On December 28, 2006, in my second post on this Blog, I wrote about the foreseeable and serious problems that would result from the boom in "creative" financing (sub prime loans, loans made with no down payment, ARM loans with low teaser rates that would reset in 2007 & 2008). I called the post, "'Creative'" Financing -- The Slippery Slope in 2007." This became the biggest economic and real estate story of 2007, as the slide turned into an avalanche.
But this blog is not about economics or predicting the future. So what really changed in the area of real estate law as a result of the creative financing fiasco?
As discussed in my last post, borrowers who negotiate a loan reduction or lose their homes to foreclosure will not be required to pay federal income taxes on phantom income.
The California Legislature has enacted a new law to warn borrowers about "nontraditional mortgage products." After January 1, 2008, Senate Bill 385 will require additional written disclosures for nontraditional mortgage products (e.g., loans that negatively amortize or bear interest only). The additional disclosures must be made in both disclosure statements and advertising. A violation of the new law may be a crime. Unfortunately, a mortgage broker cannot determine the content of the additional disclosures by reading SB 385 itself. Rather, the mortgage broker is referred to various guidelines and regulations to learn what he must disclose. SB 385 also broadens the definition of a real estate broker for lenders. This is significant because it is a crime in California to act as a real estate broker without a license. To read the highlights of SB 385, see Business & Professions Code section 10240.3 and Financial Code sections 215.5 and 22171.
In an apparent attempt to curb mortgage fraud, in California effective January 1, 2008, a notary public who acknowledges a document must certify under penalty of perjury under the laws of the State of California that the facts acknowledged by the notary are true and correct, including that the signer has presented documentary proof that he is who he says he is. (It is no longer good enough for a notary to state that they personally know the signer.) Civil Code section 1189.
That's about it. The other laws regulating brokers, lenders and borrowers are pretty much the same. And there are no new laws against financial institutions, lenders and borrowers from "creatively" finding new ways to lose money.
