Loan Modifications Licensing Requirements in California and the New DRE Advance Fee Agreement
The California Association of Mortgage Brokers (CAMB) has received many requests for information related to loan modification services in the state of California. In response to these queries, CAMB Chapters have held several instructive seminars where representatives from the California Department of Real Estate (DRE), real estate attorneys, and operating loan modification specialists have appeared. Additional events are scheduled across the state in the coming weeks, and a CAMB webcast on the subject is planned.
If you have not yet attended one of the CAMB seminars, the following will provide a brief overview of the information CAMB has accumulated concerning loan modifications.
As provided by the California Department of Real Estate:
- A California Real Estate License is required to provide loan modification services. One cannot provide modification services under a Residential Mortgage Lender (RFL) or California Finance Lender (CFL) license*.
- If a DRE licensed originator chooses to provide modification services, they need no other authorization as long as they 1) provide the service for free or 2) they do not collect any fee until all services have been completed (no advance fees).
- If a DRE licensed originator chooses to collect an advance fee, they must maintain a compliant trust account to house said fees and have their client sign an advance fee agreement that has been reviewed by the DRE and issued a letter of “no objection.” (A current list of Brokers who have received a “no objection” response can be found at http://www.dre.ca.gov/mlb_adv_fees_list.html.)
The DRE will allow a broker or their attorney to draft a custom loan modification advance fee agreement or brokers are invited to use the pro forma template provided by the DRE (click here for the document). Whichever agreement they choose (either the custom or the template) must then be submitted to the DRE for individual broker approval. Once approved, advance fees may be collected.
Warning: If a broker chooses to draft their own agreement, or alter the template, it will need to go through an extensive and time-consuming review performed by a limited number of persons. If time is of the essence, the DRE template is the vehicle of choice.
*Note: A limited exception to the DRE license requirement is carved out for attorneys who provide these services during the normal course of their practice while providing representation for clients. The DRE warns that sham relationships where a modification provider and attorney work together simply to circumvent the above licensing requirements will be considered a violation of the Real Estate Law.
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If you would like more information about this issue or about CAMB’s government affairs efforts, please contact the CAMB Government Affairs team at (916) 448-8236 .