SB 94: D.O.A. Loan Modifications

The buzz around Senate Bill 94 (SB 94) being the “Death Of All Loan Modifications” faded away just as fast as the controversy T-Pain caused with his comments about Jay-Z and his lead single “D.O.A. (Death of Auto-Tune).”

Jay-Z’s critical lyrics from his lead single sure made artists think twice before using the audio processor to alter their voice imperfections. The use of Auto-Tune, however, will continue to be widely used as long as music fans are willing to buy pitch altered albums.

In the same manner, when SB94 was signed into law it made loan modification scam artists think twice about getting involved in modifications again. Most scammers, however, will continue to defraud homeowners as long as consumers are willing to belief their sales pitches.

The FBI has said that a “rampant mortgage fraud climate” currently exists, and that California is one of the top states for loan fraud.

Responding to an increasing number of licensed and unlicensed predators taking advantage of consumers, particularly in the area of loan modifications, Senate Bill 94 (PDF), originally proposed by Sen. Ron S. Calderon, passed and became law in California as of Oct 11th, 2009. Thus, California law makes it illegal, until January 1, 2013, for any person, including lawyers, real estate brokers, real estate salesperson, corporations, companies, partnerships, or any other licensed or unlicensed person or party, to demand, charge or collect any advance, upfront, or retainer fees, or any other type of pre-payment compensation, for loan modification work or services, or any other form of mortgage loan forbearance affecting 1-4 unit residential properties.

Consequently, just like any changes in the legislature, it is debatable whether this new law will protect homeowners or hinder the chances of a loan modification for a qualified borrower. And as it was expected, some legitimate and all illegitimate loan modification companies have argued against SB 94.

Although their claims against SB 94 are somewhat substantiated, they are not all completely true.

All of this leaves homeowners with the same unanswered questions: Will SB 94 protect me from loan modification “scammers”? Or will this bill make it more difficult for me to negotiate a loan modification?

To help homeowners answer those questions on their own, following are some excerpts from the bill along with my explanation.

And in Jay-Z’s words, I know that, “This ain’t politically correct. This might offend my political connects,” but then again who cares! I don’t sensor my thoughts simply because a fellow brokers/agents or attorney may get upset at me for being too transparent.

LICENSEES AND UPFRONT FEES

10026. The term “advance fee” as used in this part is a fee, regardless of the form, claimed, demanded, charged, received, or collected by a licensee from a principal before fully completing each and every service the licensee contracted to perform, or represented would be performed. Neither an advance fee nor the service to be performed shall be separated or divided into components for the purpose of avoiding the application of this section.

10085.6. (a) Notwithstanding any other provision of law, it shall be unlawful for any licensee who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower to do any of the following:

Claim, demand, charge, collect, or receive any compensation until after the licensee has fully performed each and every service the licensee contracted to perform or represented that he, she, or it would perform.

Take any wage assignment, any lien of any type on real or personal property, or other security to secure the payment of compensation.

Take any power of attorney from the borrower for any purpose.

With SB 94, the California law makes it illegal for anybody, including licensees, to charge an “advance fee,” regardless of the form, before fully completing each and every service the licensee offered to perform. Included in this restriction, are brokers who have previously received the “no objection” letter and are listed on the Department of Real Estate website. Remember that this list of brokers does not guarantee they are legitimate loan modification companies.

ATTORNEYS AND UPFRONT FEES

It shall constitute cause for the imposition of discipline of an attorney within the meaning of this chapter for an attorney to engage in any conduct in violation of Section 2944.6 or 2944.7 of the Civil Code.

The statutory language on this new law prohibits attorneys from collecting advance fees for loan modifications, or placing that fee into a client trust account and not drawing against that fee until the services have been fully performed. The law also prohibits attorneys from collecting a “retainer” fee before fully completing the loan modification.

California licensed lawyers may perform loan modification work, but only when such lawyers render those loan modification services in the course and scope of their practices as an attorney at law.

Here are the California State Bar’s FAQ’s about SB 94 regarding attorneys charging upfront fees (PDF).

CHARGING FEES AFTER COMPLETION OF A LOAN MODIFICATION

10147.6. (a) Any licensee who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offset to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other form of compensation paid by the borrower, shall provide the following to the borrower, as a separate statement, in no less than 14-point bold type, prior to entering into any fee agreement with the borrower:

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 f Housing and Urban Development (HUD) is available from your local HUD office or by visiting www.HUD.gov

As it is written, only licensed real estate brokers or attorneys may charge fees after fully completing a loan modification. Additionally, they have to provide a contract, prior to entering into any fee agreement. The contract shall list the services that will be performed and the above mentioned statement noting the free loan modification services available from HUD approved agencies.

LOAN MODIFICATION SERVICES OFFERED IN OTHER LANGUAGES

(b) If loan modification or other mortgage loan forbearance services are offered or negotiated in one of the languages set forth in Section 1632 of the Civil Code, a translated copy of the statement in subdivision (a) shall be provided to the borrower in that foreign language.

If the contract and services are offered and negotiated with the borrower in their native language, the same statement noting the free services available from HUD approved agencies must be translated to that borrower’s native language prior to entering into any fee agreement. Additionally, mortgage foreclosure consultants must provide their contracts with a translation of every term of their agreement in the contract before having the homeowner sign it.

ADVERTISING FALSE STATEMENTS AND MISREPRESENTATION

10177. The commissioner may suspend or revoke the license of a real estate licensee, or may deny the issuance of a licensee to an applicant, who has done any of the following….
(c) Knowingly authorized, directed, connived at, or aided in the publication, advertisement, distribution, or circulation of a material false statement or representation concerning his or her designation or certification of special education, credential, trade organization membership, or business….

There are scammers advertising on the radio, on the television, in newspapers, through the internet, via email and the U.S. mail. Some even go door-to-door. Regardless of the promises, if anyone guarantees a successful loan modification, it is most definitely a scam!

While there are people and entities in the business of modifying loans that are licensed, legitimate and qualified, all homeowners must certainly be cautious.

Scammers and con artists will almost always make bold claims promising to save homeowners from foreclosure or to delay a foreclosure via litigation and/or bankruptcy filings. They will also claim that attorneys know the legal process that will guarantee success or that their services are attorney-backed, attorney-affiliated, or attorney-based, but they don’t identify the attorney or the law firm.

If an attorney actually works with a loan modification company, then the loan modification company becomes the client of the attorney. Therefore, consumers should check out the lawyer’s status, membership records and any disciplinary notices by going to the California State Bar website.

Often times, these individuals will create a business and attach the title “Legal Services” to their business name. A business with the title “Legal Services,” is not necessarily a legitimate law firm nor will it necessarily provide true legal services from an attorney.

Other names used by scammers are foreclosure prevention or rescue consultants, forensic loan auditors, loan restructuring agents, debt settlement specialist, loss mitigation experts, loan modification specialist, mortgage modification consultants, or some other official sounding title. These individuals will also falsely claim to be non-profits, and/or to be affiliated with a government agency or department, and suggest the backing of the Obama Administration.

Nonetheless, many of these individuals have turned out to have criminal and/or disciplinary records, and their companies are just fraud factories benefiting of high-pressure sales.

FORECLOSURE CONSULTANTS AND LOAN MODIFICATIONS

2945.1 (a) “Foreclosure consultant” means any person who makes any solicitation, representation, or offer to any owner to perform for compensation or who, for compensation, performs any service which the person in any manner represents will in any manner do any of the following:

Stop or postpone the foreclosure sale.

Obtain any forbearance from any beneficiary or mortgagee.

Assist the owner to exercise the right of reinstatement provided in Section 2924c.

Obtain any extension of the period within which the owner may reinstate his or her obligation.

Obtain any waiver of an acceleration clause contained in any promissory note or contract secured by a deed of trust or mortgage on a residence in foreclosure or contained that deed of trust or mortgage.

Assist the owner to obtain a loan or advance of funds.

Avoid or ameliorate the impairment of the owner’s credit resulting from the recording of a notice of default or the conduct of a foreclosure sale.

Save the owner’s residence from foreclosure.

Assist the owner in obtaining from the beneficiary, mortgagee, trustee under a power of sale, or counsel for the beneficiary, mortgagee, or trustee, the remaining proceeds from the foreclosure sale of the owner’s residence.

In addition to real estate licensees and attorneys, “foreclosure consultants” may also assist homeowners in these matters. However, their agreements must also be in writing and contain specific disclosures according to Civil Code 2945.3. Foreclosure consultants are also prohibited from collecting a fee for any services until after the services have been fully performed according to Civil Code 2945.4(a).

Moreover, as of July 1, 2009, “foreclosure consultants” may ONLY charge a fee if they are registered with the Attorney General’s Office, post a $100,000 bond and obtain a certificate. Consumers should verify such registration if anyone is offering any of the services listed above which include saving a home from foreclosure, stopping foreclosure and repairing a borrower’s credit after foreclosure. Information is available by contacting the Attorney General’s Office.

SCHEMES WORKING AROUND SB 94

Although this new legislation does protect homeowners to some extent from loan modification “scammers,” con artists will always find a way to work around the written law and continue defrauding distressed homeowners.

One way they hope to work around the law is by dividing the process of the loan modification into separate steps or stages and only collecting a fee after each stage has been completed.

For example they may charge a fee just for submitting the documentation to the lender or after the lender has declared that it is reviewing the case. However, SB 94 clearly states “Neither an advance fee nor the service to be performed shall be separated or divided into components for the purpose of avoiding the application of this section.”

To complete this scam, the lawyers involved will split the fee collected from the homeowner to pay the licensee or individual for the referral. Referral relationships between lawyers and non-lawyers are allowed by the California State Bar as long as there is no money involved. Often times, however, individuals referring their clients to these lawyers are brokers/agents, insurance agents, appraisers, CPA’s, credit repair companies, foreclosure consultants, and others, looking to receive monetary compensation from the lawyer for the referral.

One of the reasons non-lawyers are used to bait in distressed homeowners is because the California State Bar does not allow attorneys to solicit by phone or in person. Additionally, California State Bar’s ethics rules state that lawyers may not compensate a referral or marketing fee to any person, entity or any other non-lawyer for referring distressed homeowners to the lawyer. It also states that neither a lawyer nor a law firm shall directly or indirectly share legal fees earned from a distressed homeowner (client) with any person, entity or any other non-lawyer.

Although illegal, one way attorneys try to explain the fee-splitting on their contract is by stipulating that the client wants to hire an XYZ company, other than the attorney, to negotiate or review the documents.

The attorney fee agreement may state, “The cost of our services will be billed as a flat fee of $3,000. ABCD Law Group has enlisted the services of XYZ Real Estate & Mortgage Inc to assess your current financial situation and complete the preliminary paperwork. The fee of $1,000 is earned prior to our retention, and there for will be paid immediately to XYZ Real Estate & Mortgage Inc from the flat fee described in this paragraph.” These loan modification agreements may also have an “Indemnification and Hold Harmless” clause which is also prohibited.

Another way attorneys and non-attorneys form illegal partnerships is by offering forensic loan audits performed by a broker and/or attorney. However, the problem lies in that the statue of limitations regarding RESPA regulations is only 3 years. Therefore, loans that were obtained past this 3 year limitation may have no legal recourse to benefit from.

Other ways scammers are working around SB 94 is by selling useless “Do-It-Yourself Loan Modification” books that claim to teach homeowners how to successfully complete a modification on their own. These individuals may also set up seminars for this same purpose and charge fees for each seminar. Or they may ask homeowners to transfer part of the property title ownership to a shell corporation or a third party company to stop foreclosure.

As a final note, remember the market is an ocean full of sharks when it come to saving homes from foreclosure so do not sign anything you do not fully understand.

SB 94 reads at its end “With foreclosures at historic levels, foreclosure rescue scams are pervasive and rampant. In order to prevent financially stressed homeowners from being victimized and to provide them with needed protection at the earliest possible time, it is necessary that this act take effect immediately.”

If you feel you have been victimized by a loan modification attorney, real estate agency or company; send your complaints to the following corresponding agencies:

PSA from Loan Modsters: “This is the Death of All Loan Modifications, moment of silence…..…..(under their breath) not really suckers!”

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December 22nd, 2009 · Filed Under Loan Modifications

Comments

2 Responses to “SB 94: D.O.A. Loan Modifications”

Should You Trust A Forensic Loan Audit? : San Jose-Santa Clara County Real Estate UNCENSORED on March 1st, 2010 4:27 PM

[...] Today, the office of the Attorney General released a warning telling homeowners to avoid forensic loan audits. According to them, a forensic loan audit is the loan-modification industry’s latest “phony foreclosure-relief service.” However, forensic loan audits are not new at all. These audit scams appeared almost simultaneously as loan modification began to appear. Perhaps the reason why these audits are now the center of attention instead of loan modification is because of SB-94. [...]
michael moura on March 5th, 2010 2:23 PM

we have been scamed by hope 4 homes Abbasi and associates. retained lawyer on Nov 2, 2009 and on march 1 2010 our home of 21 years was forclosed on and auctioned off. This company is made up of nothing but fraud evil misleading people. how can this happen to good american families.
Abbasi and associates cover themself by having a multitude of names M A law group being just one of many. there is no lawyer on your case, just a bunch of untrain unprofessionals and most of all thiefs.
I don’t know what legally we can do, because this just happened to us. But I won’t rest until these con artist are shut down. I want my house and I will some how make them pay for their dishonesty. Look out Abbasi we will come after you hard core. If we have any legal avenues to own you……..We will.

Matthew Abbasi and hope 4 homes are crooks and they need to be stopped. You can’t play with peoples homes like this. You pry on the helplessness of american homeowners and that just is wrong. we have been wrong by Abbasi and I will work hard for this to be made right. You all……everyone who is involved in this scam will pay. one by one you will fall. thats my 100% gaurantee to you Abbasi!!!!!
crooks: Abbasi and associates
3255 cahuenga blvd west 305
los angeles, california 90068