Civil Code Section 2945

Whenever the real estate market crashes, a huge number of people emerge who claim to be able to help property owners avoid foreclosure. Unlike lawyers, accountants or brokers, mortgage foreclosure consultants are not licensed by the State of California. They have no educational or other requirements. To be blunt about it, anyone who claims that he or she is a mortgage foreclosure consultant is; there are no legal restraints upon making such a claim.

Perhaps not surprisingly, given this total lack of licensing or credentialing, many people have had bad experiences with unqualified and/or dishonest individuals claiming to be mortgage foreclosure consultants. A few business cycles ago, in 1979, the Legislature responded by passing the “Mortgage Foreclosure Consultants Act” which is set out in Civil Code Section 2945.

In passing the law, the Legislature stated that it was concerned that homeowners in foreclosure had been subject to fraud, deception and harassment by mortgage foreclosure consultants. The lawmakers found that such consultants often charged high fees, which were secured against the house. The consultants then did nothing, the lawmakers said, except lull the homeowner into doing nothing. The consultants then often wound up owning the house which they were allegedly hired to save. The law was passed, the Legislature said, to insure that agreements with mortgage foreclosure consultants were in writing, to safeguard the public against deceit and hardship, and to encourage fair dealing.

Whom does the “Mortgage Foreclosure Consultants Act” cover?

The law only applies to “mortgage foreclosure consultants.” The law has a long and complicated definition of this term, which is set out in Civil Code Section 2945.1(a). The basic idea, however, is fairly simple. A “mortgage foreclosure consultant” is pretty much anyone who says that he or she can help with any aspect of the foreclosure process, but the definition excludes virtually all licensed professionals such as attorneys, accountants or brokers. Also excluded from the definition are banks, insurance companies, title companies and similar institutions.

Those needing a complete list of the professionals and institutions who are excluded from this definition can find it in Civil Code Section 2945.1(b). Please note, however, that while many types of professionals are listed, the only type of professional who has a total exemption from the law is attorneys. Every other type of professional, such as accountants and brokers, have only limited exemptions from the law. Most of them are exempt from the law, only while acting within the proper scope of their professional license

Restrictions upon contracts with mortgage foreclosure consultants

Mortgage foreclosure consultants are required by law to have written contracts with their clients. These contracts must “fully disclose the exact nature of the foreclosure consultant’s services and the total amount and terms of compensation.” Civil Code Section 2945.3. The contract must be in the same language as the mortgage foreclosure consultant used with his or her client; if they speak in Spanish or Tagalong, the written contract must be in Spanish or Tagalong. The contract must also include some very specific disclosures, set out by the statute.

The client has the right to rescind the contract for up until midnight of the third business day after the contract is signed. “Business day” means week-days, excluding bank holidays. And the right of recission is three days after a contract is signed, which complies with the law. If there is no contract signed, or it does not comply with the law, the client can rescind the contract at any time.

Restrictions upon actions by mortgage foreclosure consultants

Civil Code Section 2945.4 sets out a long list of things which it is illegal for a mortgage foreclosure consultant to do. The first, and perhaps most serious restriction, is that a mortgage foreclosure consultant cannot receive any payment, of any type, until after he or she has performed the service for which the fee is payment. He or she cannot ask for a retainer, or be paid up front.

Second, there are a long list of restrictions on the financial relations between mortgage foreclosure consultant and client.

- If the consultant makes any loans to the client, all fees, charges or interest cannot exceed 10% a year.
- The consultant cannot be given any type of lien or security in the client’s wages or property.
- A third party cannot pay the consultant, unless this is fully disclosed to the client.
- The consultant cannot take any interest in the home, which is in danger of foreclosure.

And, says Civil Code Section 2945.5, none of these protections can be waived.

Civil and criminal liability for breaking the Mortgage Foreclosure Consultants Act

Violations of the Mortgage Foreclosure Consultants Act are punishable under both civil and criminal law. Under Civil Code Section 2945.6, a homeowner may sue a consultant for any violations of the act. He or she may recover any actual damages, attorney fees and, in appropriate cases, treble damages. Civil actions must be brought within four years of the violation. Under Civil Code Section 2945.7, any violations of the act are crimes, punishable with a fine of not more than $10,000 and not more than one year in prison, for each violation.