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CH 16 California Mortgage Loans
Terms in this set (23)
In the State of California, licensed real estate brokers and salespersons often act as
loan brokers for prospective buyers.
The Mortgage Broker Law has been set forth under the California Business and Professions Code to regulate this activity.
In California, a licensed salesperson or broker may assist the buyer
in filling out the loan application for a financial institution OR arrange for financing for the buyer.
Such financing is usually in the form of a trust deed.
Keep in mind that a licensee who is acting as a loan broker by buying, selling, or exchanging loans DOES HAVE certain restrictions placed on him by the law.
The "Mortgage Loan Broker Law,"(also known as the Real Property Loan Law),
is found under the California Business and Professions Code, Article 7, Sections 10240-10248.
The Mortgage Loan Broker Law requires all loan brokers to give all borrowers the Mortgage Disclosure Statement BEFORE the borrower becomes obligated for the loan.
The Mortgage Disclosure Statement is a form that clearly and completely states ALL the information and charges associated with a particular loan.
The Mortgage Loan Broker (Real Estate Salesperson or Broker) in this situation must:
Present this statement to the prospective borrower within 3 days of receipt of a completed written loan application OR before the borrower is obligated to take the loan, whichever is earlier.
Have the borrower sign the statement before the borrower becomes obligated to complete the loan.
Keep this form on file for 3 years.
Senate Bill 36 designed to bring California into compliance with the federal Secure and Fair Enforcement Mortgage License Act (SAFE Act) of the Housing and Economic Recovery Act of 2008 (Public Law 110-289) became effective on January 1, 2010.
By January 31, 2010, or within 30 days of commencing the activity whichever is later, all licensees must report to the Bureau of Real Estate if they make, arrange or service loans secured by real property.
This requirement applies to both residential and commercial businesses. The report must be completed online using Form RE 866- Mortgage Loan Activity Notification. Future business activity reporting will also be required.
Penalty fees can apply for failure to submit this required notification.
Penalties are fifty dollars ($50) per day for the first 30 days the report is not filed and one hundred dollars ($100) per day for every day thereafter not to exceed a maximum of $10,000.
Remember that anyone who negotiates real estate loans MUST BE A REAL ESTATE LICENSEE. In addition to this regulation, anyone who makes COLLECTIONS on real estate loans, if that person makes more than 10 collections per year OR collects more than $40,000.00, he or she must be
licensed as a California real estate BROKER.
Under Article 7, brokers who negotiate trust deed loans have specific limitations regarding
commissions and expenses.
The maximum commissions for loans subject to Article 7 are:
For first loans:
5 percent of the principal of a loan of less than 3 years;
10 percent of the principal of a loan of 3 years or more;
For second or other junior loans:
5 percent of the principal of a loan of less than 2 years;
10 percent of the principal of a loan of at least 2 years but less than 3 years;
15 percent of the principal of a loan of 3 years or more.
Any costs and expenses of making a loan must meet the requirements set forth in
The charges made to a borrower cannot exceed
5% of the loan or $390.00, whichever is greater, to a maximum of $700.00.
Such charges include appraisal fees, escrow fees, notary and credit investigation fees, but EXCLUDE actual title charges and recording fees.
Under Regulation 2843, the amount charged cannot exceed the
actual costs and expenses paid, whether these are incurred or "reasonably earned."
In addition, no charge can exceed the amount customarily charged for the same or comparable service in the community in which the services take place.
some additional regulations set forth under Article 7:
On "hard money loans" (cash) of $30,000.00 and over for first trust deed loans, and $20,000.00 and over for JUNIOR deeds of trust, the broker MAY CHARGE as much commission as the borrower will agree to pay. *
The regulations also require that the broker provides to BOTH the buyer and seller, on first trust deed loans UNDER $30,000.00, and on junior trust deed loans UNDER $20,000.00, copies of the appraisal report.
Loans on owner-occupied homes that are negotiated by a broker for a term of 6 or more years may not have a balloon payment. In any situation that involves a balloon payment, the SELLER is required to notify the BUYER between 60 and 150 days BEFORE the payment is due.
If the home is NOT occupied by the owner, then the loans are exempt from balloon payments, IF the loan term is less than 3 years.
Threshold Reporting is the requirement to report annual and quarterly loan activities (review of trust fund) to the California BRE, IF, within the past 12 months, a broker has negotiated any combination of 10 or more loans to a subdivision OR a total of more than $1,000,000.00 in loans. Regulations for "big lending," as this is known, include the requirement that advertising must be reviewed by the CalBRE. The intent of the threshold reporting regulations is to protect the public by overseeing the loan activity of these "big lenders," who are using their real estate licenses to take on such activities.
Note that usury laws have been passed to establish the maximum rate of interest that may be charged on specific types of loans. In CALIFORNIA , this maximum rate is 10%, or 5% over the Fed discount rate, whichever is greater. However, as noted above, there ARE cases in which the lender is exempt from this law.
Under Article 5,
licensees are prohibited from pooling funds. This means that a broker must NOT accept funds UNLESS the funds are meant, and so noted, to be for a specific loan transaction. Before a broker can accept the lender's money, he must first OWN the loan OR have an unconditional written contract to buy a specific note; AND the broker must also have the authorization from the prospective borrower, giving him permission to negotiate a secured loan for the borrower.
Under Article 6,
regulations are set forth for a real property securities dealer. A CalBRE broker license and the following endorsement are required. In California, anyone who wishes to sell real estate investment type security must FIRST obtain a Commissioner's Permit. This permit is the approval of the proposed real property security and plan of distribution, and will be granted if the Commissioner finds that the security and plan of distribution are fair. The permit is not a recommendation, but merely the Commissioner's authorization of the sale. The Commissioner's Permit is valid for one year, and it may NOT be used in advertising unless the permit is shown in FULL. The cost of the permit is $100.00. Note that the Commissioner's Permit requires a $10,000.00 surety bond.
A Real Property Securities Dealer is
anyone acting as the principal or agent, who engages in the business of selling real property securities, including promissory notes or sales contracts, OR who accepts funds to be reinvested in real property securities or to be placed in an account. A California licensed broker is permitted to act in this capacity IF he first receives an RPSD endorsement on his broker license. This endorsement requires a broker to submit the endorsement fee of $100.00, along with the proof of a $10,000 surety bond.
There are three major laws regarding financing:
Truth in Lending Law
The Equal Credit Opportunity Act.
Truth In Lending Law: ( Regulation Z)
The purpose of this law is DISCLOSURE.
The law requires lenders to disclose to buyers the true cost of obtaining credit so that the borrower can compare the costs of various lenders. The regulation requires that the consumer be fully informed of all finance charges, as well as the true annual interest rate, before a transaction is consummated. The Truth in Lending Law does not control interest rates and does not control costs to close a transaction. (RESPA, the Real Estate Settlement Procedures Act, covers costs to close. This law will be covered shortly.)
Truth In Lending applies to
residential loans, federally related 1-4 family properties, non-commercial properties, and family farms.
Commercial transactions are not covered under the Truth in Lending law.
Two major sections of Truth In Lending:
Annual Percentage Rate (A.P.R.)
All terms listed in Column B must be disclosed if ANY ONE of the triggering terms in Column A is advertised.
Amount or percentage of down payment
Amount of any installment
Finance charge in dollars or that there is no charge for credit
Number of installments
period of repayment
The amount or percentage of down payment
Terms of repayment
Annual percentage rate and if increase is possible Total finance charge
Total # of payments and due dates
Truth in lending is violated when the phrase "no down payment required" is advertised without any other information.
THIS SET IS OFTEN IN FOLDERS WITH...
California: Real Estate Principles - Chapter 20
Mortgage license California
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