Civil Code § 2945.4 prohibits foreclosure consultants in California from engaging in predatory practices, such as acquiring an interest in the owner’s foreclosed residence and taking the owner’s power of attorney. As a type of mortgage fraud, foreclosure consultant fraud can be prosecuted as a felony or a misdemeanor offense.
The full text of the statute reads as follows:
2945.4. It shall be a violation for a foreclosure consultant to:
(a) Claim, demand, charge, collect, or receive any compensation until after the foreclosure consultant has fully performed each and every service the foreclosure consultant contracted to perform or represented that he or she would perform.
(b) Claim, demand, charge, collect, or receive any fee, interest, or any other compensation for any reason which exceeds 10 percent per annum of the amount of any loan which the foreclosure consultant may make to the owner.
(c) Take any wage assignment, any lien of any type on real or personal property, or other security to secure the payment of compensation. That security shall be void and unenforceable.
(d) Receive any consideration from any third party in connection with services rendered to an owner unless that consideration is fully disclosed to the owner.
(e) Acquire any interest in a residence in foreclosure from an owner with whom the foreclosure consultant has contracted. Any interest acquired in violation of this subdivision shall be voidable, provided that nothing herein shall affect or defeat the title of a bona fide purchaser or encumbrancer for value and without notice of a violation of this article. Knowledge that the property was “residential real property in foreclosure,” does not constitute notice of a violation of this article. This subdivision may not be deemed to abrogate any duty of inquiry which exists as to rights or interests of persons in possession of residential real property in foreclosure.
(f) Take any power of attorney from an owner for any purpose.
(g) Induce or attempt to induce any owner to enter into a contract which does not comply in all respects with Sections 2945.2 and 2945.3.
(h) Enter into an agreement at any time to assist the owner in arranging, or arrange for the owner, the release of surplus funds after the trustee’s sale is conducted, whether the agreement involves direct payment, assignment, deed, power of attorney, assignment of claim from an owner to the foreclosure consultant or any person designated by the foreclosure consultant, or any other compensation.
The purpose of California Civil Code 2945.4 CC is to dissuade people from preying on vulnerable homeowners desperate to escape a dire financial situation. Specifically, CC 2945.4 prohibits foreclosure consultants from engaging in the following eight “phantom help” schemes:
- Taking the owner’s power of attorney;
- Acquiring an interest in the owner’s foreclosed home;
- Acquiring an interest in other property or a lien against the owner’s wages;
- Accepting payment for services from a third-party without telling the owner;
- Charging compensation before the consultant’s contracted work is complete;
- Charging fees in excess of 10% per year of any loan the owner takes from the consultant;
- Inducing the owner into a contract that does not conform to Civil Code Sections 2945.2 and 2945.3; or
- Entering into an agreement to help the owner in arranging the release of surplus funds after the trustee’s sale is conducted1
CC 2945.4 violations are wobblers, meaning that the D.A. can press felony or misdemeanor charges. Felonies carry a county jail term of 16 months, two years, or three years. Meanwhile, the maximum misdemeanor jail term is 364 days. Either way, defendants also face a possible fine of up to $10,000.2
- Other potential consequences defendants face for violating CC 2945.4 include
- having to pay court-ordered restitution,
- getting sued in civil court by the homeowner (which can result in hefty punitive damages), and
- losing their real estate license.
Potential defenses to foreclosure consultant fraud charges are that the defendant
- had no intent to defraud and
- acted in good faith.
However, it is not a defense that the victim did not end up getting harmed.3
See our related article on rent skimming.
- California Civil Code 2945.4 CC – Violations.
- Same. CC 2945.7.
- Same. In re McNeal (Bankr. N.D. Cal., 2002), 286 B.R. 910. Onofrio v. Rice (Cal. App. 4th Dist. May 29, 1997), 55 Cal. App. 4th 413.