PHILLIP M. ADLESON (Speaker/Author)

Mr. Adleson has been a real estate attorney since 1976 and is a licensed California real estate broker. He is the senior shareholder in the law firm of Adleson, Hess & Kelly, a Professional Corporation. He graduated with a Juris Doctor, Cum Laude, from University of Santa Clara School of Law, 1976. Mr. Adleson and his firm are rated “AV” (the highest rating available for both legal ability and ethics) by Martindale-Hubbell, Inc., the oldest and most respected attorney information publication in the country. He is listed in Northern California Super Lawyers magazine in the area of real estate, a designation conferred upon him by San Francisco magazine and by nomination of his peers.

Mr. Adleson is corporate counsel for both the California Mortgage Association (“CMA”) and for the United Trustee’s Association (“UTA”; a multi-state association for the default services industry). Mr. Adleson is a past President and Legislative Chairman for UTA’s predecessor, the California Trustees Association ("CTA") and currently he serves as a director of UTA. Mr. Adleson has represented numerous lenders, trustees, purchasers, sellers, title companies and others in trials, arbitrations, DRE licensee administrative hearings, appeals, amicus curiae briefs, class actions, unfair business practices action and in many other areas involving real estate, lending and foreclosure. Mr. Adleson is a past instructor of real estate and foreclosure classes at DeAnza Community College and San Jose State University and has taught numerous DRE and CLE approved continuing education classes throughout the world. He has also presented legal update programs for CMA, UTA, the National Business Institute, and bar associations and has been a speaker for CMBA, REOMAC, as well as for numerous other groups. Mr. Adleson is a former attorney for the California Court of Appeal and has testified before the judiciary committees of both the California Assembly and California Senate, in addition to drafting proposed legislation that has ultimately become law in California. He has frequently been called upon to testify as an expert witness throughout California.

GEORGE M. ECKERT (Speaker)

A graduate of The University of Scranton (1975) and Western State University College of Law (1981), Mr. Eckert has been a member of the California State Bar since 1982. He has been a Real Estate Broker since 1987 and previously worked in commercial finance for CIT Corporation and The Trust Company of New Jersey. Mr. Eckert is a partner in The Money Brokers, Inc. of Sacramento, CA, serving as General Counsel, Loan Servicing Manager and Loan Officer.

Mr. Eckert currently serves on the Board of Directors of the California Mortgage Association as Treasurer and Legislative Chair and is CMA's incoming president for 2008-2009.

CMA DISCLAIMER

This program and these materials are being presented by the California Mortgage Association (“CMA”). CMA promotes forums of open discussion of current events, legal issues and educational issues relating to mortgage lenders, real estate brokers, loan servicers and trustees under deeds of trust. CMA does not endorse the views and opinions expressed by any author, contributor, speaker or advertiser. CMA does, however, recognize the First Amendment right of every author, contributor, speaker and advertiser to express his or her views.

The views of any person expressed in these materials, or in the related program, do not necessarily represent those of the CMA, its directors, officers or members, nor are they to be construed, in whole or in part, as legal advice. For legal advice, please consult an attorney.

No portion of these materials or of the program may be reproduced in any fashion except with the prior written consent of the CMA, of the authors or contributors who prepared the materials, and of the speakers who presented the program.

I. Mortgage Loan Disclosure Statement

A. Who must give the Borrower a MLDS.

Every real estate broker (acting within the meaning of BP § 10131(d)),[1] who negotiates a loan to be secured directly or collaterally by a lien on real property. (B&P § 10240(a).) Technically, § 10240 applies where the broker did any act within § 10131(d). Those acts include may include “soliciting lenders”.

1. When must the MLDS be Given to the Borrower?

The MLDS shall be given by the broker within three business days after receipt of a completed written loan application or before the borrower becomes obligated on the note, whichever is earlier, (B&P § 10240(a).)

While compliance should not be too difficult where there is only one broker involved, it is unclear how to handle the situation where there are two or more brokers. Neither the Business and Professions Code nor the commissioner’s regulations answers the question of whether both brokers must give a MLDS to the borrower. (Bus. & Profs. Code § 10240 & 10241; Regs §§ 2840, 2842 [for non-traditional and subprime mortgages].)[2] This can be problematic when one broker solicits the borrower; packages the loan and circulates it to other brokers for obtaining lenders or funding. The broker obtaining funding may not even receive the loan package within 3 business days of the packaging broker receiving the loan application. Technical compliance could be achieved by the funding broker giving the MLDS within three business days after his/her receipt of a completed written loan application or before the borrower becomes obligated on the note, whichever is earlier. The question is: Whether the statute really requires such redundant MLDSs to be given?

2. What Type of Loans Require that a MLDS be Given to the Borrower?

A MLDS must be given to the borrower for all loans made or arranged by licensed real estate brokers except where the loan is a “federally regulated residential mortgage loan transaction” in which the principal loan amounts exceed the levels set forth in Business & Professions Code § 10245 ($30,000 or more for a first deed of trust; and $20,000 or more for a junior deed of trust) the broker satisfied the requirement to give an MLDS if the borrower receives:

· A good faith estimate (GFE) that satisfies the requirements of RESPA that set forth the broker’s real estate license number and a clear and concise statement on the facts of the document stating that the GFE does not constitute a loan commitment;

· All applicable Truth-in-Lending (“TILA”) disclosures; and,

· If the loan contains a balloon payment provision, the balloon payment disclosure set forth in Bus. & Prof. Code § 10241(h); or one required for that loan by Fannie May or FreddieMac; or an alternative disclosure determined by the Commissioner to satisfy the requirements of TILA.

While most of the provisions in Article 7 are limited to loans secured by a “dwelling”, § 10240 is excluded from this limitation. (Bus. & Prof. Code § 10240.1.) Therefore, the mortgage loan disclosure statement is required for all loans made or arranged by a licensed real estate broker.

B. MLDS must be approved by the DRE Commissioner.

The MLDS form must be approved by the DRE Commissioner and must confirm to certain statutory requirements. (B&P Code § 10241.)

1. Contents of MLDS.

Business and Professions Code § 10241 provides that the MLDS must set forth separately the following items:

“(a) The estimated maximum costs and expenses of making the loan, which are to be paid by the borrower, including but not limited to, the following:

(1) Appraisal fees.

(2) Escrow fees.

(3) Title charges.

(4) Notary fees.

(5) Recording fees.

(6) Credit investigation fees.

If a real estate licensee performs or is to perform any of the services for which costs and expenses are disclosed pursuant to this subdivision, the licensee shall be entitled to those costs and expenses in addition to the charges specified in subdivision (b).

(b) The total of the brokerage or commissions contracted for, or to be received by, the real estate broker for services performed as an agent in negotiating, procuring, or arranging the loan or the total of loan origination fees, points, bonuses, and other charges in lieu of interest to be received by the broker if he or she elects to act as a lender rather than agent in the transaction.

(c) Any liens against the real property, as disclosed by the borrower, the approximate amount thereof, and whether each lien will remain senior, or will be subordinate, to the lien that will secure the loan.

(d) The estimated amounts to be paid on the order of the borrower, as disclosed by the borrower, including, but not limited to:

(1) Fire insurance premiums.

(2) Amounts due on prior liens, including interest or other charges arising in connection with the payment, release, reconveyance, extinction, or other removal of record of the prior liens.

(3) Amounts due other creditors.

(4) Assumption, transfer, forwarding, and beneficiary statement fees.

(e) The estimated balance of the loan funds to be paid to the borrower after deducting the total of amounts disclosed pursuant to subdivisions (a), (b), and (d).

(f) The principal amount of the loan.

(g) The rate of interest.

(h) The term of the loan, the number of installments, the amount of each installment, and the approximate balance due at maturity, and the following notice in 10-point bold typeface:

"NOTICE TO BORROWER: IF YOU DO NOT HAVE THE FUNDS TO PAY THE BALLOON PAYMENT WHEN IT COMES DUE, YOU MAY HAVE TO OBTAIN A NEW LOAN AGAINST YOUR PROPERTY TO MAKE THE BALLOON PAYMENT. IN THAT CASE, YOU MAY AGAIN HAVE TO PAY COMMISSIONS, FEES, AND EXPENSES FOR THE ARRANGING OF THE NEW LOAN. IN ADDITION, IF YOU ARE UNABLE TO MAKE THE MONTHLY PAYMENTS OR THE BALLOON PAYMENT, YOU MAY LOSE THE PROPERTY AND ALL OF YOUR EQUITY THROUGH FORECLOSURE. KEEP THIS IN MIND IN DECIDING UPON THE AMOUNT AND TERMS OF THIS LOAN."

(i) A statement containing the name of the real estate broker negotiating the loan, his or her license number, and the address of his or her licensed place of business.

(j) If the broker anticipates that the loan to the borrower may be made wholly or in part from broker-controlled funds, a statement to that effect.

For purposes of this section, "broker-controlled funds" means funds owned by the broker, by a spouse, child, parent, grandparent, brother, sister, father-in-law, mother-in-law, brother-in-law, or sister-in-law of the broker, or by any entity in which the broker alone or together with any of the above relatives of the broker has an ownership interest of 10 percent or more.

(k) The terms of prepayment privileges and penalties, if any.

(l) A statement that the purchase of credit or credit disability insurance is not required as a condition for the making of the loan.

(m) If the loan is one that is within the limits specified in Section 10245, a certification by the real estate licensee negotiating the loan that the loan is being made in compliance with the provisions of this article.”

2. Do Servicing Fees Paid by the Lender Have to be Disclosed on the MLDS or otherwise?

While there is no precedent or guidance on this issue, nothing in the statutes or DRE regulations requiring disclosure on the MLDS of post-closing compensation (e.g., servicing fees) which are paid by someone other than the borrower (e.g., the lender).

As noted above the contents of the MLDS are set forth in Business and Professions Code § 10241. Section 10241 seems to apply only to “costs of making the loan paid by the borrower” and for broker commission or origination fees contracted for in “negotiating, procuring and arranging the loan.” While arguably, servicing fees paid after the close of escrow might fall into these categories, it appears to be reasonable not to disclose them on the MLDS. However, a broker’s thought process should not end with the sections regulating the MLDS as that disclosure sets a floor for broker duties, not a ceiling. Business and Professions Code § 10176(g) provides, in pertinent part:

“The commissioner may,. . .suspend or permanently revoke a real estate license at any time where the licensee, while a real estate licensee, in performing or attempting to perform any of the acts within the scope of this chapter has been guilty of any of the following:

(g) The claiming or taking by a licensee of any secret or undisclosed amount of compensation, commission or profit or the failure of a licensee to reveal to the employer of the licensee the full amount of the licensee's compensation, commission or profit under any agreement authorizing or employing the licensee to do any acts for which a license is required under this chapter for compensation or commission prior to or coincident with the signing of an agreement evidencing the meeting of the minds of the contracting parties, regardless of the form of the agreement, whether evidenced by documents in an escrow or by any other or different procedure.” (Emphasis Added).

While this section is not drafted with precision and some argue that it applies to broker made or arranged loans, it should be carefully reviewed by counsel with respect to fees paid to the broker by the lender for loan servicing. In most broker arranged private loan situations, the broker is acting as a dual agent: (1) to obtain a loan for the borrower; (2) to find a loan for the investor to invest in; and (3) post-closing servicing of the loan for the lender. These are really three separate, but related agency agreements each with a different principal. Clearly, the broker has to disclose to the borrower all fees and compensation received in making or arranging the loan, including anything paid by the lender (e.g., like yield spread premiums). However, servicing really is a separate employment agreement with the lender and all compensation received must be disclosed to the lender.

In a dual agency situation, the broker may engage in acts requiring a license and the loan servicing fee is “compensation” for providing licensed services. As such, in a dual agency situation or where the broker represents the borrower, out of an abundance of caution the broker may want to disclose the broker’s servicing fee paid by the lender. Although this disclosure may not have to be on the MLDS, there is no reason why that disclosure cannot be made on the MLDS.

3. Who Must Sign the MLDS?

The MLDS shall be personally signed by the borrower and by the real estate broker negotiating the loan or by a real estate licensee acting for the broker in negotiating the loan.

4. Delivery of MLDS to the Borrower.

“When so executed, an exact copy thereof shall be delivered to the borrower at the time of its execution.” (B&P § 10240(a).)

5. Record Retention.

“The real estate broker negotiating the loan shall retain on file for a period of three years a true and correct copy of the statement as signed by the borrower.” (B&P § 10240(a).)

6. Must a MLDS be Given When a Loan is Modified or Extended.

Since Business and Professions Code § 10240 addresses only where a licensee “negotiates a loan to be secured directly or collaterally by a lien on real property . . .”, it is doubtful that an MLDS is required for a simple extension of an existing loan. Nothing in SB 385 or the emergency Reg changes this.

Comment: Where the broker goes beyond extensions of existing loans and makes substantial modifications to the terms of the existing loan, thought should be given to giving a new MLDS as the modifications arguably could be tantamount to a refinance, particularly where substantial loan fees and costs are charged.

C. New (1/08) Commissioner Approved MLDS Forms

As a result of emergency regulations, there are three new (or revised) DRE approved MLDS forms available English and in a number of other languages (see Appendix B –D for 1/08 forms). These forms are:

The RE 882 – that may be used for all loans not requiring the use of the RE 885 form;

The RE 883 – this is a combined MLDS and Good Faith Estimate under RESPA and may be used for all loans not requiring the use of the RE 885 form];

The RE 885 – this is intended to be used for nontraditional mortgage loans as defined by SB 385 and by the emergency regulations. Currently, the regulations, but not the statutory authority include “subprime borrowers.”

MLDS forms and information can be obtained from the DRE website at http://www.dre.ca.gov/index.html.

D. New (7/08 or 8/08) Commissioner Approved MLDS Forms

Pursuant to comments made by CMA by letter and by testimony at the hearing to adopt the emergency regulations and forms as permanent regulations and forms, the DRE proposed modified forms. These modified forms should be adopted and posted on the DRE website in late July 2008 or early August 2008. Until these forms are officially adopted, licensees should continue to use the RE 882, RE 883 and RE 885 forms approved as of 1/08. (Appendix B-D).

The three proposed new (or revised) DRE approved MLDS forms will be available in English and in a number of other languages once approved. These forms will be:

The RE 882 – that may be used for all loans not requiring the use of the RE 885 form, (see Appendix B);

The RE 883 – this is a combined MLDS and Good Faith Estimate under RESPA and may be used for all loans not requiring the use of the RE 885 form], (see Appendix C);

The RE 885 – this is intended to be used for nontraditional mortgage loans as defined by SB 385 and by the emergency regulations. (See appendix). Currently, the regulations, but not the statutory authority include “subprime borrowers.”

Once final approval is received, these revised MLDS forms and information can be obtained from the DRE website at http://www.dre.ca.gov/index.html.

The revised (7/08) forms should resolve a number of concerns CMA had with the 1/08 forms which were issued pursuant to the emergency regulations. By letter dated April 16, 2008, the DRE proposed revised regulations and forms. A copy this letter which includes redlined changes to the emergency regulations and redlined modified versions of RE 882, RE 883 and RE 885 is attached as Appendix (F?) to these materials.

II. SB 385 (2006 Stats. 301)Statutory Authority: What Did it Do?

SB 385 was intended to apply the provisions of four related lending guidances created since 2006 to licensees regulated by the Department of Corporations (“DOC”) and by the Department of Real Estate (“DRE”).

A. What CMA Can and Did Do.

Once SB 385 passed, CMA is limited in proposing legislation to clean up any remaining ambiguities in the bill. CMA may propose clean up legislation next year but the current political environment makes it difficult to expect major substantive changes any time soon.

However, CMA’s efforts to encourage the DRE to clarify the ambiguities in their regulations and forms, particularly where the regulations went beyond the mandate of SB 385, were largely successful, assuming the redlined changes to the reg’s and forms set forth in Appendix F to these materials become final as expected later this month or next.

B. The Stealth Provisions.

One of the problems for licensees and attorneys alike is that the substantive terms of SB 385 are primarily set out in Section 1 of the bill which is what is referred to as an “uncodified” provisions. While SB 385 modified various code sections relating to licensed Real Estate Brokers (“REB”); to licensed California Finance Lenders (“CFL”) and to licensed Residential Mortgage Lenders (“RML”), the portion of SB 385 that defines the Guidances and defines what loans are covered remain in the uncodified provisions and can only be read in annotated codes or in the original chaptered bill.

C. The Guidances.

Section 1of SB 385 describes 4 Guidances, which the legislature declared “contain important risk management and consumer protection principles.” The Legislatures stated intention is to impose a “consistent application” of the Guidance “to state-regulated persons and institutions engaged in the brokering, originating, servicing, underwriting, and issuance of nontraditional and subprime mortgage products” to protect borrowers and lenders. (Section 1(d).)

The Legislature directed the DOC, DRE and the Department of Financial Institutions, to “take steps to ensure that state-licensed mortgage lenders and brokers are aware of the existence and content of the [Guidance] . . . as soon as possible and are encouraged to comply with those documents at the earliest possible date.” Pursuant to this directive the DOC and DRE issued emergency regulations. (Section 1(e).)

The guidance are:

(1) The Interagency Guidance on Nontraditional Mortgage Product Risks issued in September 2006 by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration. [“Nontraditional Mortgage Guidance”]

(2) The Statement on Subprime Mortgage Lending issued in June 2007 by the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of Thrift Supervision, and the National Credit Union Administration.

(3) The guidance on nontraditional mortgage product risks issued in November 2006 by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators. [“Subprime Mortgage Guidance”]

(4) The Statement on Subprime Mortgage Lending issued in July 2007 by the Conference of State Bank Supervisors, the American Association of Residential Mortgage Regulators, and the National Association of Consumer Credit Administrators.

D. What is a Covered Loan?

1. Products that Defer the Payment of Principal or Interest.

In Section 1(b) the Legislature stated that the Nontraditional Mortgage Guidance “covers all residential mortgage loan products that allow borrowers to defer repayment of principal or interest, including all interest-only products and negative amortization mortgages.”

2. Residential Mortgage Loan Products.

The term “residential” in “residential mortgage loan products” refers to a one-to-four unit single-family residence. There is no carve out for non-owner occupied 1-4 properties, bridge loans, construction loans or for non-consumer loans secured by a 1-4 residential property. However, because of this definition a loan on a vacant lot for residential construction may not be covered by SB 385. Clean up legislation may be needed to clarify this point for the timid.

3. ARM Products with the Potential for Payment Shock.

Section 1(c) applies the Subprime Mortgage Guidance “to adjustable-rate mortgage products that are typically offered to subprime borrowers and that have the potential for payment shock.”

E. What is Not a Covered Loan?

The Nontraditional Mortgage Guidance does not cover:

· Reverse mortgages

· Home equity lines of credit (HELOCs), other than simultaneous second-lien loans.

· While not expressly covered, by virtue of the definitions in Section 1 of SB 385, the following may not be covered:

o Fully amortized loans;

o Fully Indexed ARMs

o Partially amortized loans that are fixed rate (e.g., fixed rate, fixed payment loans amortized over 30 years but due in a shorter period of time e.g., 7 years).

o All commercial loans;

o Probably all loans secured by mixed use properties i.e., part commercial and part 1-4 residential; and,

o Loans for new construction of residential properties on vacant lots (as opposed to loans to remodel an existing 1-4 residential property).

F. Key Business Plan Decisions.

There are a number of key business plan decisions arising from SB 385.

§ Make loans that are not covered by SB 385 and, therefore, do not require compliance with (i.e., policies and procedures implementing) the Guidance;

§ Adopt a business plan avoiding being a § 10131.1(b)(1)(C) broker subject new reg. § 2844.

§ If your business plan includes covered loans, you must adopt policies and procedures to comply with the Guidance and use the RE 885 form.

§ If you are a § 10131.1(b)(1)(C) broker, you must adopt policies and procedures to comply with Reg. 2844 and, if the loan is a covered loan, adopt policies and procedures to comply with the Guidance and use the RE 885 form.

G. SB 385, Amended B&P Code § 10131.1 to add provisions requiring a real estate license for principals who make (as well as buy or sell) loans to the public (i.e., are viewed as being “in the business” even though acting as principals) .

1. Tradition Real Estate Loan Broker.

Most licensed brokers are brokers within the meaning of Business and Professions Code § 10131(d)&(e) which provides:

Section 10131 provides in pertinent part:

“A real estate broker within the meaning of this part is a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others:

(d) Solicits borrowers or lenders for or negotiates loans or collects payments or performs services for borrowers or lenders or note owners in connection with loans secured directly or collaterally by liens on real property or on a business opportunity.

(e) Sells or offers to sell, buys or offers to buy, or exchanges or offers to exchange a real property sales contract, or a promissory note secured directly or collaterally by a lien on real property or on a business opportunity, and performs services for the holders thereof.”

This definition does not include brokers who make loans as a principal although other sections of the Business & Professions, constitution and Civil Codes clearly contemplate covering loans “made or arranged” by real estate brokers. (B&P Code § 10240 et seq.; Cal. Const. Article XV and Civil Code § 1916.1)

2. New § 10131.1 Loan Broker (Making Loans as a Principal).

. Business & Professions Code § 10131.1 previously covered principals who bought, sold or exchanged[3] eight or more notes secured directly or collaterally real property in a calendar year, SB 385 amended that section to add a new category of broker, as follows:

“10131.1. (a) A real estate broker within the meaning of this part is also a person who engages as a principal in the business of making loans or buying from, selling to, or exchanging with the public, real property sales contracts or promissory notes secured directly or collaterally by liens on real property, or who makes agreements with the public for the collection of payments or for the performance of services in connection with real property sales contracts or promissory notes secured directly or collaterally by liens on real property.

(b) As used in this section:

(1) “In the business” means any of the following:

(A) [acquisition of loans for resale to the public].

(B) [sale to or exchange with the public.]

(C) The making of eight or more loans in a calendar year from the person’s own funds to the public when those loans are held or resold and are secured directly or collaterally by a lien on residential real property consisting of a single dwelling unit in a condominium or cooperative or on any parcel containing only residential buildings if the total number of units on the parcel is four or less. However, no transaction negotiated through a real estate broker who meets the criteria of subdivision (a) or (b) of Section 10232 shall be considered in determining whether a person is a real estate broker within the meaning of this section.

(3) “Own funds” means either of the following:

(A) Cash, corporate capital, or warehouse credit lines at commercial banks, savings banks, savings and loan associations, industrial loan companies, or other sources that are liability items on the person’s financial statements, whether secured or unsecured.

(B) Cash, corporate capital, or warehouse credit lines at commercial banks, savings banks, savings and loan associations, industrial loan companies, or other sources that are liability items on the financial statement of an affiliate of the person, whether secured or unsecured.

(4) “Own funds” does not include funds provided by a third party to fund a loan on condition that the third party will subsequently purchase or accept an assignment of the loan.”

The modification to Business and Professions Code § 10131.1 has created more confusion than any other provision of SB 385. There is some (off record) indication that the intention of this provision was to bring within DRE jurisdiction loans “made” by real estate brokers. Loans arranged by licensed real estate brokers is already clearly covered by Business & Professions Code § 10131(d).

Unfortunately, the express language of Business and Professions Code § 10131.1 is uncertain at best and, to a large extent, may belie this intention. First, the exception in the amended provision for Threshold brokers would render the amendments inapplicable to loans (even loans made by) a licensed “threshold broker”.

Making interpretation even more difficult, the statute retains the exemptions in § 10131.1(b)(1)(B) which states:

“However, no transaction negotiated through a real estate licensee shall be considered in determining whether a person is a real estate broker within the meaning of this section.”

By using the word “section” instead of “subparagraph” or “subsection”, it appears any loan negotiated through any licensed real estate broker would be exempt from the principal broker rules in § 10131.1. BECAUSE OF THESE UNCERTAINTIES IN THE LANGUAGE OF §10131.1, POLICIES REGARDING LOANS MADE DIRECTLY BY A BROKER USING THE BROKER’S OWN FUNDS SHOULD BE DEVELOPED ONLY AFTER SEEKING ADVICE OF YOUR OWN COUNSEL.

3. Implementation of New Provision.

It appears from information (non-binding) discussions with the DRE that they view a § 10131.1(b)(1)(C) broker as a new class of broker which is one making loans with the broker’s own money whether those loans are held or resold to the public. The DRE appears to view a § 10131.1(b)(1)(C) broker as distinct from a § 10131(d)&(e) broker. This is critical when reviewing the new emergency regulations. If you are defined as a § 10131.1(b)(1)(C) broker, you may want to change your business plan so avoid being classified as such. The elements of a new § 10131.1(b)(1)(C) broker:

· Making of eight or more loans in a calendar year. A calendar year is January 1 to December 31.

· From the Broker’s own funds to the public when those loans are held or resold. Almost all funds (cash, lines of credit etc.) from a broker or his affiliate will be included (see definition above)..

· No transaction “negotiated” through a threshold real estate broker (who meets the criteria of B&P Code § 10232 (a) or (b) shall be considered in determining whether a person is a § 10131.1(b)(1)(C) broker. As mentioned above, this is a substantially different than § 10131.1(b)(1)(B) (which deals with the sale or exchange or 8 or more notes to the public) which excludes any “transaction negotiated through a real estate licensee shall be considered in determining whether a person is a real estate broker within the meaning of this section.” If one interprets this latter section as only applying to sales or exchanges of existing notes (not any transaction within the section), then this may put a premium of being a threshold broker.

· The loans are secured directly or collaterally by a lien on residential real property (i.e., single dwelling unit in a condominium or cooperative or on any parcel containing only residential buildings if the total number of units on the parcel is four or less.)

o 1-4 residential definition appears to apply to all 1-4 residential properties whether owner-occupied or not.

o The word “only” appears to limit this qualification so it does not apply to mixed use (commercial and residential properties).

o A loan secured by a collateralized (pledge) note and deed of trust secured by a 1-4 residential real property will count towards the 8 or more

4. Consequences of Being a § 10131.1(b)(1)(C) broker.

The consequences of being a § 10131.1(b)(1)(C) broker are:

· The Broker is subject to all statutes and regulations relating to real estate licensees.

· The Broker is subject to the provisions of emergency regulation § 2844 relating to underwriting requirements (discussed later).

5. New Section 10240.3 Implementing the Guidance.

Section 10240.3 does three things:

· It directs the DRE Commissioner shall apply the guidance (1 and 3 discussed above) to real estate brokers acting within the meaning of Section 10131.1 or Section 10131(d). (§ 10240.3(a).)

· It authorized the Commissioner to adopt emergency and final regulations to clarify the application of this section as soon as possible. (§ 10240.3(b).)

· It requires a real estate broker acting within the meaning of §§ 10131.1 or10131(d) to adopt and adhere to policies and procedures that are reasonably intended to achieve the objectives set forth in the Guidance. (§ 10240.3(c).)

H. The Guidances

As to real estate brokers, SB 385 seeks to apply two guidances to real estate brokers:

· The guidance on nontraditional mortgage product risks published on November 14, 2006, by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators (herein “Nontraditional Mortgage Guidance”), and;

· The Statement on Subprime Mortgage Lending published on July 17, 2007, by the aforementioned entities and the National Association of Consumer Credit Administrators (“Subprime Mortgage Guidance”).

1. Nontraditional Mortgage Guidance.

The Nontraditional Mortgage Guidance (“NMG”) defines “nontraditional mortgages” as “products that allow borrowers to defer repayment of principal and, sometimes, interest.” These products “include such products as ‘interest only’ mortgages where a borrower pays no loan principal for the first few years of the loan and “payment option” adjustable-rate mortgages (ARMs) where a borrower has flexible payment options with the potential for negative amortization.” (NMG p. 2). The Guidance expressly excludes reverse mortgages, HELOCs (except for Simultaneous Second-Lien Loans) or “fully amortizing residential mortgage loan products.” (Id., at fn. 1). This raises the question of whether the Guidance was intended to include partially amortized loans (e.g., 30 due in 5).

The NMG discourages “Collateral-Dependent Loans” that “heighten the need for a borrower to rely on the sale or refinancing of the property once amortization begins.” This is a risk feature of a nontraditional mortgage and should not mean that all equity loans are prohibited, only those involving nontraditional mortgages. (NMG 4-5). Warning: pending Reg Z changes may substantially do away with 1-4 equity financing (This should be covered in CMA’s October 2008 seminar).

The NMG provides that where there is Risk Layering of multiple features of nontraditional mortgages, the “provider should demonstrate that mitigating factors support the underwriting decision and the borrower’s repayment capacity. Mitigating factors could include higher credit scores, lower LTV and DTI ratios, significant liquid assets, mortgage insurance and other credit enhancements.” Higher pricing of the product alone it does not replace sound underwriting.

The NMG suggests that “reduced documentation” loans should be used with caution. “As the level of credit risk increases, it is expected that a provider will more diligently verify and document a borrower’s income and debt reduction capacities. Clear policies should govern the use of reduced documentation.”

Caution: The DRE has been pursuing accusations against licensees who placed borrowers in “low doc” or “no doc” loans based upon existing laws and regulations and the fact that a broker is a fiduciary to the borrower.

2. Subprime Mortgage Guidance.

The “Statement on Subprime Mortgage Lending” (“Subprime Mortgage Guidance” or “SMG”) The SMG addresses “emerging risks associated with certain subprime mortgage products and lending practices. In particular, the Agencies are concerned about the growing use of adjustable rate mortgage (ARM) products' that provide low initial payments based on a fixed introductory rate that expires after a short period, and then adjusts to a variable rate plus a margin for the remaining term of the loan. These products could result in payment shock to the borrower.” (SMG p. 1).

The SMG defines “subprime borrowers” as generally those borrowers that “display a range of credit risk characteristics that may include one or more of the following:

· Two or more 30-day delinquencies in the last 12 months, or one or more 60-day delinquencies in the last 24 months;

· Judgment, foreclosure, repossession, or charge-off in the prior 24 months;

· Bankruptcy in the last 5 years ;

· Relatively high default probability as evidenced by, for example, a credit bureau risk score (FICO) of 660 or below (depending on the product/collateral), or other bureau or proprietary scores with an equivalent default probability likelihood; and/or

· Debt service-to-income ratio of 50% or greater, or otherwise limited ability to cover family living expenses after deducting total monthly debt-service requirements from monthly income.

The SMG states that this list is not meant to be exhaustive. (SMG p.3).

The SMG is “concerned that borrowers may not fully understand the risks and consequences of obtaining products that can cause payment shock.' In particular, . . .adjustable-rate mortgage (ARM) products typically" offered to subprime borrowers that have one or more of the following characteristics:

· Low initial payments based on a fixed introductory rate that expires after a short period and then adjusts to a variable index rate plus a margin for the remaining term of the loan',

· Very high or no limits on how much the payment amount or the interest ate may increase ("payment or rate caps") on reset dates;

· Limited or no documentation of borrowers' income;

· Product features likely to result in frequent refinancing to maintain an affordable monthly payment; and/or

· Substantial prepayment penalties and/or prepayment penalties that extend beyond the initial fixed interest rate period.

Products with one or more of these features present substantial risks to both consumers and providers.

The SMG appears to be limited to ARM’s that can subject the borrower to payment shock and which include one or more of the above characteristics. Therefore, nothing in the SMG appears to apply these factors or the SMG to fixed rate, fixed payment, amortized loans (i.e., whether fully or partially amortized) or to fully indexed ARMs.

The SMG states that subprime products are not “predatory”. The SMG states that: “[t]ypically, predatory lending involves at least one of the following elements:

· Making loans based predominantly on the foreclosure or liquidation value of a borrower's collateral rather than on the borrower's ability to repay the mortgage according to its terms [equity loans];

· Inducing a borrower to repeatedly refinance a loan in order to charge high points and fees each time the loan is refinanced ("loan flipping"); or,

· Engaging in fraud or deception to conceal the true nature of the mortgage loan obligation, or ancillary products, from an unsuspecting or unsophisticated borrower.”

(SMG p. 5.)

The SMG adopts similar underwriting standards as those set forth in the NTM Guidance. The SMG encourages “prudent workout agreements” as being in the best interest of both the lender and the borrower.

Should we spend any time at all discussing the emergency regs and forms or just get into the changes that are expected to become final any day now? They’re going to be confused as it is. “What we told you in April about the emergency regs and forms still applies for now, but once the amended regs and forms become final, later this month or next, the following applies…”

I. Emergency Regs Dated 1-14-08.

What we told you at the April CMA seminar about the emergency regs and forms still applies for now, but once the amended regs and forms become final, later this month or in early August 2008, the following applies

The emergency regulations modify or add 10 CCR §§ 2840, 2842 and 2844.

1. Section 2840.

Reg 2840 (1-14-08) authorized the DRE Commissioner to publish new RE-882 (MLDS) and RE-883 (MLDS/GFE) forms.

The regulation purports to be for the “purpose of aiding real estate licensees in providing the disclosure of material information to prospective borrower in a uniform and effective manner and to assist them in meeting some of the disclosure objective in Section 10240.3 of the Code.” (10 CCR § 2840(b).) The problem is that while the DRE pursuant to § 2840 has amended the RE 882 and RE 883 forms, the DRE website describes these forms for use with “traditional loans”. We assume that means for use with loans not covered by SB 385. (See, Appendix B for the emergency regulation forms (1/08) and Appendix F for the redlined modified regulations and forms that are expected to take effect in the next 4 to 6 weeks).

a. RE 882 MLDS

b. RE 883 MLDS/GFE (Traditional Mortgage Loans).

2. Section 2842.

Reg 2842 is entitled “Approved Borrower Disclosure Statement For Nontraditional and Subprime Mortgage Products” and authorizes a new form: RE 885 (Rev. 1/08). Section 2842 authorizes the Commissioner to publish and make available to interested persons as an official form of the Department of Real Estate (RE Form 885) Form RE 885 (Rev. 1/08) which is an alternative form MLDS allegedly for use with “nontraditional and subprime mortgage products.” Section 2842 states that the RE 885 “is for the purpose of aiding real estate licensees in providing the disclosure of material information in a uniform and effective manner to prospective home loan borrowers (1) whose loans involve a “nontraditional mortgage product” . . .,and/or (2) who are not able to qualify for prime loan products due to credit characteristics indicating a higher risk of default, in a uniform and effective manner.”

Section 2842(c) defines a "’nontraditional mortgage product’ is a loan that allows borrowers to defer repayment of principal or interest. Such products include, but are not limited to, interest only loans where a borrower pays no loan principal for a period of time and payment option loans where one or more of the payment options may result in negative amortization.” Again, reverse mortgages and HELOCS (other than simultaneous second lien loans) are excluded from the definition of “nontraditional mortgage products.”

Unfortunately, nowhere in the regulations are “subprime loans” or “prime loan products” defined in a way to give guidance to private money lenders.

A loan that its amortized over 30 years, such as a 30 due in 10, does not defer payment of principal and interest so as to fall within the definition of “nontraditional mortgage product.” Similarly, with a fully indexed adjustable rate loan. However, depending on the definition of “prime loan products” or “subprime loans”, it is arguable under 2842 of the emergency regulations that the RE 885 form would have to be used because the borrower is a “subprime” borrower. This does not appear to be what was intended by SB 385 and the regulations probably should be amended.

Comment: Based on CMA’s letter of comment to the DRE, arguments and the official hearing on the emergency regulations Reg 2842 currently stands, almost every loan made or arranged by a licensed broker may be covered because many, if not most, borrowers from licensed brokers are not borrowers who qualify for “prime loan products”. However, the amendments to Reg § 2842 which should take effect in late July or early August 2008, remove the reference to borrowers “who are not able to qualify for prime loan products due to credit characteristics indicating a higher risk of default” (i.e., subprime borrowers). This change will add clarity to when the RE 882 and RE 883 MLDS loans should be used (i.e., for traditional loans) and when the RE 885 should be used (i.e., for “nontraditional” loans.

3. New RE 885 for Nontraditional Mortgage Products (SB 385).

SB 385, the new DRE and DOC Regs, and the new RE 885 will be discussed in a separate section. The following is the DRE’s Summary, reprinted from its Fall 2007, Mortgage Loan Bulletin. (Emphasis Added).

New mortgage loan disclosure statement for nontraditional mortgage loans

In order to promote the full disclosure of loan terms to consumers applying for “nontraditional mortgage products” the DRE has adopted a new disclosure statement specifically for these types of mortgages. A nontraditional mortgage product is one that is secured by one to four residential units and allows borrowers to defer repayment of principal or interest, including all interest-only products and negative amortization mortgages. A nontraditional mortgage product does not include reverse mortgages or Home Equity Lines of Credit (HELOCs) other than simultaneous second-lien loans (piggybacks). The definition is based on Senate Bill 385 (Machado) and on the “Interagency Guidance on Nontraditional Mortgage Product Risks” issued by the Federal Reserve and member agencies and adopted by the Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR).

The new disclosure, “Mortgage Loan Disclosure Statement/Good Faith Estimate — Nontraditional Mortgage Product (One to Four Residential Units)” (RE 885), is required to be given to borrowers pursuant to Commissioner’s Regulation 2842. The disclosure provides specific details on the terms of these loan products in order to increase the consumer’s understanding of the risks involved when committing to a nontraditional loan. These risks were described in our article in the November/December 2005 issue of “Mortgage Matters” (California Association of Mortgage Brokers) and in the spring 2007 issue of this bulletin and the Real Estate Bulletin.

More than traditional ARMs, mortgage products such as Payment-Option ARMs and interest-only mortgages carry a significant risk of payment shock and negative amortization that may not be fully understood by the borrower without a full and complete explanation by his or her loan officer. It is incumbent on all licensees when offering these products to completely discuss the details of the loan and the comparison of sample mortgage features that is part of the disclosure form.

Part XV of RE 885 (page 3) is entitled, "Comparison of Sample Mortgage Features." The broker must make a good faith effort to provide current comparison information for each of the sample products. This section must be completed in its entirety. The use of "not applicable," "product not offered," or similar entries are not sufficient. "Instructional Guide for Nontraditional Loan Disclosure" is available for assistance in the completion of page 3.

The new disclosure form and instructional guide can be found on the DRE Web site at www.dre.ca.gov. RE 885 will also be available in Spanish, Tagalog, Chinese, Vietnamese and Korean. Questions regarding the form should be directed to the Mortgage Loan Activities Unit at (916) 227-0770.

J. Completing the Forms.

The revised forms (Exhibit F) not only clarify ambiguities in the (1/08) emergency Reg forms but will also have instructions to assist the licensee in using the forms. However, the revised RE 885 will still have the “loan comparison chart” as part of the form. Once the revised regs and forms become final, determining whether to use the RE 882 or RE 883 forms as opposed to the RE 885 form will be much easier. That is by removing the reference “subprime borrowers”, the RE 882 and RE 883 forms will be used for all traditional loans regardless of whether the borrower is a “subprime borrower.” The RE 885 loan will only have to be use for “nontraditional”.

Unfortunately, unlike the DOC regs, the DRE will still require that the comparative loan chart be completed whether or not the broker offers the type of loans listed on RE 885. However, the revised RE 885, when it become operative, will allow the broker to indicate in a checked box whether the loan listed in the comparison boxes “is” or “is not” offered by the broker completing the RE 885. This will lessen the risk of borrowers being confused that they may obtain one of the comparative loans from the broker giving the RE 885.

The informal opinion from the DRE is that where the loans are offered by the broker, the comparisons should be based on the terms of the actual loans offered by the broker unless such products are offered merely to evade the purposes of SB 385 and the regs (i.e., not a loan the broker really intends to make because the terms are unrealistic). Where the broker does not offer such products, the terms disclosed should be those offered by other lenders (not necessarily the best or worst loans, but loans representative of those offered in the market place.)

1. Section 2844.

10 CCR § 2844 sets forth “lending practices for nontraditional and subprime mortgage products" and provides:

“(a) A Section 10131.1 real estate broker shall adopt and adhere to the policies and procedures set forth in the Guidances (1 and 3) which are incorporated by reference into the regulation.”

Reg § 2844 (a), requires that a § 10331.1 broker shall, at a minimum, adopt and adhere to the following:

“(1) Risk Management Practices

(A) Consider a borrower’s ability to repay the mortgage loan according to its terms as the primary basis for making the loan rather than the foreclosure or liquidation value of the collateral.

(B) Ensure that a loan results in an identifiable benefit to the borrower and refrain from inducing a borrower to repeatedly refinance a loan in order to charge high points and fees each time the loan is refinanced.

(2) Underwriting Standards

(A) Analyze a borrower’s repayment capacity to include an evaluation of his/her ability to repay the loan by final maturity at the fully indexed rate, assuming a fully amortizing repayment schedule. For products that permit negative amortization, a repayment analysis should be based on the initial loan amount plus any balance increase that may accrue from the negative amortization.

(B) Avoid combining nontraditional loan features such as interest-only or negative amortization loans with reduced documentation or simultaneous second-lien loans (piggyback) unless there are mitigating factors such as high credit scores, low loan to value ratios (LTVs) and debt to income ratios (DTI), significant liquid assets, mortgage insurance or other credit enhancements.

(C) Accept stated income or reduced documentation only if there are mitigating factors that clearly minimize the need for direct verification of the borrower’s repayment. The mitigating factors shall be documented.

(D) When setting introductory rates on adjustable rate mortgages, consider the spread between the introductory rate and the fully indexed rate to minimize negative amortization, payment shock and earlier-than-scheduled recasting of monthly payments.

(E) When making loans to borrowers categorized as “subprime”, ensure that such programs do not feature terms that could become predatory or abusive as described in the “Statement on Subprime Mortgage Lending” under “Predatory Lending Considerations” and the “Guidance on Nontraditional Mortgage Product Risks” under “Lending to Subprime Borrowers”.

(F) Qualify borrowers financing non-owner occupied investment properties on their ability to service the debt over the life of the loan and require evidence that the borrower has sufficient cash reserves to service the loan considering the possibility of extended periods of property vacancy and the variability of debt service requirements associated with nontraditional mortgage loan products.

(G) Qualify a borrower’s repayment capacity by a debt-to-income (DTI) ratio that includes an assessment of the borrower’s total monthly housing-related payments (e.g. principal, interest, taxes and insurance) and total monthly obligations as a percentage of gross income.

(3) Control Systems

(A) Design compensation programs that avoid providing incentives for originations inconsistent with sound underwriting and consumer protection principles. Such programs should not result in the steering of consumers to products resulting in payment shock or containing prepayment penalties, balloon payments or a higher cost due to reduced documentation or stated income, to the exclusion of other products for which the consumer may qualify.

(B) Monitor the quality of third-party originations so that they reflect the broker’s lending standards and compliance with the Real Estate Law, Regulations of the Real Estate Commissioner and other applicable state and federal laws and regulations.

(4) Consumer Protection

(A) Approve loans based on the borrower’s ability to repay the loan according to its terms.

(B) Assist the consumer in selecting a product by providing information that enables the consumer to understand material terms, costs, and risks of loan products.

(C) When offering mortgage product descriptions and advertisements, provide clear, detailed information about the costs, terms, features, and risks of the loan to the borrower including:

Potential payment shock

Negative amortization

Prepayment penalties

Balloon payments

Cost of reduced documentation loans

Responsibility for taxes and insurance

(D) Provide monthly statements to consumers who have Payment Option adjustable rate mortgages (ARMs) which include information that enables consumers to make informed payment choices, and which include an explanation of each payment option available and the impact of that choice on loan balances.

(E) Avoid leading borrowers who have Payment Option ARMs to select a non-amortizing or negatively amortizing payment.”

K. SB 385 and Regs from DOC for CFLs

The Department of Corporations (“DOC”) enacted 10 CCR §1436 which was effective January 1, 2008.

Section 1436 adopts both the Nontraditional Mortgage Guidance and the Subprime Mortgage Guidance (discussed above) and incorporates them by reference. In addition, § 1436 now requires an Addendum to the CFL licensee’s annual report which must be completed and returned to the DOC by March 15, 2008. This addendum is intended to report on Non-traditional, Adjustable Rate and Mortgage Loan Products and new DOC 10 CCR §1436.

1. All CFLs Must Implement Best Practices under Guidance.

All CFLs must implement best practices under guidance “to manage loan product risk on a continuous basis” (10 CCR § 1436(a).) The best practices shall include the practices set forth in the Guidance which are incorporated into § 1436 by reference.

2. Compliance Report, New Addendum and Survey for Non-Traditional Mortgages.

The new addendum to the annual report and the new Non-traditional, Adjustable Rate and Mortgage Loan Survey must be completed and returned with the CFL licensee’s annual report required by Financial Code § 22159The report and survey are due on or before March 15, 2008. (10 CCR § 1436(b).)

The annual report must be filed by every licensee even if no business was conducted under its CFL license in 2007. Copies of the notice and addendum can be obtained from the DOC website at: http://www.corp.ca.gov/.

In addition, the CFL must attach a “separate written document” as an addendum to the annual report stating:

• Whether it made or arranged (during the reporting period) nontraditional mortgage products and adjustable rate mortgage products as defined in the Guidance;

• If such loans were made, “explain how it has implemented best practices;

• Explain “whether and how it has put into effect the following internal controls or procedures during the reporting period: adopted processes, policies and procedures to ensure compliance with the Guidance; designated a compliance officer (including contact information of that officer) to ensure compliance with the Guidance; implemented a consumer complaint process to resolve consumer complaints involving loans covered by the Guidance; and educated employees and agents to help them understand how to apply the best practices.”

• “In addition, the finance company shall indicate the number of any consumer complaints it received during the reporting period regarding loans that are subject to the Guidance, including the number of resolved complaints and unresolved complaints and the number of workout arrangements used for resolved complaints.” The regulation defines “workout arrangement is a rather non-traditional fashion . That is, § 1436(b) states, “’workout arrangement’ shall mean a modified or converted loan product with predictable payment requirements to help the financially-stressed borrower.”

3. Books and Records.

For each consumer complaint under § 1436(b), the CFL must maintain and make available to the Commissioner “a copy of the complaint and the finance company’s written response or explanation of how the company resolved the complaint including any workout arrangement.” (10 CCR § 1436(c).)

4. CFL Loan Disclosure to Borrower.

Section 1436(d) requires a CFL, “within three business days after receipt of a completed application for a nontraditional loan or an adjustable rate loan that is subject to the Guidance, or before the borrower becomes obligated on the note, whichever is earlier, cause to be delivered to the borrower statements in writing disclosing, in a clear and conspicuous manner, information comparing payment scenarios and loan balance scenarios among any nontraditional loan and adjustable rate loan products offered by the finance company and that are subject to the Guidance.”

5. Advertising Prohibitions.

10 CCR § 1436(e) establishes advertising prohibitions as follows:

“For purposes of Section 22161 of the Financial Code, the following are considered false, misleading, or deceptive advertising prohibited by that section for loans that are subject to the Guidance:

(1) Any advertisement of an installment in repayment of an adjustable rate, interest only or payment-option loan without an equally prominent disclosure of the following information about the loan as applicable:

(A) Principal amount

(B) Term of loan

(D) Number of months the initial interest rate will be in effect

(E) Fully-indexed interest rate

(F) Maximum interest rate

(G) If different, an explanation of the difference between the payment rate, initial interest rate and fully-indexed rate

(H) Annual percentage rate

(I) How often the interest rate and payments can change

(J) Maximum periodic change in the interest rate and payments (periodic caps)

(K) Number of months and percentage of original loan amount after which minimum payments will not be accepted and the loan re-amortizes

(L) The monthly payment based on the maximum interest rate, and the loan balance after all negative amortization is included, assuming minimum payments are made

(M) If the loan contains a prepayment penalty, a statement to that effect

(N) If the loan contains a balloon payment, a statement to that effect Document PRO 01/07 - Order 4

(2) Any advertisement that the licensee can arrange “low doc/no doc”, “no income/no asset”, “stated income”, “stated asset”, “no ratio” or similar loan products without a statement that these products may have a higher interest rate, more points or more fees than other products requiring documentation.”

The regulation states that the advertising prohibitions apply “to loans secured by residential real property” located in California “improved by a one-to-four family dwelling” but “not apply to a commercial loan.” (10 CCR § 1436(f).) There appears to be some ambiguity as the regulation on the one hand refers to a type of loan (“commercial loan”) and on the other hand refers to loans secured by 1-4 residential properties. What if the commercial loan is secured by a 1-4 residential property?

L. HELOCS

Under SB 385 (unpublished Section 1(b)) HELOC’s (other than “simultaneous second-lien loans” (“piggy-backs)) are expressly excluded from the definition of “nontraditional mortgage product”. Such loans should be excluded from the emergency regulations and not treated as a “nontraditional mortgage”.

[1] Business and Professions Code § 10131(d) provides that:

“A real estate broker within the meaning of this part is a person who, for a compensation or in expectation of a compensation, regardless of the form or time of payment, does or negotiates to do one or more of the following acts for another or others:

[2] While we have included a reference, we believe that the DRE is considering CMA’s suggested changes to eliminate the language in emergency Reg § 2842(b) suggesting that it covers loans to “subprime borrowers”.

[3] Bus. & Prof. Code § 10131.1(b)(1)(A)limits notes secured by real property for resale to the public and not for investment. Bus. & Prof. Code § 10131.1(b)(1)(B) excludes from the number sold or exchanged by a principal for the purpose of § 10131.1, notes sold through a licensed real estate broker.

Courtesy - Adleson, Hess & Kelly, a PC

Wednesday, 9 September 2009

California Mortgage