New Law Prohibits Advance Fees For Lawyers Doing Foreclosure Work

Gov. Schwarzenegger signed Senate Bill 94 Oct. 11, which immediately prohibits any person, including attorneys and real estate licensees, from collecting an advance fee to perform professional services relating to foreclosure relief for homeowners.

This new law was adopted as an emergency measure to close a loophole that permitted companies and scam artists exploiting the foreclosure dilemma, promising false hope to stop foreclosure and the ability to charge advance fees.

It is now unlawful for any licensed attorney or real estate agent “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 claim, demand, charge, collect, or receive any compensation until after the [attorney or agent] has fully performed each and every service the licensee contracted to perform or represented that he, she, or it would perform.”

The advance fee prohibition for loan modification and forbearance services applies to residential property containing four or fewer dwelling units.

The new SB94 law has specific requirements stating that a written disclosure in at least 14 point bold type regarding loan modification and/or loan forbearance services prior to entering into any fee agreement with a 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 of Housing and Urban Development (HUD) is available from your local HUD office or by visiting http://www.hud.gov/.”

If loan modification or other loan forbearance services are offered in Spanish, Chinese, Tagalog, Vietnamese or Korean, a translated copy of the disclosure above must be given to the borrower in that language.

A violation of the law can result in fines and up to a year in jail.

You can check out the complete Department of Real Estate News Release by clicking on the link below.
http://www.dre.ca.gov/pdf_docs/DRENews_ReleaseSB94Final102009.pdf

Also, to read more about the bill SB94 and FAQs, click here…
http://www.dre.ca.gov/pdf_docs/FAQsSB94.pdf 



Source:
California Bar Journal - http://www.calbar.ca.gov/state/calbar/calbar_home.jsp
The California Department of Real Estate at dre.ca.gov