With so many homeowners facing foreclosures, a new predatory scam has gained
in popularity charging advance fees for loan modification services then
either disappearing with the money or failing to put forth a good faith
effort to help the borrower.
Typically, an individual or company will contact a borrower who is behind
in payments and offer to help negotiate a modification of their loan in
order to avoid foreclosure. If the lender has already begun the foreclosure
process by recording a Notice of Default against the property, California
law prohibits any person, broker or otherwise, from collecting an advance
fee for these services (attorneys are exempt, however).
If the lender has not yet filed a Notice of Default, requesting advance
payment for modification services is permissible. However, the borrower
must sign a written agreement pre-approved by the Department of Real Estate
stating precisely what services will be performed, when they will be performed
and how much it will cost. Currently, there are only about 95 individuals
or businesses that have pre-approved agreements (see www.dre.ca.gov).
It is acceptable for licensed brokers to provide loan modification services
without collecting advance fees if their services are fully completed
before being paid.