Short sales in CA - Warning to Realtors about the new foreclosure consultant law

Only July 1, 2009 California is going to require foreclosure consultants to have a surety bond of 100,000 dollars. It also states a foreclosure consultant can not take a power of attorney from the homeowner for any purpose.

Note: an Authorization to Release Information is a Power of Attorney. It is even called a Power of Attorney by some "loss mitigators" on the east coast.

This is my legal opinion - once the NOD is filed – a non attorney will no longer be able to represent borrowers in short sales or Loan Modifications – unless they can find a way to do so with a signed authorization. DRE license holders are going to have to get attorneys to do their negotiating.

There are many other requirements being added to California Mortgage foreclosure consultant law see assembly bill 180. ---

The question becomes who is a foreclosure consultant.

Question 29 on "CARs foreclosure- scams" letter points out that the a short sale consultant is someone who counsels and helps a homeowner sell a property by negotiating with the homeowners lender about a short payoff. If the short sale involves a residence in foreclosure and the short sale consultant offers to stop or postpone the foreclosure sale for compensation (Realtors do get paid) the foreclosure consultant law applies.

CAR does say the foreclosure consultant law can apply to short sale consultants. CAR states there may be an exemption to the Foreclosure consultant law when Realtors engage in typical real estate activities such as taking a listing, marketing the property and representing the seller in a subsequent sale.

Note how carefully CAR crafts their advice on exemptions. If a Realtor is acting as a typical Realtor CAR suspects they are exempt from the foreclosure consultant law. However, taking a power of attorney and negotiating short payoffs with lenders is obviously not a typical Realtor activity.

Nothing about a Realtors license allows them to represent owners and draft and review documents which alter a borrower’s or sellers legal rights. Realtors are not even allowed to cross out words on CAR form contracts. Any way you slice it taking power of attorney is not a typical Realtor activity.

It is pretty clear to me that the minute a Realtor has seller sign and limited power of attorney or the Authorization to Release info - they are no longer working within CAR's stated exemption. Therefore, in my opinion unless some other exemption can be found: As of July 1, 2009 Realtors will be in violation of the Mortgage foreclosure consultant law if they attempt to take an authorization from the homeowner and negotiate a short pay with the lender. (once a Notice of Default is filed on a residence)

If you can think of some exemptions let me know. I will discuss how this law effects loan modification soon. note - Loan modification company may not take up front fees after a Notice of Default is filed on a residence - whether they have a “no opinion letter” from the California Department of Real Estate or not

If you read this post and think it may be a little self serving. You are right. I am a lawyer and a Real Estate broker. That is why I am so sensitive to this issue. Lawyers should be doing the legal work and Realtors should be doing what they are licensed to do... market and sell real estate.