Distressed Property Law
June 18th, 2008 • Related • Filed Under
Mortgage Brokers and Loan Originators are exempt from becoming a “Distressed Home Consultant” when helping Distressed Homeowners refinance, unlike real estate agents who are subject to increased liability under the new Distressed Property Law. My question is, SHOULD mortgage brokers and loan originators be exempt? Please read this blog post and share your opinion. I know that no brokers or loan originator is going to automatically jump up and vote for increased liability, but do you see a possible loophole for LOs to target market and prey on distressed homeowners? Have you heard of anything like this happening in your market area?
There must have been some particulary serious violations that prompted this law. Wouldn't it have been easier just to make ...
When the issue of fudicial responsibility began coming to the forefront I felt a sense of relief. I guess I ...
Comment by Rita Green on 10 August 2008:
The Distressed Property Law as written is very poor.
Some real Estate Agents will gladly take on the distresed home fiduciary role as it is a potentially healthy revenue stream for them.
I believe that real estate agents should understand more about the fiduciary process because I have dealt with an agent who was working with such a client and was useless in terms of guiding them as to what their rights/options were and the timelines that needed to be met. I felt that the agent should have referred the client to a more knowledgeable person, but they refused so I found myself (an LO) giving recommendations that I felt the RE Agent should have done.
Comment by Stephanie Grosely on 3 September 2008:
In response to the distressed property law, I’m not sure that mortgage brokers and/or originators should be exempt. I’ve heard of a few situations where even the LO has avoided a foreclosure or short-sale situation because of this law, not wanting involvement in this type of transaction. If an LO is avoiding a foreclosure situation, when they’re exempt, it leads me to believe that the fear that’s come over the real estate agents has made its way to the originators as well. But why the fear? Possibly because brokers or originators are involved in these types of purchase transactions, or are even given the refinance referrals by real estate agents?
I agree with Rita’s post, real estate agents should fully understand the law before entering into this type of transaction. But, I also don’t think that as an LO, I’d counsel the seller if the agent was not adequately performing their job - those matters should be left to their own attorney.
Comment by Kevin Haynes on 8 September 2008:
I feel mortgage brokers & LO’s should be exempt from the distressed property law. First off, in this current environment getting a refinance that makes sense for a distressed homeownwer would be difficult given the current guidelines. So, to me, this is more of a concern for RE agents. I know a few agents that do not want anything to do with a distressed home owner because of this new law and potential liability, which I agree with Rita, is poorly written.
Comment by Tamara Voshell on 19 September 2008:
I am both a RE Agent and a mortgage broker. The law was poorly written and I believe it will be cleaned up in future sessions. I am not too worry about the liability for RE Agents mostly because I went through all of this in CA in the ’90s. We handled short sales everyday. I actually get frustrated when there are agents doing a short sale with no idea what they are doing. I am educating them! As far as LO’s being added to the law. I think if we are going to help refi them out of a foreclosure situation - we should have some liability. There are LOs out there that have no idea how to protect borrowers who are in that situation and will tack advantage of them. So, because of the bad apples, I think there should be some additional liability.
Comment by Michael Belisle on 3 November 2008:
AS a loan officer I feel like who ever is doing the negotiations with the distressed home owner and is in the position to make money off the distressed home owner should be covered under the new law. It is not the mortgage brokers or loan officers job to negotiate contracts between two parties. Therefore it is fine they are exempt.
Comment by Jeff Rafuse on 4 November 2008:
I believe the law is on the right track in attempting to protect homeowners from potential “scammers” that are just trying to capitalize on their unfortunate predicament. What has become apparant during this crisis is that regulation in the housing and mortgage industries is necessary to prevent situations like we currently have. I am typically a big proponent of free market principals, but I even agree that there are certain situations where regulation is a good thing. As we have learned, the housing market is a huge part of our economic health, so we must try to protect homeowners. I am concerned that many agents will try to stay away from distressed properties altogether, but they will do so at their own peril, as that is going to be a growing segment for some time ahead.
As for loan officers, I don’t feel they should be included in this particular legislation because it is more geared towards those involved in the actual transfer of real estate ownership. Instead, I believe that regulations preventing predatory lending are needed and loan officers dealing with distressed homes will need to adhere to the same code of conduct and fiduciary duty expected of them when dealing with a non-distressed home. If the laws are clearly written in regards to loan officers disclosing fees properly and providing the right program for their clients, then the law would include protection automatically for distressed homeowners that are refinancing rather than selling.
Comment by John Mayfield on 5 November 2008:
I do agree that the law was poorly written but at least there was an attempt to protect the homeowners. I believe that when they write the law, they need to seek advice from all parties, Realtors, Loan Officers, Brokers and distressed homeowners. We are in this predicament because of unscrupulous lending and inflated values. If our profession would have had more stringent regulations for LO’s to adhere to, the market might not have taken the drastic dive it has taken. I am not opposed to tighter compliance for LO’s. It would keep the good ones around and weed out the bad.
It is the Realtor’s job to write the contract but they often do not know much about the fudiciary responsiblities, that is when the LO should also be held responsible during the transaction.
Comment by Sandi Paradiso on 6 November 2008:
I know a RE who just works with forclosures, it’s her “new thing”, she advertises it. I also know a LO who is helping people with foreclosures, it is what has carried her through some tough times. I feel if an LO wants to make it there priority to do forclosers they need to have the same rules as an RE. Other than that I feel LO’s should be exempt. I agree with Michael when he said
“who ever is doing the negotiations with the distressed home owner and is in the position to make money off the distressed home owner should be covered under the new law” If an LO wants to specialize in foreclosures they should not be exempt, other wise leave it up to the RE.
Comment by Denise Swafford on 10 November 2008:
This law was very poorly written. However a loan officer can direct other clients about distressed homeowners. If a loan officer fails to do the correct research and fails to offer all options it could cost the borrower their home.
Helping a borrower with a negotitation with a lender doesn’t put the loan officer in equity scam position necessarily. However if you have unscrupulous brokers/loan officer the loop hole is there.
It truly is a catch 22. If a broker/lo is adhereing to fiduciary duty then that is regulation enough.
Comment by Sarah Batson on 10 November 2008:
I agree that the intention of this legislation is sound, to protect the home owner. As we are very aware, this is a very significant component of our economic stability. I would hope that the effect of this law and others like it is not that the parties involved do not help these home owners in hard times, but to encourage them to educate themselves and adhere to the laws enacted.
I also agree that this law, as I try to understand it, does seem to pertain to those parties involved in the negotiation process of the transfer of real estate ownership. This particular law may not apply to LOs, however in correspndence to the idea of protecting the home owner, the increase in legislation that we are seeing regarding predatory lending is better focused and more effective.
Comment by Catherine Rawlins on 17 November 2008:
When this legislation was passed the situation was much different than it is now. First of all, the declining home prices are putting a lot more homeowners into the “distressed” category. Secondly, the extreme tightening of underwriting standards is preventing many of them from seeking refinancing which would have been the most beneficial avenue for most.
Now we are seeing a host of “loan modification” programs being offered. Some are real… some are not. My email is bombarded with offers for me as a Loan Originator to buy leads for loan modifications.
So… who’s going to do all these loan modifications? And, aren’t those people doing them giving advice to distressed property owners. All financial institutions should have been covered under this law.