New Jersey Enacts Provisions Regarding Foreclosure Consultants
by: Matthew Dailey
The New Jersey Department of Banking and Insurance enacted provisions to the New Jersey Residential Mortgage Lending Act regarding foreclosure consultants. These provisions were proposed on May 6, 2013 and are effective as of January 6, 2014.
The state of New Jersey has addressed foreclosure issues by proposing new rules creating the requirement for foreclosure consultants to be licensed with the Department of Banking and Insurance. Now homeowners who are looking for legitimate help in avoiding foreclosure are protected. The adopted provisions will prevent any fraudulent activity by those looking to harm desperate owners.
The provisions start by defining a “foreclosure consultant” as a person who gives assistance to a property owner dealing with foreclosure by dealing directly with the creditor or any potential buyer for compensation. The consultant is almost acting as an agent to prevent or delay a foreclosure in hopes of negotiating a sale, forfeiture, or refinance of the distressed property.
The Act then states that all foreclosure consultants must be licensed by the State to engage in this activity. Certain professionals are excluded from being classified as foreclosure consultants including housing counselors, attorneys, and real estate brokers. An individual licensee must only conduct consultant activity while employed by a business licensee and should only be employed by one such business at a time.
When applying for a license an applicant must include their legal name, place of business, tax identification, criminal history background check, and a list of all partners and agents. In addition, the applicant must post a bond and an audited financial statement as well as a non-refundable application fee. The license lasts for two years and can be renewed with a similar process for applying. The cost of a license for an individual is $100 and $500 for a business entity.
Prior to the completion of a distressed property conveyance a licensee must notify the owner in writing that the purchaser is required to provide to the owner a statement setting forth in at least 14-point type all costs and fees that the owner will incur in connection with the conveyance. Also the licensee must maintain all documentation as proof that they followed these requirements.
In connection with this the requirement that all licensees must maintain books and records in accordance with “recognized accounting principles” and have to let the Department know where these records are located at any given time. Electronic storage is allowed as long as the records can be readily accessible. Foreclosure consultant contracts must be retained and there are specifics that need to be included in said contracts. The contracts must be written in plain language, address every property service, relief, term years, name and address of consultant and date of contract. The Act provides a sample form for licensees to follow. Incredibly important is the fact that the contract must be accompanied by a NOTICE OF CANCELLATION to make it simple for the owner to end any relationship without coercion. The foreclosure contract must be recorded after the conveyance of distressed property to evidence that the conveyance was completed in accordance with necessary law.
Finally, there are rules about advertising and prohibited acts by foreclosure consultants. No person can advertise as a foreclosure specialist or similar designation unless they are licensed as such. The licensee must maintain a copy of the advertisement as a business record for at least three years. No licensee can claim or demand a fee from any owner until after the foreclosure consultant has fully performed every service stated in the contract and received relief. Along these lines, the consultant cannot claim an amount more than two monthly mortgage payments or the most recent quarterly property tax installment, whichever is less. The consultant also cannot accept a wage assignment or lien, or receive any compensation from a third party.
About the Author
Matthew Dailey, J.D. is Regulatory Compliance Consultant at Bankers Advisory, Inc. He is a graduate of Stonehill College and earned his Juris Doctor at the New England School of Law. He is admitted to the Massachusetts Bar. Matthew can be reached at matthew@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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