California Loan Modification Laws

The State of California has passed numerous loan modification laws that are meant to protect homeowners from unethical and illegal loan modification practices. Knowing the basics of these laws can help a homeowner avoid a scam and keep them from losing money while they try to save their home. Most individuals subscribe to the services of loan modification rescue companies out of desperation, and the scammers know this. While many loan modification scams operating in California have been shut down by the loan modification laws that regulate the industry, there are still a high number of complaints received by the state from individuals who feel they have been taken for a ride.

One law that has helped to protect homeowners in California is the California Foreclosure Consultant Act. This law regulates loan modification firms that employ “foreclosure consultants”, not traditional law firms operated and staffed by attorneys authorized to practice law. The law forbids the collection of up-front fees by loan modification companies and prevents licensed attorneys working for loan modification rescue companies from sharing legal fees with non-attorney foreclosure consultants.

Loan modification laws prevent any loan modification company from collecting fees before any work is done. Some scammers still attempt to collect upfront fees while offering the homeowner an attractive and seemingly ironclad refund policy. California loan modification laws are very clear on the matter: No loan modification rescue company can charge upfront fees, period. It doesn’t matter how attractive the refund policy is, a homeowner should not do business with a company that is willing to break the law. A company willing to break one law is often willing to break several. Any California loan modification rescue company that collects or attempts to collect an upfront fee is operated by criminals. Would you really take the word of a criminal that told you they will refund your money?

The other important aspect of the California Foreclosure Consultant Act prevents attorneys employed by loan modification rescue companies from sharing the fees they collect with non-attorneys, often referred to as foreclosure consultants. This is to prevent licensed attorneys from collecting fees on behalf of a loan modification rescue company so that the fees can be distributed to foreclosure consultants on a commission basis. Many rescue companies try to circumvent the law by employing a licensed attorney, which is legal, so long as it is the attorney who is handling the case. This is not the case with many scams. Loan modification scams often claim that an attorney is handling a case when the work is in fact done by a non-attorney consultant. One way to avoid a scam is to deal with an actual law firm. If a homeowner is suspicious of any services they have already subscribed to, simply ask the person handling the case if they are a licensed attorney, and don’t be afraid to verify the information with the California Bar, the state regulatory agency for attorneys in California. A homeonwer’s best bet is to deal locally so that they have easy access to their attorney. Anyone can claim to be anything over the phone, so go with an attorney who can present their credentials in person. A true attorney is never afraid to offer verification of credentials.

California loan modification laws also prevent loan modification companies from offering their services to homeowners after a Notice of Default has been filed with the county and require all loan modification companies to be licensed by the California Department of Real Estate.

Homeowners shouldn’t get the wrong idea. Not all loan modification companies are evil…but the plain and simple fact of the matter is that it is far easier for a scammer to set up a seemingly legitimate loan modification company than it is for a scammer to impersonate an attorney. Attorneys in California have to earn a law degree or apprentice under a practicing attorney for a certain number of years before even being allowed to sit for one of the toughest Bar exams in the country. Failure to pass the exam means the person may not practice law. The requirements to establish a loan modification company are not nearly as strict and many self-proclaimed entrepreneurs get into the business just to make money.

Think of it this way, if you needed open heart surgery, would you go to a doctor in a hospital or an entrepreneur in a white coat?