AG Brown to enforce ban on advance fees for mortgage aid

October 15th, 2009, 5:12 pm · 4 Comments · posted by Mathew Padilla

Attorney General Jerry Brown said today he will go after companies that violate the state’s new ban on collecting an advance fee for helping someone avoid foreclosure.

Since the foreclosure crisis began, hundreds of companies and law firms in Orange and neighboring counties have promoted their ability to get homeowners loan modifications.

But consumer advocates say many of those companies are taking money and providing little service. Homes proceed to foreclosure while owners wait for help that doesn’t come.

Governor Arnold Schwarzenegger on Sunday signed several bills meant to curb lending abuses, including SB 94, which prohibits anyone from taking an advance fee for help getting a loan modification.

AG Brown said today in a release, “Over the past two years, unscrupulous attorneys and real estate brokers have abused their trusted roles and exploited desperate homeowners seeking to avoid foreclosure. The loophole that allowed this abusive practice to continue has now been closed, and homeowners should avoid any person charging up-front fees for foreclosure relief services.”

Anyone who violates the ban can be fined up to $10,000 and imprisoned for up to one year. Corporations can be fined up to $50,000.

Kevin Stein, an associate director with consumer group the California Reinvestment Coalition in San Francisco, said the bill should deter some companies but it has a loophole.

The bill says fees can be collected after a company performs the service for which it was contracted. In Stein’s view that language is too weak.

“Contracts can be written to say almost anything,” Stein said.

Stein said he once saw a contract that said the service will have been completed when a borrower gets a modification; willingly surrenders ownership of the house; or is foreclosed upon.

He said another bill the governor did not sign went further, saying a borrower could only be charged if a loan mod was granted.

SB 94, authored by state Senator Ron Calderon (D-Montebello), also says before entering into a fee agreement, the company must provide the borrower the following statement:

It is not necessary to pay a third party to arrange for a loan modification or other form of forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge. A list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) is available from your local HUD office or by visiting www.hud.gov.

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meltdown says:

October 15, 2009 at 9:42 pm

so i hear this is putting lots of the loan mod shops out of business. How do you convince someone to work and do the song and dance with a mortgage company for a month or so with no pay?

of course we could care less about what happens to these loan mod guys, but at the same time it just makes the soup line longer. Its not really good for the unemployment numbers.

this bill is a double edge blade. there there will be a lot less people doing loan mods, which means less help for people. And yes there will be alot less fraud.

i really doubt there is free help. thats just the way it is.

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Loan Mod Guy says:

October 16, 2009 at 2:08 pm

Talk about screwin the pouch with this deal…… yeah this law hits the scumbags of the industry that were out for a quick buck, but it also hit the folks that it is trying to protect - homeowners with mortgages that they can’t afford to pay right now - for whatever reason.
This law should have allowed the companies that were doing the mods correctly and following the DRE guidelines for advance fees to continue and have them monitored by the DRE and AG Brown.
Now the homeowners are being told to call the lenders direct and do their own modifications - good luck on that. Most are not capable of playing the hurry up and wait game with these lenders that change personnel weekly, loss of files/paperwork, under reviewal processes, etc., etc.
Or they can call HUD for assistance for free. If you’ve haven’t tried this you should - as it’s government at it’s finest.
Good luck to these homeowners as they have their legislature to thank for the position they have been put in.