The Fresno Office That Wasn't on the License
Coastal Home Finance holds a CRMLA license from DFPI, services roughly 4,000 first-lien loans on California one-to-four unit homes, and originates new loans from its Sacramento headquarters. In February it opens a retail office in Fresno staffed by two NMLS-licensed MLOs; the office was never added as a branch in NMLS, and both MLOs' records still show the Sacramento address. The Fresno staff take 38 applications in five months. Meanwhile Coastal's servicing unit charges borrowers $25 each time they request a payoff statement and will not release a figure until the fee clears. One borrower's refinance closed 41 days late because Coastal faxed a payoff figure that was 12 days stale. Coastal also pays a Fresno CPA $200 per closed loan for referring her tax clients; she performs no loan work.
1. Analyze the Fresno office arrangement. What is the violation, what is the exposure on the 38 applications, and what is the fix?
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The violation is location-based, not person-based. Both MLOs are licensed - that is not the problem. The problem is that a CRMLA licensee may originate only from licensed locations, and each MLO's NMLS record ties the license to a specific licensed location. Fresno is an unreported branch staffed by MLOs whose records point to Sacramento. For five months the company conducted residential mortgage origination from a location that does not appear on its license.
Exposure:
- DFPI enforcement against Coastal for unlicensed activity at that location, including possible suspension, fines, and a directive to remediate.
- The 38 applications are not automatically void, but each file must be reviewed: were disclosures delivered, was the MLO licensed and properly associated on the application date, and do lenders/investors require notice of the branch defect?
- Supervision gaps: an off-book branch is an off-book branch for complaints, advertising, and record retention too.
Fix: amend the license to add the Fresno location, update both MLOs' NMLS records to that location, self-report the unreported period with a description of the volume (38 files over five months) and remediation plan, and audit the 38 files. Waiting for DFPI to discover it during an examination converts a paperwork problem into a concealment problem.
2. Evaluate the $25 payoff fee and the stale payoff figure under California law. What duties does Coastal owe and what is the borrower's remedy?
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Duty to deliver. For loans secured by residential real property of one to four units, Civil Code section 2943 requires the beneficiary, on written request, to deliver a payoff demand within 21 days. That deadline is a statutory duty; it is not paused because a fee is unpaid.
The fee condition. Whatever fee may be permissible, refusing to issue any figure until a $25 charge clears, and charging $25 each time a borrower asks for the same statement, creates at minimum a UCL exposure and may defeat the statutory purpose of the section. The company's leverage - the borrower cannot refinance without a payoff - makes this exactly the kind of practice regulators and plaintiffs look for.
The stale figure. A payoff demand must identify the good-through date and the per-diem so the borrower and the new lender can compute the exact amount. A figure 12 days stale is not a "current" payoff; the borrower's closing was delayed 41 days.
Remedy: reimburse the delay-driven costs - added per-diem interest for the extended period, any rate-lock extension or re-lock fee, and any closing-cost increase - and remove the fee-conditioning practice. The borrower can also pursue the improper fees and the delay as unfair business practices.
3. Coastal pays the CPA $200 per closed loan. Is that permissible? Explain the analysis under both state and federal law and identify the narrow exceptions that might apply.
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No. This is a per-transaction payment to an unlicensed person for referral of borrowers, which is the core prohibition under the CRMLA/CFL framework and under DRE rules for anyone functioning as a broker. Because these are federally related mortgage loans, RESPA Section 8 applies as well: paying a thing of value for the referral of settlement service business is prohibited where the payee performs no bona fide settlement service and the payment is contingent on a referral.
Test each element:
- Is there a payment of a thing of value? Yes, $200.
- Is it contingent on a referral? Yes - per closed loan, which is the tell. A flat retainer for an actual service might survive; a per-funding payment does not.
- Does the CPA perform a bona fide settlement service? No loan work at all.
Narrow exceptions that do not fit here: the tax-preparation and accounting safe harbors apply to work actually performed in that capacity, not to cross-selling mortgages; a bona fide co-marketing or office-lease arrangement requires proportional payment for real value received, not a per-loan bounty; and affiliated business arrangements require required disclosure and a return of ownership that this arrangement plainly lacks.
Actions: stop the program, identify every loan sourced through it, and evaluate whether the payments have to be unwound or disclosed. The CPA has independent exposure for accepting compensation for brokerage activity without a license.