California Senate Bill 94 - Practical Aspects of New California Civil Code Sections 2944.6 and 2944.7

California Senate Bill 94 - Practical Aspects of New California Civil Code Sections 2944.6 and 2944.7

 

In this Analysis, William M. Hensley examines the foreclosure crisis that precipitated the passage of California Senate Bill 94, which added new Cal Civ Code § 2944.6 and Cal Civ Code § 2944.7. Mr. Hensley also provides practical tips to clients looking for loan modification help and explores some unanswered issues for lawyers arising after the passage of SB 94. He writes:
 
     Alarmed by lawyers who were preying on vulnerable borrowers, the State Bar of California began to investigate and discipline lawyers for misconduct related to loan modifications in record numbers. In a fairly dramatic break from past protocol beginning in the fall of 2009, the Bar's Interim Chief Trial Counsel waived investigation confidentiality in order to identify to the public those lawyers under suspicion for loan modification/forbearance malfeasance.
 
     Many of the attorneys being named by the State Bar are alleged to have taken fees for promised services and then failed to perform those services, communicate with their clients, or return the unearned fees. Others have misrepresented that they specialize in loan modification so that homes are lost because they cannot prevent the foreclosure, cannot obtain an injunction pending a judgment on the borrower's claims, or do not have expertise in loan workouts with banks. Still others affiliate with foreclosure consultants who unfairly take advance fees or overplay their expertise in the area. . . .
 
     . . . .
 
The California Legislature Responds
 
     SB 94, which added new sections 2944.6 and 2944.7 to California's Civil Code, took effect on October 11, 2009, and enacted various reforms, although they are limited to mortgages or deeds of trust securing residential property containing four or fewer dwelling units (although owner occupancy is not required).
 
     Cal. Civil Code § 2944.7 makes it unlawful for any person or entity who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation from the borrower, to do any of the following:
  • Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform;
  • Take any wage assignment, lien, or other security to secure the payment of compensation; or
  • Take a power of attorney from the borrower for any purpose.