the writ of possession on an address, regardless of the number of individuals at the address. If one of the individuals filed for bankruptcy, the writ would not be enforced. The new statute requires enforcement of the writ of possession regardless of whether there has been notice that a party has filed for bankruptcy. Unfortunately, with respect to the debtor/defendant this law runs afoul of the Bankruptcy Code, and Los Angeles County marshals are refusing to comply with it. However, because the bankruptcy code does not apply to non-debtors, there is no reason why law enforcement should not effectuate a partial eviction. Look for further legislative activity with regard to this persistent legal ploy.
In a move that makes service of process easier, C.C.P. 415.21 was added to permit service of process in gated communities. The law requires that a gate guard give access to a process server for the purpose of performing service of process in the community. The law does not authorize the guard to accept the service, although some communities prefer such a procedure. The standing policy and authorization of the community should be obtained if service is effectuated on the guard.
In sum, the legislature appeared to be moderately effective when it came to regulatory, licensing and other consumer acts, but still was unable to effectively enact legislation on other significant issues, such as directing that earthquake insurance be more available and less expensive. But now that the political constituency of the legislature has changed, Californians may not have to wait very long to see the forthcoming solutions. One thing is for certain--in the end it will cost us more.
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The Wolf Firm, A Law Corporation, is an "AV" rated law firm which concentrates on providing superior legal services to the mortgage banking industry. The firm's national clientele includes many of the largest mortgage bankers in the country, as well as a variety of savings banks, commercial banks, commercial finance companies, credit unions, and the Resolution Trust Corporation. With a staff of approximately forty individuals, including attorneys, certified paralegals, legal secretaries, administrators, clerical personnel, and a full time computer systems analyst, the firm represents its clients on a wide range of matters including all aspects of both residential and commercial/multifamily mortgage loan origination and servicing, securitization, regulatory compliance, bankruptcy, and litigation related to the foregoing in both federal and state courts throughout California. For more routine matters, such as residential bankruptcies, evictions and receiverships, The Wolf Firm has developed extremely cost-effective and efficient programs using specially trained paralegals and computer technology to assist its attorneys in handling these matters at rates that are the most competitive in the State of California and, through its membership in the USFN, the Firm is able to arrange similar services in virtually every state in the nation.
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