Real estate absolutely will be in the top five in terms of problem areas identified by the Legislature for 2008. There is simply no way that elected officials, at any level of government, can witness the rise in defaults and foreclosures and not jump in with help, whether wise or unwise. We can be certain of a veritable mountain of legislation on lender regulation, foreclosure changes, increased disclosures, and the like, by the time the deadline for new bills expires on February 22. And since we are in the second year of the current 2007-2008 session, legislators might not even wait that long – they could elect to amend existing bills and attempt to pass them very quickly in the first part of the year.

Already no less than the Speaker of the Assembly, the President pro Tem of the Senate, the Chairs of the Assembly and Senate Banking committees, and others, have announced that they are preparing packages of bills to respond to the real estate crisis. And so has the President of the United States! One bill authored by Senate President pro Tem Don Perata, would impose various new duties on lenders in advance of changes in loan terms, and a requirement on lenders and trustees to meet with borrowers prior to initiating foreclosure.

No doubt each of the various proposals will emanate from a good faith interest in helping blunt the impact of the foreclosure crisis. But each can also come with downsides: making mortgage capital less available, and making it harder for lenders to recover the security of their loans, thus making it harder to stave off foreclosure and harder to buy homes in the first place.

For CEA, of course, the key issue will be potential impacts on the escrow function. The more bells and whistles which are added to the loan process, the more the temptation to “let escrow handle it,” and the more potential liability when disagreements arise. You can be absolutely certain that escrow issues will arise in all of the bills introduced in the real estate area. For this reason, 2008 will be an exceedingly busy year for CEA, ironically at the same time that the real estate market is anything but exceedingly busy.

AB 804 was sponsored by the Escrow Institute of California. The bill relates only to DOC-licensed escrow companies. Some of the changes are minor and technical, including small changes to the references to DOC and EAFC in advertisements and other communications. Other changes are more substantial, including clarification that RESPA violations constitute violations of California’s escrow law.

Of particular note is new Financial Code Section 17421.5 relating to hold open fees in delayed escrows. The section clarifies the ability to charge these fees, with certain limitations:
• The escrow must have been delayed at least two months from the most recent closing date agreed to by the parties in written instructions, or the escrow must have been cancelled;

• The postponement or cancellation must have resulted from the acts or omissions of the parties;

• The fee must have been disclosed in at least 8-point type on the face or front page of the instructions;

• The principals must have initialed the written fee instructions.

The new language expressly applies only to written instructions made on and after January 1, 2008.

by Michael D. Belote, Esq.
California Advocates, Inc., Sacramento

Keeping Busy