California Shakes Up Mortgage Modification Industry by Ending Upfront Fees

On October 11, 2009, Gov. Schwarzenegger signed into law a bill (SB 94), which prohibits anyone from asking for or collecting an advance fee from a consumer for a loan modification or mortgage loan forbearance service. The only exception to this rule being law firms which are permitted to take a retainer upfront and bill against that retainer.

California previously allowed real estate brokers and their licensed agents to collect advance fees when they negotiated with lenders for a mortgage modification requiring only a written agreement with the homeowner, using forms and procedures that had been reviewed by the Department of Real Estate. The fees that were collected in advance had to be placed in escrow and drawn on as the service was performed.

With mortgage modification companies being accused of scamming homeowners the State took action. For the Real estate brokers with "no objection" letters who entered into agreements with borrowers before Oct. 11 to collect advance fees for providing the services for either loan modification or mortgage loan forbearance services may continue to provide these services under the terms of those contracts, but cannot collect any additional advance fees from the clients, this was a published notice from the Department of Real Estate.

The Federal Trade Commission and the state attorney general have sued many of the foreclosure rescue and loan modification companies and the FTC is reportedly considering a federal ban for the collection of advance fees by such companies. Last month The Associated Press reported that 20 states have banned foreclosure rescue companies from collecting fees in advance.

Licensed attorneys in California are able to collect retainer fees and deposit the funds in escrow while working on the mortgage modification. Industry watchdogs warn consumers to make sure they sign a retainer agreement that indicates the funds are being deposited an escrow account. http://www.modificationpros.com