Death Knell For Loan Modification Companies In California
It has always been about the Benjamins--loan modification companies have routinely collected fees up front, and provided no guarantees. Banks were not very willing to modify loans 2 years ago, so many homeowners were out of luck despite having paid up front fees. To control this practice, sections of the Business and Professions Code were amended to require that anyone performing loan modifications have an "advanced fee" agreement which had been reviewed by the DRE, prior to collecting advance fees. Some brokers applied, and hundreds have been accepted, or received a "no objection" letter, which is not the same as approved or endorsed. Their names are posted on the DRE website, and regardless of the semantics, the impression is that they are legit. Not so much. The approval to take advance fees still has no impact on the work ethic or success of the particular loan modification company--it merely addresses the issue of whether clients understand what they are paying the money for. Other individuals who were not licensed real estate brokers attempted to hook up with a card carrying member of the California bar, so that they could call themselves "attorney backed" and get around the advance fee rule. This worked for awhile until the State Bar issued 2 ethics opinions that basically said, no.
The lastest blow to the loan modification businesses is Senate Bill 94. Essentially, it prohibits advanced fees. Period. No fees until after all the work is finished and the loan is modified. Ouch. This really cuts in to the practice of promising the moon and delivering less. Additionally. clients in default on the mortgage don't have a lot of cash, so collection can often become a problem even if the loan was modified as promised. Get ready if this new law makes it through--the whole business model is pretty much up in smoke.
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