In times of economic distress, opportunities for corruption become more plentiful. Just as insects are known to propagate in the ruins of a fallen city, loan modification facilitators demanding advance fees thrived in the carnage of the subprime collapse. This is indicative of the dark side of human nature – when one individual suffers a tragic twist of fate, another is perched and ready to make a quick buck off his misfortune. This opportunity was so good for brokers and agents that even attorneys piled into the fray. [For information covering the previous attorney-exemption loophole which plagued loan modification regulations, see the March 2009 first tuesday article, Loan modification negotiations are the domain of real estate licensees.]
This has especially been felt in the real estate industry where the fallout of the Millennium Boom has left 25% of California’s homeowners underwater – around 2,500,000 people – and all needing a loan modification. Nefarious loan modification facilitators have taken advantage of this increased demand by collecting advance fees from the homeowner then accomplishing little to nothing in negotiations for a loan modification with the homeowner’s lender. To make matters worse, the services charged and “performed” by the facilitator could just as easily be obtained for free by the homeowner directly through his lender or a nonprofit housing counseling agency.
In 2009, one of the most calamitous years in memory, the Department of Real Estate (DRE) revoked a record breaking 672 licenses in relation to loan modification scams, up 50% from 2008. Additionally, 105 licensees have surrendered their licenses to the state and are currently facing disciplinary action for accepting advance fees.
first tuesday take: Effective October 11, 2009, California Business and Profession code §10147.6 prohibits advance fees to be paid for any loan modification or loan forbearance service on a one-to-four unit residential loan – even if the licensee received a “no objection” letter from the DRE previously granting him authority.
As evidenced by three of the four feature articles currently published on the DRE’s website, advance fees are still a problematic issue in California. The numbers cited by the Real Estate Commissioner are even more dire than those presented in the above reported Sacramento Bee article. The Commissioner reports the DRE is in the process of investigating over 1,300 loan modification complaints. In the last 12 months alone, the DRE has issued over 400 desist and refrain orders against individuals illegally receiving advance fees. Obviously, this problem continues to be a thorn in the side of California’s recovery. [For more information and additional requirements regarding advance fees, see the January, 2010 first tuesday Legislative Watch (LW)]
If one of your family members, friends or clients is considering a loan modification, keep in mind the revealing disclosure which must be provided prior to entering into any residential loan modification service:
“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 www.hud.gov.”
Re: “105 real estate licenses revoked – a record,” from the Sacramento Bee
I am not surprised by the amount of transactions taking place with less than forthcoming representation. There are just to many people who need and require the help of trained individuals in the real estate community. However I would like to point out that the DRE is unable to deal with it. The Federal Government and the State Government are unwilling to react to the small dollar crimes. This is where everyday people get hurt and suffer when there losses are less than ($) ?
I personally would like to see a simplified process in rationalizing DRE offenses.
1) Make it more agreeable to the general public.
2) Once a complaint is filed have a meeting between broker/salesperson and client along with a single representative from the DRE.
3) If the client doesn’t show dismiss the complaint.
4) if the broker/salesperson doesn’t show schedule a hearing.
We live in community where settling any dispute is less costly than having a hearing or even a trial….
I see your point Peter, but there is to many scum bags knowing they will not do what they say they will do. It’s a thanks for the money, see you in another life. The fast talkers make promises of being the white knight to save there problems, but blow off people in dire need. I never sold an option arm, and could see the ramifications of an unpredictable market. It had to stop at some time, but people just got greedy and wanted to keep the party going. As you know, the liar loans took someone making 35k a year, and put down 80k salary just to make there points. You can’t tell me these borrowers had no knowledge of this. They signed the paper work, and it wasn’t to difficult to see all the fudges put on the ap.. These loans should of never been put in place, and honest people like myself, would not have to deal with the turbulance the world is facing now because of these nuke loans.
Another profound example of government over-reacting and interfering with service provided by licensees. Why is the only solution is more regulations and laws? The simple solution would have be for the client to sign a disclosure acknowledging and agreeing to an advance fee that’s mutually agreed to.
The disclosure would state, at the minimum, that the negotiator cannot make any guarantees that the loan mod will be successful.
I don’t do loan mods, but a few people I know that did, had a 45% success rate and they earned their fees up front. Now that they can’t collect up fron fees, they quit doing loan mods. They said it takes an enormous amount of time.
The argument that the borrower can do their own loan mod is the same as saying the homeowner can sell their own home without an agent. Sure they can, but do they have the training and skills to do so?
Why can attorneys able to get a retainer up front before even talking to you, but licensees can’t??
Congratulations! I appreciate you very much! God bless you all!