DON’T BE A VICTIM OF LOAN MOD FRAUD

You’ve seen it before, after the hurricane, flood, or earthquake. They follow disasters, looking for helpless victims they can help save from the crises. They prey upon the desperate, unsuspecting and trusting. In these troubled times, there’s a new creature on the loose: They’re called Loan Mod Frauds.

In the wake of the mortgage meltdown and the downturn in the real estate industry, there has been a new breed of vultures hovering around your front yard. These are the people who have noticed that you are behind on your payments, in default, and they assure you that if you hire them for a flat fee, that they can help you save your house by doing a loan modification with your lender. What they don’t tell you and don’t want you to know is that you can do it yourself. Simply call your lender, and document your income and expenses, any unusual circumstances, including loss of job, accident, injury or catastrophic injury demonstrating unusual need for assistance or hardship.

In California, loan modifications and home equity consultants are governed by California Civil Code § 2945 et seq. In order for a person to help you with a loan modification, he or she must be a licensed California Realtor, or California lawyer.

If a Notice of Default has been recorded, real estate brokers are prohibited from entering into an advance fee agreement.

Lawyers can bill you on are hourly fee for legal services, but realtors they cannot accept an advance fee, and whatever documents that you are given must be provided in advance and approved by the Department of Real Estate.

On February 3, 2009, The Sacramento Bee reported that there's been an explosion of questionable companies getting into the game, government authorities say, and rising numbers of consumer complaints. This, they note, is for services that consumers can do themselves or get free from nonprofit loan counselors approved by the U.S. Department of Housing and Urban Development.

"It's similar to after a hurricane hits," said Tom Pool, spokesman for the California Department of Real Estate. "The bogus contractors come and collect money for repairs and don't do anything. These people are on their last dollar, anyway, and these loan-modification companies are having them draw on their credit cards with false promises."
Tom Pool spokesman for the DRE said that it has shifted staffers to investigate 250 cases of loan-modification offenses. Many involve former real estate agents. It also has filed a growing number of cease and desist orders statewide.

The California Attorney General has also ramped up their enforcement efforts. Deputy Attorney General Angela Rosenau said she has worked almost entirely on loan-modification scams since fall 2007. While Both Pool and Roseneau recommend you contact you lender or the other public agencies that are set up to help you in the first instance, it was noted that borrowers seeking potential loan modification have been getting mixed responses. Some lenders are more aggressive in allowing loan modifications and others aren't ramped up or staffed to handle the number of requests so they go unanswered. Lenders frequently are unresponsive before they default, because the entire industry has been overwhelmed and having financial troubles of their own. Sometimes a borrowers’ paperwork is lost and you can expect to endure long waits on the phone. There is also the problem of finding your lender after your loan has been shopped around on the secondary mortgage market, the lender has folded or been taken over by the FDIC or some other lender.

Under California law, found in Civil Code § 2945 et seq., home foreclosure consultants and those doing loan modifications must have advance fee agreements which require plenty of disclosures.

When no Notice of Default has Been Recorded

If you haven't yet received a notice of default you can be charged an advance fee. But:

• The firm must provide an agreement for you to sign that explains what services will be performed, when they will be performed and what they will cost.

• And before presenting an agreement for you to sign, that agreement must have been submitted to Department of Real Estate. It must be reviewed and approved by the DRE before the broker the broker can market those services and collect upfront fees. Those fees must then be held in a trust account and only be spent on agreed-upon services.

 

After Notice of Default Has Been Issued

If your lender has issued a notice of default against you (after you missed numerous payments) loan-modification companies cannot collect an advance fee, even if they have a real estate license.

• Lawyers are exempt and can charge an upfront fee if they are rendering legal services and operating under the scope of their licenses.

Here are some free or nonprofit resources that can help you with a loan modifications:

Federal Housing Administration

Hope Alliance.org

California Department of Real Estate