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.