Brokerage Services For Borrowers - - CA Financial

Section § 50700

If you're a residential mortgage lender or working under one, including mortgage loan originators, you're generally not allowed to act as a broker for borrowers, unless you first enter a written agreement with them. This law details what counts as brokerage services, like helping a borrower get a mortgage loan secured by real estate with funds from another lender, and managing how and where the loan is closed. You can only offer these services under specific conditions and can't use independent contractors or unlicensed employees for brokerage, nor can you deal with high-cost mortgages or misrepresent yourself in advertising. Also, any mortgage loan originator must work as an employee of a licensed lender to provide these services.

(a) A residential mortgage lender, or a person or employee acting under the authority of a residential mortgage lender’s license, including a mortgage loan originator, shall not provide brokerage services to a borrower, except as provided in subdivision (c).

(b) “Brokerage services” means either of the following:

(1) Obtaining or attempting to obtain, on behalf of a borrower, a residential mortgage loan, as defined in subdivision (p) of Section 50003, secured by residential real estate, as defined in subdivision (v) of Section 50003, made with the funds of another institutional lender, as defined in paragraphs (1), (2), and (4) of subdivision (k) of Section 50003, and closed in the name of that lender, for a fee paid by the borrower or the institutional lender.

(2) Obtaining or attempting to obtain, on behalf of a borrower, a residential mortgage loan, as defined in subdivision (p) of Section 50003, secured by residential real estate, as defined in subdivision (v) of Section 50003, made with the funds of another institutional lender, as defined in paragraphs (1), (2), and (4) of subdivision (k) of Section 50003, but closed in the name of the licensee, for a fee paid by the borrower or the institutional lender.

(c) A residential mortgage lender or a mortgage loan originator employed by a residential mortgage lender may provide brokerage services under the authority of the lender’s license, if the lender first enters into a written brokerage agreement with the borrower that satisfies the requirements of Section 50701.

(d) This chapter does not authorize a residential mortgage lender licensee to do any of the following:

(1) Provide brokerage services through independent contractors.

(2) Provide brokerage services through an employee not licensed as a mortgage loan originator.

(3) Obtain or attempt to obtain for a borrower a residential mortgage loan that is a “high cost mortgage,” referred to in Section 152(aa)(1) of the federal Home Ownership and Equity Protection Act of 1994, as amended (15 U.S.C. Sec. 1602(aa)).

(4) Hold itself out to borrowers, through advertising, as a mortgage broker, rather than a residential mortgage lender. However, a licensee shall disclose its status as a broker or agent when that disclosure is required by law.

(5) Perform activity subject to Section 10131 of the Business and Professions Code, except activities authorized by this division.

(e) A mortgage loan originator may only provide brokerage services as an employee of a licensed residential mortgage lender.

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(Amended by Stats. 2010, Ch. 287, Sec. 14. (SB 1137) Effective January 1, 2011.)

Section § 50701

This law outlines the requirements for residential mortgage loan brokerage agreements in California. If a mortgage lender is arranging a loan through another lender at a borrower's request, both the borrower and an authorized representative (a licensed mortgage loan originator) must sign a written loan brokerage agreement. This agreement must detail the services provided, any fees involved, and the lender's fiduciary duty to act in the borrower's best interest.

The agreement must include a unique identifier for the loan originator and clearly state any conditions under which the borrower has to pay fees. It should also describe the borrower's rights if the lender provides misleading information, such as the ability to rescind the agreement or recover fees paid. Importantly, upfront fees, except specific third-party charges or application fees, are restricted until the loan closes.

Any application fee agreement must receive approval from the state commissioner and specify the services provided for the fee, the amount, due date, and guarantee a specific completion date for services. It cannot exempt the lender from fulfilling verbal promises.

(a) As soon as practical after a borrower requests that the residential mortgage lender licensee arrange a loan to be made by another institutional lender, and before the licensee performs brokerage services for the borrower, the licensee and borrower shall enter into a written loan brokerage agreement that satisfies the requirements of this section.

(b) Both the licensee’s authorized representative, who shall be a licensed mortgage loan originator, and the borrower shall sign and date the loan brokerage agreement, and the licensee shall deliver a copy of the fully executed loan brokerage agreement to the borrower either upon execution, if the documents are signed in the licensee’s office, or within three business days after execution.

(d) The loan brokerage agreement shall contain an explicit statement that (1) the licensee is acting as the agent of the borrower in providing brokerage services to the borrower, and (2) when acting as agent for the borrower, it owes to that borrower a fiduciary duty of utmost care, honesty, and loyalty in the transaction, including the duty of full disclosure of all material facts. If the licensee is authorized to act as an agent for any other person, the brokerage agreement shall contain a statement of that fact and identification of that person.

(e) The loan brokerage agreement shall contain a detailed description of the services the licensee agrees to perform for the borrower, and a good faith estimate of any fees the licensee will receive for those services, whether paid by the borrower, the institutional lender, or both.

(f) The loan brokerage agreement shall carry a clear and conspicuous statement of the conditions under which the borrower is obligated to pay the licensee for brokerage services rendered under the agreement.

(g) The loan brokerage agreement shall provide that, if the licensee makes a materially false or misleading statement or omission in the inducement or implementation of the agreement, the borrower may, in addition to any other legal rights or remedies, upon written notice, do any of the following:

(1) Rescind the brokerage agreement.

(2) Recover fees paid by the borrower to the licensee for brokerage services rendered by the licensee pursuant to the agreement.

(3) Recover actual costs, including attorney’s fees, for enforcing the borrower’s rights under the loan brokerage agreement.

(h) If the loan brokerage agreement fails to set forth the rights in subdivision (g), these rights shall be implied by operation of law.

(i) The loan brokerage agreement shall be the only agreement between the borrower and the licensee with respect to a single loan.

(j) A licensee whose services to a borrower are limited to providing brokerage services may not require a borrower to pay fees or charges before the residential mortgage loan closing, other than either of the following:

(1) Actual charges to be incurred by the licensee on behalf of the borrower for services from third parties necessary to process the application, such as credit reports, appraisals, inspections, flood certification, and tax service, and, in transactions where those services are provided by the licensee, a charge not to exceed the fee customarily charged for the same or comparable service in the community in which the service was rendered.

(2) An application fee.

A licensee may not accept a fee under Section 50203(a)(1) or (2) and subsequently require a borrower to pay additional fees or charges under this paragraph for the borrower’s loan transaction.

(k) Any loan brokerage agreement that provides for the collection of an application fee shall be approved as to form by the commissioner before its use by a licensee, if the agreement meets the following requirements:

(1) The agreement specifies the services to be rendered for the application fee.

(2) The agreement sets forth the amount of the application fee and the date the fee becomes due and payable.

(3) The agreement does not contain a provision that purports to except or relieve the licensee from the responsibility to fulfill verbal commitments and representations made by employees or agents of the licensee when contracting for the application fee, or guarantee that a loan will be obtained.

(4) The agreement sets forth a definite date for full performance of the services promised in exchange for the application fee.

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(Amended by Stats. 2009, Ch. 160, Sec. 83. (SB 36) Effective October 11, 2009.)

Section § 50702

This law outlines what needs to be included in an annual report for certain licensed professionals handling residential mortgage loans. The report must list both the number and total loan amounts of closed residential mortgage loans where brokerage services were provided and loans directly made by the licensee. The total loan amounts influence how much these professionals must pay in their annual assessment fees. Additionally, the Real Estate Commissioner can request copies of these reports from other regulatory bodies.

(a) The annual report required by Section 50401(a) shall include both of the following:

(1) The number and the aggregate principal amount of closed residential mortgage loans secured by residential real estate in which the licensee provides brokerage services, as defined in this chapter.

(2) The number and aggregate principal amount of residential mortgage loans made by the licensee under this division.

(b) The sum total of the aggregate principal loan amounts reported in paragraphs (1) and (2) of subdivision (a) shall be deemed the aggregate principal amount of mortgage loans secured by residential real property originated by the licensee, for purposes of determining a licensee’s annual assessment under subdivision (a) of Section 50401.

(c) The commissioner shall provide copies of the annual reports required by subdivision (a) of Section 50401 to the Bureau of Real Estate upon request of the Real Estate Commissioner.

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(Amended by Stats. 2013, Ch. 352, Sec. 93. (AB 1317) Effective September 26, 2013. Operative July 1, 2013, by Sec. 543 of Ch. 352.)

Section § 50703

This law states that certain rules from the Business and Professions Code about residential mortgage loans also apply to loans arranged by a specific type of licensee, unless the loan amount is larger than what's considered a legitimate loan secured by a first or junior trust deed as defined in another section. Essentially, it specifies when existing mortgage regulations apply based on the loan amount and type of security interest.

Notwithstanding Section 10248.3 of the Business and Professions Code, the provisions of Article 7 (commencing with Section 10240) of Chapter 3 of Part 1 of Division 4 of the Business and Professions Code shall apply to a residential mortgage loan arranged by a licensee pursuant to this chapter, unless that loan exceeds the principal loan amount specified for a bona fide loan secured directly or collaterally by a first trust deed or a bona fide loan secured directly or collaterally by a lien junior thereto, specified in Section 10245 of the Business and Professions Code.

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(Added by Stats. 1996, Ch. 19, Sec. 1. Effective March 20, 1996.)

Section § 50706

This law explains that the commissioner has the main role in regulating transactions involving licensed residential mortgage lenders who offer brokerage services. They oversee these activities whether operating under this law or the Real Estate Law.

If there's suspicion that a mortgage lender or their employee violated real estate rules while acting as a broker, the commissioner must refer the case to the Real Estate Commissioner. The Real Estate Commissioner can then investigate and, if a violation is confirmed, start enforcement actions according to the Real Estate Law.

(a) Except as provided in subdivision (b), the commissioner has primary regulatory jurisdiction over all transactions in which a licensed residential mortgage lender provides brokerage services, whether the brokerage services are provided under the authority of this chapter or under the Real Estate Law.

(b) If the commissioner has reason to believe that a residential mortgage lender or one of its employees has violated the Real Estate Law while providing brokerage services under a real estate broker’s license, the commissioner shall refer the matter to the Real Estate Commissioner, who may conduct an investigation to determine if a violation of the Real Estate Law has occurred. If the Real Estate Commissioner believes a violation has occurred, the Real Estate Commissioner may commence an enforcement action under the Real Estate Law.

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(Added by Stats. 1996, Ch. 19, Sec. 1. Effective March 20, 1996.)