HB1776: Mortgage Lender and Broker Act; broker duties and liability.
Be it enacted by the General Assembly of Virginia:
1. That 6.1-422 and 6.1-431 of the Code of Virginia are amended and reenacted as follows:
6.1-422. Prohibited predatory practices.
A. No lender or broker required to be licensed under this chapter shall:
1. Obtain any agreement or instrument in which blanks are left to be filled in after execution;
2. Take an interest in collateral other than the real estate or residential property securing a mortgage loan, including any fixtures and appliances thereon and any mobile or manufactured home placed on such real estate even if such mobile or manufactured home is not permanently affixed thereto;
3. Obtain any exclusive dealing or exclusive agency agreement from any borrower;
4. Delay closing of any mortgage loan for the purpose of increasing interest, costs, fees, or charges payable by the borrower;
5. Obtain any agreement or instrument executed by a borrower which contains an acceleration clause permitting the unpaid balance of a mortgage loan to be declared due for any reason other than failure to make timely payments of interest and principal, submitting false information in connection with an application for the mortgage loan, breaching any representation or covenant made in the agreement or instrument, or failing to perform any other obligations undertaken in the agreement or instrument;
6. If acting as a mortgage lender, fail to require the person closing the mortgage loan to provide to the borrower prior to closing of the mortgage loan, a (i) settlement statement and (ii) disclosure which conforms to that required by the provisions of 15 U.S.C. ( 1601 et seq.) and Regulation Z, 12 CFR Part 226; or
7. Recommend or encourage a person to default on an existing loan or other debt, if such default adversely affects such person's creditworthiness, in connection with the solicitation or making of a mortgage loan that refinances all or any portion of such existing loan or debt.
B. No mortgage broker required to be licensed under this chapter shall:
1. Except for documented costs of credit report and appraisals, receive compensation from a borrower until a written commitment to make a mortgage loan is given to the borrower by a mortgage lender;
2. Receive compensation from a mortgage lender of which he is a principal, partner, trustee, director, officer or employee;
3. Receive compensation from a borrower in connection with any mortgage loan transaction in which he is the lender or a principal, partner, trustee, director or officer of the lender;
4. Receive compensation from the borrower other than that
specified in a written agreement signed by the borrower; or
5. Receive compensation for negotiating, placing or finding a mortgage loan where such mortgage broker, or any person affiliated with such mortgage broker, has otherwise acted as a real estate broker, agent or salesman in connection with the sale of the real estate which secures the mortgage loan and such mortgage broker or affiliated person has received or will receive any other compensation or thing of value from the lender, borrower, seller or any other person, unless the borrower is given the following notice in writing at the time the mortgage broker services are first offered to the borrower:
NOTICE
WEHAVEOFFEREDTOASSISTYOUINOBTAININGAMORTGAGELOAN.IFWEARE
SUCCESSFULINOBTAININGALOANFORYOU,WEWILLCHARGEANDCOLLECTFROMYOUA
FEEOF.....%OFTHELOANAMOUNT.
WEDONOTREPRESENTALLOFTHELENDERSINTHEMARKETANDTHELENDERSWEDO
REPRESENTMAYNOTOFFERTHELOWESTINTERESTRATESORBESTTERMSAVAILABLETO
YOU.YOUAREFREETOSEEKALOANWITHOUTOURASSISTANCE,INWHICHEVENTYOU
WILLNOTBEREQUIREDTOPAYUSAFEEFORTHATSERVICE.
IFYOUAREAMEMBEROFACREDITUNIONYOUSHOULDCOMPAREOURINTERESTRATES
ANDTERMSWITHTHEMORTGAGELOANSAVAILABLETHROUGHYOURCREDITUNION.
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BORROWER'SSIGNATURE
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BORROWER'SSIGNATURE
The foregoing notice shall be in at least 10-point type and the prospective borrower shall acknowledge receipt of the written notice.
As used in this subdivision, the term "affiliated person
of a mortgage broker" means any person which is a subsidiary, stockholder,
partner, trustee, director, officer or employee of a mortgage broker, and any
corporation ten percent or more of the capital stock of which is owned by a
mortgage broker or by any person which is a subsidiary, stockholder, partner,
trustee, director, officer or employee of a mortgage broker.; or
6. Fail to use reasonable skill, care, and diligence in exercising the broker's duty, which duty is hereby created, to make reasonable efforts to secure a mortgage loan that is in the best interests of the applicant, considering the applicant's circumstances and loan characteristics, including but not limited to the product type, rates, charges, and repayment terms of the loan.
C. Notwithstanding the provisions of subdivision 5 of subsection B, no person shall act as a mortgage broker in connection with any real estate sales transaction in which such person, or any person affiliated with such person (as defined in subdivision 5 of subsection B), has acted as a real estate broker, agent or salesman and has received or will receive compensation in connection with such transaction, unless such person was regularly engaged in acting as a mortgage broker in the Commonwealth as of February 25, 1989. However, the provisions of this chapter shall not be construed to prohibit a real estate broker, as defined in 54.1-2100, who is either an owner of an interest in a real estate firm or acts as a real estate broker in a sole proprietorship from having an ownership interest in a mortgage broker or mortgage lender, as defined in this chapter, or from receiving returns on investment arising from such ownership interest or payment of compensation for services actually performed for such mortgage broker or lender.
6.1-431. Private action still maintainable.
A. Nothing in this article shall be construed to preclude any individual or entity who suffers loss as a result of a violation of Articles 3 ( 6.1-330.53 et seq.) through 12 ( 6.1-330.80 et seq.) of Chapter 7.3 of this title from maintaining an action to recover damages or restitution and, as provided by statute, attorney's fees. However, in any matter in which the Attorney General has exercised his authority pursuant to 6.1-430, an individual action shall not be maintainable if the individual has received damages or restitution pursuant to 6.1-430.
B. A borrower who suffers a loss as a result of a broker's breach of duty as set forth in subdivision B 6 of 6.1-422 may bring an action against such broker to recover actual damages. In addition to any damages awarded, such borrower also may be awarded attorney fees and court costs.
Be it enacted by the General Assembly of Virginia:
1. That 6.1-409, 6.1-422.1, 6.1-430, and 6.1-431 of the Code of Virginia are amended and reenacted and that the Code of Virginia is amended by adding a section numbered 6.1-422.2 as follows:
6.1-409. Definitions.
As used in this chapter, the following words and terms shall have the following meanings unless the context requires a different meaning:
"Borrower" means any person who has made, or on whose behalf another person has made, an application for a mortgage loan to a mortgage broker or to a mortgage lender.
"Commissioner" means the Commissioner of the Bureau of Financial Institutions.
"Mortgage broker" means any person who directly or indirectly negotiates, places or finds mortgage loans for others, or offers to negotiate, place or find mortgage loans for others. Any licensed mortgage lender that, pursuant to an executed originating agreement with the Virginia Housing Development Authority, acts or offers to act as an originating agent of the Virginia Housing Development Authority in connection with a mortgage loan shall not be deemed to be acting as a mortgage broker with respect to such mortgage loan but shall be deemed to be acting as a mortgage lender with respect to such mortgage loan, notwithstanding that the Virginia Housing Development Authority is or would be the payee on the note evidencing such mortgage loan and that the Virginia Housing Development Authority provides or would provide the funding of such mortgage loan prior to or at the settlement thereof.
"Mortgage lender" means any person who directly or indirectly originates or makes mortgage loans.
"Mortgage loan" means a loan made to an individual, the proceeds of which are to be used primarily for personal, family or household purposes, which loan is secured by a mortgage or deed of trust upon any interest in one- to four-family residential property located in the Commonwealth, regardless of where made, including the renewal or refinancing of any such loan, but excluding (i) loans or extensions of credit to buyers of real property for any part of the purchase price of such property by persons selling such property owned by them, (ii) loans to persons related to the lender by blood or marriage, and (iii) loans to persons who are bona fide employees of the lender. "Mortgage loan" shall not include any loan secured by a mortgage or deed of trust upon any interest in a more than four-family residential property or property used for a commercial or agricultural purpose.
"Person" means any individual, firm, corporation, partnership, association, trust, or legal or commercial entity or group of individuals however organized.
"Principal" means any person who, directly or indirectly, owns or controls (i) ten percent or more of the outstanding stock of a stock corporation or (ii) a ten percent or greater interest in a nonstock corporation or a limited liability company.
"Residential property" means improved real property used or occupied, or intended to be used or occupied, for residential purposes.
6.1-422.1. "Flipping" prohibited.
A. As used in this section, "flipping" a mortgage loan means refinancing a mortgage loan within 12 months following the date the refinanced mortgage loan was originated, unless the refinancing is in the borrower's best interest. Factors to be considered in determining the same would include but not be limited to whether:
1. The borrower's new monthly payment is lower than the total of all monthly obligations being financed, taking into account the costs and fees;
2. There is a change in the amortization period of the new loan;
3. The borrower receives cash in excess of the costs and fees of refinancing;
4. The borrower's note rate of interest is reduced;
5. There is a change from an adjustable to a fixed rate loan, taking into account costs and fees; or
6. The refinancing is necessary to respond to a bona fide personal need or an order of a court of competent jurisdiction.
B. No mortgage lender or broker shall knowingly or intentionally engage in the act or practice of "flipping" a mortgage loan. This provision shall apply regardless of whether the interest rate, points, fees, and charges paid or payable by the borrower in connection with the refinancing exceed any limitation established pursuant to Article 9 ( 6.1-330.69 et seq.) of Chapter 7.3 of this title.
C. The Attorney General, the Commission, or any party to a mortgage loan may enforce the provisions of this section or 6.1-422.
D. In any suit instituted by a borrower who alleges
that the defendant violated this section or 6.1-422, the presiding judge may,
in the judge's discretion, allow reasonable attorneys' fees to the attorney
representing the prevailing party, such attorneys' fees to be taxed as a part
of the court costs and payable by the losing party, upon a finding by the
presiding judge that (i) the party charged with the violation has willfully
engaged in the act or practice with which he was charged; or (ii) the party
instituting the action knew, or should have known, that the action was
frivolous and malicious.
E. The provisions of this section
shall be in addition to, and shall not impair, the rights of and remedies
available to borrowers in mortgage loans otherwise provided by law.
6.1-422.2. Duties of mortgage brokers to borrowers.
A mortgage broker, in addition to any other duties imposed by statutory or common law, shall comply with the following duties:
1. Act in the borrowers best interest and in the utmost good faith toward the borrower and shall not compromise a borrowers right or interest in favor of anothers right or interest, including a right or interest of the mortgage broker;
2. Make reasonable efforts to secure a mortgage loan that is in the best interests of the borrower considering borrower circumstances and loan characteristics, including but not limited to the product type, rates, charges, and repayment terms of the loan; and
3. Use reasonable skill, care, and diligence.
6.1-430. Authority of the Attorney General; referral by Commission to Attorney General.
A. If the Commission determines that a mortgage lender or
broker licensed under this chapter is in violation, or has violated, any
provision of Articles 3 ( 6.1-330.53 et seq.) through 12 ( 6.1-330.80 et
seq.) of Chapter 7.3 of this title or,
6.1-422.1, or 6.1-422.2, the Commission may
refer the information to the Attorney General and may request that the Attorney
General investigate such violations. In the case of such referral, the Attorney
General is hereby authorized to seek to enjoin violations of such laws. The
circuit court having jurisdiction may enjoin such violations notwithstanding
the existence of an adequate remedy at law.
Upon such referral of the Commission, the Attorney General may also seek, and the circuit court may order or decree damages and such other relief allowed by law, including restitution to the extent available to borrowers under applicable law. Persons entitled to any relief as authorized by this section shall be identified by order of the court within 180 days from the date of the order permanently enjoining the unlawful act or practice.
In any action brought by the Attorney General by virtue of the authority granted in this provision, the Attorney General shall be entitled to seek attorney's fees and costs.
B. The Attorney General shall be authorized to bring an action to enjoin violations of the Real Estate Settlement Procedures Act of 1974 (RESPA), 12 U.S.C. 2601 et seq., to the extent authorized by 8 and 16 of RESPA, 12 U.S.C. 2607 and 2614.
6.1-431. Private right of action.
Nothing in this article shall be construed to
preclude any individual or entityA borrower
who suffers a loss as a result of a violation of Articles
3 ( 6.1-330.53 et seq.) through 12 ( 6.1-330.80 et seq.) of Chapter 7.3 ofany
provision of this title from maintaining chapter may bring an action to recover actual damages or
restitution and, as provided by statute,. In
addition to any damages awarded, such person also may be awarded
attorney's fees and court costs. If the trier of fact
finds that the violation was willful, it may increase damages to an amount not
exceeding three times the damages sustained. However, in any
matter in which the Attorney General has exercised his authority pursuant to
6.1-430, an individual action shall not be maintainable if the individual has
received damages or restitution pursuant to 6.1-430.