Loan Modification Advisory – For Homeowners Considering Loan Modifications in California

Loan modification scams are everywhere, particularly in California. Homeowners should be wary of any loan modification company that collects up-front fees. In San Diego we know of any residences that have been preyed upon by loan modification companies that collect up-front fees yet they cannot perform. Some of the main reasons that these loan mod companies are failing to get the loan modified is that they either do not have an adequate understanding of the banks’s requirements, do not have adequate staff to handle all their applicants, or are just scam artists wanting to get easy money and prey upon vulnerable people.

A qualified loan mod company should be in business for at least 2 years for you to consider using them. Ask about their staff, timeframe for a loan mod turn around, their successes and failures, and what criteria they are using to determine if they will take you on as a candidate. The California Department of Real Estate regulates loan mod companies, including those operating in San Diego, and require them to register with the DRE if they are collecting up-front fees. Attorneys are exempt from this registration, but it is a good idea to check them out as well. Getting up-front fees returned from an unscrupulous attorney may be difficult.

California has strict rules regarding the collection of up-front fees for loan modifications. This is a regulated activity by the Department of Real Estate. Many loan modification companies are not fully compliant with the laws, and hundreds of Desist and Refrain Orders have shut down illegal operations.

“Attorney-backed” or “attorney based” loan modification companies who are not attorneys are supposed to have in house attorney or outside counsel. In many cases there is no such attorney at all, or the attorney is just by name that gets a fee for the use of their license. So be careful when choosing your loan mod company in California.

To find out whether the loan modification company is licensed to collect up-front fees go to: Approved Loan Mod Companies. This is California’s DRE website for Advance Fee Agreements. Check with your loan modification company that you are working with if they are operating as a DBE (“Doing Business As”) or if they hang their licensed under a registered Broker. Their name may not specifically appear on this list, but they may be fully certified.

The California Department of Real Estate website states that:

California Civil Code Section 2945, which regulates “foreclosure consultants”, forbids the collection of up-front fees from anyone who falls under the definition of a “foreclosure consultant”, as well as a real estate licensee, for loan modification services if a Notice of Default has been recorded against your property. California licensed lawyers when rendering services in the course of their legal practice(s) are exempt from this prohibition. Most California lawyers provide retainer agreements, thus do not fall under CA Code Section 2945.

Accord to Civil Code Section 2945 “If a Notice of Default has not been recorded against your property, it may be permissible for a real estate broker to assist you in working out a loan modification or otherwise negotiate a possible resolution to your problem with your lender or loan servicer and ask you for payment in advance for their services. However, the broker must have you sign an agreement that tells you what services will be performed, when they will be performed and how much you must pay. The broker cannot have you sign an agreement until it has been submitted to the Department of Real Estate for review and the broker has received permission to use it and collect the advance fee.”

You should not be paying any advanced fees for loan mods in San Diego, Orange County or anywhere in California if there is no signed retainer agreement with a licensed California Lawyer, or you are not working with Real Estate Broker who has an Advance Fee Agreement with the Department or Real Estate.

Here’s the current California list that includes loan mods violations as well as other violations:

Desist and Refrain Orders