Colorado Mortgage Brokers & Deceptive Trade Practices
	General Rule. Colorado has new laws in 2002 and 2007 which tightly regulate the mortgage business practices of mortgage brokers and real estate brokers (Realtors.) The violation of these requirements and prohibitions is a deceptive trade practice. You may be able to obtain a judgment for 3 times damages plus reasonable attorney fees for a deceptive trade practice. Don’t fall victim to the “no-brainer” no closing cost sales pitches. You are getting ripped off in most cases.

Many homeowners end up in foreclosure in many cases because of mortgage loan fraud. The process of mortgage and real estate fraud includes multiple parties, including:

1. Mortgage brokers and lenders;

2. Real estate brokers (Realtors);

3. Appraisers; and

4. Maybe title companies or closers which are not title companies..

Beginning in 2002, under C.R.S. §38-40-105, Colorado law has provided a number of mortgage broker prohibitions and requirements which are a deceptive trade practice. Under Colorado law, a deceptive trade practice may recover 3 times the amount of damages as well as attorney fees for the prohibited conduct.

Until mid-2007, Colorado was only 1 of 2 states which has not regulated mortgage brokers and lenders. Colorado foreclosure rates have been among the highest in country. Fraud is considered to be the primary cause of the high rate of foreclosures.

As of June 1, 2007, Colorado now regulates how mortgages are originated and delivered to real estate owners and buyers, as follows.

1. Duty of Good Faith and Fair Dealing in their communications and transactions with borrowers,

2. Duty to conduct a reasonable inquiry about the borrower’s current and prospective financial status;

3. Requires that refinancing have a reasonable tangible (real) benefit to borrowers.

3. Penalties for influencing a real estate appraisal;

4. Cannot do mortgage loans based on the liquidation or foreclosure value of the property, without regard to the borrower’s ability to repay the loan according to its terms;

5. Cannot knowingly or intentionally “flip” a mortgage loan, where the new loan does not have a reasonable, tangible benefit to the borrower, considering all of the circumstances, including the cost of the loan and the borrower’s circumstances.

6. Cannot enter into a mortgage loan when there is no reasonable probability of payment of the loan by the borrower.

7. The duty to not commit any unconscionable act or practice as listed in Colorado C.R.S. §38-40-105(1.7).

8. Upon request from the borrower, must provide copies of the loan documents, title work, deed, and settlement statements prior to closing.

9. Cannot influence a real estate appraisal.

10. Cannot compensate, or directly or indirectly compensate, coerce, or intimidate an appraiser for the purpose of influencing the value of a home.

11. Cannot participate in the making of a false or misleading appraisal in connection with a residence which is used as security for the repayment of a loan;

Title insurance companies (who do the closing work) are also more heavily regulated under the Colorado title insurance regulations.

Colorado real estate brokers (Realtors) who participate in the mortgage loan process are similarly regulated.

Within 3 business days after receipt of a loan application or any money from a borrower, a mortgage broker must provide a full written disclosure containing an itemization and explanation of all fees and costs involved with getting a loan. The fees that benefit the mortgage broker must be specifically indicated. The amount of loan fees, discounts, or points between the mortgage broker or lend does not have to disclosed at this point in time.

The written disclosure must contain the following information and restrictions (as well as other information not listed here):

1. The annual percentage rate, finance charge, amount financed, total amount of payments, amount of each payment, amount of points or prepaid interest, and the conditions and terms under which any loan terms may change between the time of disclosure and the closing of the loan.

2. If the interest rate is variable (ARM), then the disclosure must state the circumstances under which the interest rate may increase, the effect of an increase, and an example of the payment terms resulting from an increase.

3. The itemized costs of the title insurance policy, mortgage insurance, insurance, inspection, any other third-party provider costs.

4. The amount of any commission or any other compensation paid to the mortgage broker, including the manner in which such compensation is to be calculated and the relationship of such compensation to the cost of the loan.

5. The terms of any lock-in agreement and whether the lock-in agreement is guaranteed by the mortgage broker or lender. And if there is no lock-in agreement, a disclosure that the disclosed interest rate and terms are subject to change.

6. A statement that if the borrower is unable to obtain a loan for any reason, then the mortgage broker has 5 days after a written request from the borrower to provide a copy of the appraisal, title report, appraisal, and credit report to any other mortgage broker or lender that the borrower directs that the documents be sent.

7. A statement that any money paid by the borrower to the mortgage broker for third-party services, such as an appraiser, are held in a trust account and any money remaining after payment shall be refunded to the borrower.

8. If a mortgage broker enters into a lock-in agreement with a borrower or the borrower is otherwise locked in, the mortgage broker must provide a written confirmation of the lock-in agreement.

9. A mortgage broker shall not charge any fee that benefits the mortgage broker and that exceeds the fee disclosed in the written disclosure, unless the need to change the fee was not reasonably foreseeable and the change in the fee was disclosed at least 3 business days before the signing of the loan documents and a clear explanation of the reason for charging a higher fee.

10. Mortgage broker may not charge more that the actual cost of goods or services, such as credit reports, appraisals, etc.

11. Prohibited acts by mortgage broker include:

a. make a false promise or misrepresentation or conceal an essential or material fact to entice a borrower or creditor to enter into a mortgage agreement.

b. obtain property by fraud or misrepresentation

c. enter into a contract with a borrower where the mortgage broker earns a fee even if no loan is actually obtained.

d. Make any false or deceptive statement or representation with regard to the rates, points, or other

e. negligently make any false statement or make any omission of material fact in connection with any reports filed by a mortgage broker.

f. advertise any rate of interest without conspicuously disclosing the annual percentage rate implied by such rate of interest.

A written contract is required and it must contain the entire agreement between the mortgage broker and you.

A common example of what I believe is now prohibited by the newer Colorado laws is the constant “no closing cost” refinances. The sales pitch it that it is “the biggest no-brainer in the history of earth” when you agree to refinance your mortgage to save $50 per month. Because there are no closing costs and you do not spend one “thin dime” to refinance. You are stupid if you decide to not refinance.

The legal problems with these sales pitches include:

1. The truth is - you always kept in debt. Because you never get your mortgage paid off. If you keep getting new 30 year loans.

2. The truth is - the cost to you for such a refinance is tremendous. For example, if you have already been paying for 3 years on your mortgage at $1,250 per month, then when you refinance to save $50 per month, you are extending your mortgage debt by another 3 years with your new loan. So if your new mortgage payment is $1,200 per month, then you have 36 more payments at $1,200 which is $43,200.

- why would you ever want to spend $43,200 to save $50 per month? No way!

3. The sale pitch says that there are no title company costs, no closing costs, no appraisal, etc. The truth is - every refinance has these charges. They are required by law and/or lender underwriting requirements. The truth is - you are paying for all of these closing costs because you are being charged a higher interest rate so that a larger kickback is paid by the lender to the mortgage broker. The mortgage broker is paying these closing costs because it gets a bigger kickback from the lender for charging a higher interest rate. The truth is - the lender pays the mortgage broker a 1% kickback for every additional 1/2% which is added to the “par” interest rate on your loan. The kickback is usually called a “service release premium.”
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