A California real estate broker negotiates a $25,000 loan secured by a first deed of trust on a single-family home, with a term of two years. Under Business and Professions Code section 10242, what is the maximum commission the broker may charge?
Correct Answer
A) 5% of the principal amount of the loan
Article 7 of the Real Estate Law caps a broker's commission on the loans it covers. Business and Professions Code section 10242 allows 5% of the principal on a first trust deed with a term of less than three years, rising to 10% when the term is three years or more; junior liens run 5% under two years, 10% from two years to under three, and 15% at three years or more. The caps reach this loan because section 10245 exempts only first trust deeds of $30,000 or more and junior liens of $20,000 or more, and $25,000 on a first deed of trust is below that line. A two-year first trust deed of $25,000 is therefore capped at 5%.
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Related Topics & Key Terms
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Related Concepts
Predatory lending refers to unfair, deceptive, or abusive lending practices that impose unjustified terms on borrowers, often targeting vulnerable populations. It includes practices like excessive fees, inflated appraisals, and unnecessary refinancing.
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
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