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Your Legal Corner - Client Alert Blog

Charging an Upfront Fee for a Loan Modification Prohibited Under California Law

Written By: Melissa C. Marsh, Esq., California Attorney, November 2009 Add to Favorites
Senate Bill 94 signed into law by Governor Arnold Schwarzenegger aims to reduce fraud against desperate borrowers trying to save their homes from foreclosure. Effective October 11, 2009, California law prohibits all foreclosure consultants, including loan modification firms, real estate agents and brokers, and attorneys from asking for any upfront fees or compensation to negotiate or assist with a loan modification until the services contracted for have been fully performed. The new law also requires anyone who negotiates, or arranges for, a loan modification on a residential property up to 4 units to give the borrower a specific notice that paying a third-party for loan modification services is not necessary and that the same services are provided for free by government-approved nonprofit mortgage counselors.

An advanced fee is defined as, "a fee, regardless of the form, claimed, demanded, charged, received, or collected by a licensee from a principal before fully completing each and every service the licensee contracted to perform, or represented would be performed." Real estate agents and brokers may still accept an advanced fee for advertisements in newspapers of general circulation, tenant pre-screening fees, and tenant security deposits.

As of October 11, 2009, Advance Fee Loan Modification Agreements previously reviewed and approved by the Department of Real Estate (DRE) are void and can no longer be used. Loan Modification Agreements entered into and advance fees collected before October 11, 2009 are not affected.

Failure to comply with the new laws can lead to a fine of up to $10,000 for an individual ($50,000 for a business) and one-year imprisonment.


Tags: california loan modification, loan modification
Posted In: Real Estate Reporter 


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Disclaimer: The information presented on this web site was prepared by Melissa C. Marsh for general informational purposes only and does not constitute legal advice. The information provided in my articles and alerts should not be relied upon, or used as a substitute for professional legal advice from an attorney you retain to advise or represent you. Your use of this Internet site does not create an attorney- client relationship. Transmission of this article is not intended to create, and receipt of it does not constitute, an attorney-client relationship. All uses of the contents of this site, other than personal uses, are prohibited. You may print or email a copy of any information posted on this web site for your own personal, non-commercial, use, but you may not publish any of the articles or posts on this web site without the Express Written Permission of Melissa C. Marsh.


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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.