The craze right now for former loan brokers is to become a loan modification specialist. However, in states like California is it illegal for anyone except attorneys to take a fee before they provide the assistance. The rationale is because attorney’s are held to the highest standard and are members of each state’s bar whereas brokers nearly no duty to anyone. Legislation requires that brokers and others trying to be foreclosure consultants do the loan modification first and ask for fees after the work is done. This law is in force to protect consumers because they are vulnerable and many of these unlicensed cowboys and mortgage brokers have abused their relationships in the past and done nothing to help a troubled home owner while still taking a fee from them.
Under California’s Mortgage Foreclosure Act as codified in Sections 2945 et seq. of the Civil Code, all so called foreclosure specialist or consultants are prohibited from collecting an upfront fee from a consumer, even if they work with attorneys or have attorneys inside their shop. Hence, they must perform services before collecting a fee absent being a law firm where an ordinary attorney/client relationship has occurred under a normal retainer agreement.
Recently a mortgage modification shop was shut down by the California Attorney General’s office and the attorney who worked “with them” was brought into the unlawful liability since he never undertook any of the consumers as clients under an attorney/client relationship. Therefore, they were prohibited from taking an upfront fee and should have performed the services first and then tried to collect which typically is hard to do so that is the reason many are trying to ‘work with’ attorneys but both are misinformed on the law and this is probably the first of many more cases to come because it generates revenue for the state…millions in fines for getting this WRONG. This is all laid out in California Civil Code section 2945.1 subdivision (a) as it describes a foreclosure consultant and if it walks like a duck and it quacks like a duck it is a duck.
This sends a shockwave through this mass market where many think they can just be cowboys and steer consumers into the corral for a bilking. Seeking a loan modification or short sale in these tumultuous financial times should be a legal play as the clients need the attorney/client privilege when submitting their documents to the bank looking for relief. These cases are hardship driven and many consumers were would-be real estate investor who forgot the real estate club they went to that sold them 5 or 10 properties at a time were salespeople doing what salespeople do; sell you as much of a product as frequently as they can. Many of the loan broker’s working with these investment clubs probably stretched the boundaries of reality as they made a case for income under a stated loan helping someone buy 5 or more properties at the same time when they truly had the income to handle their own personal residence with no financial hiccups.
The message here is if you are looking for a foreclosure solution consider it a legal solution and hire a law firm that is focusing on these transactions to preserve your rights and protect you from having your loan documents turned against you if your broker over stated your income just to qualify you so they could get their commissions.
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James Burns, Esq.