California Loan modification companies and attorneys that charge up front fees will have to change their business model as of Monday.
via The Sacramento Bee | Oct. 13,2009
Loan modification firms that promise to help struggling borrowers get their mortgages rewritten have been banned immediately from asking for cash upfront.
Attorneys, too, who specialize in loan modifications are no longer allowed to ask consumers for payment before they perform services. The ban expires on Jan. 1, 2013.
The abrupt change in California law comes after Gov. Arnold Schwarzenegger Sunday signed Senate Bill 94, by Sen. Ron Calderon, D-Montebello. As an urgency measure, the bill takes effect immediately.
Calderon, in an interview Monday, called the signing “a very big victory.”
In a positive step to clean up the loan modification industry, Governor Schwarzenegger’s action follows massive numbers of complaints to the state Department of Real Estate from consumers who said they paid up to $4,000 upfront to firms that often abandoned them.
Loan-modification firms have made relentless pitches to borrowers through radio and television ads, postcards and telephone calls. Many desperate people have turned to them, often coughing up a few thousand dollars for help that didn’t come.
“This is a huge problem, and the signing of this (bill) will help,” said Tom Pool, spokesman for the California Department of Real Estate. He said the department has 1,300 complaints on file and has issued 400 cease and desist orders against loan modification firms. The law banning advance fees aplies to firms in California or elsewhere that solicit clients in California.
The new law also specifies that loan modification firms must tell potential clients they can get the same services for free from government-approved nonprofit mortgage counselors. The firms cannot receive payment until they have performed all services promised in a contract with the borrower. Borrowers must pay the loan modification firm for services provided, even if the firm can’t get the loan modified.
Lawmakers passed the ban on upfront fees with a two-thirds vote, backed by a coalition that included the California Association of Realtors, cities hard hit by foreclosures, organized labor and consumer groups.
The ban on advance fees was made temporary in recognition that many firms follow the rules, said Pool. It also recognizes that the loan meltdown will eventually end.
“We didn’t want to put a permanent ban on legitimate business during a temporary crisis,” he said.
To the Members of the California State Assembly:
I am returning Assembly Bill 764 without my signature.
Although I support the prohibition of individuals charging advance fees for mortgage loan modifications, I do not agree with the provision of this bill that will only allow fees to be collected if a modification is successful.
This could adversely affect legitimate businesses that provide loan modification services. As such, I am signing SB 94 that accomplishes this prohibition against advance fees without unnecessarily harming legitimate companies.
For these reasons, I am unable to sign this bill.
Sincerely,
Arnold Schwarzenegger
Related Articles:
- Gov. Schwarzenegger Does Right Thing: Signs SB 94 And Vetoes SB AB764
- CA SB 94 on Lawyers & Loan Modifications Passes Assembly… 62-10
- 500,000 Loan Modifications – Oct 2009 Report
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