Beware of Loan Modification Scams!

Consumer advocates and the California Department of Real Estate urge home owners facing or in the midst of foreclosure proceeding to be wary of services that charge advance fees for assistance with troubled loans.

While there are many legitimate and qualified resources available to help with a loan modification, there also are many scam artists. These phony services will tell a borrower that they can negotiate a deal with the lender if the borrower pays a fee first. They tell the borrower not to contact their lender or credit counselor and to let the "negotiator" handle the details. However, once they have the money, the crook takes off. Or, worse yet, the scam artist has the owner signs documents that surrender the title to the house in exchange for worthless or an expensive "rescue" loan.

Owners who are behind on their mortgage payments, may be contacted by individuals or companies that will offer to help work out a loan modification with the lender or provide other services to help the owner prevent a foreclosure. Be especially cautious if the service requires advance payment of a fee - typically one to one-and-a-half times the monthly loan payment or much more.

California Civil Code Section 2945, which regulates "foreclosure consultants," forbids anyone who falls under the definition of a "foreclosure consultant," as well as a real estate licensee, from collecting any advance fees for these types of services if a Notice of Default has been recorded against a property, according to the DRE. If the lender has recorded a notice of default, do not pay an advance fee to anyone.

There are non-profit agencies that can assist owners without charging a fee. Plus, real estate brokers can represent for a fee to be paid after they have completed their work.

If a Notice of Default has not been recorded against a property, the DRE says it may be permissible for a real estate broker to assist the owner in working out a loan modification or otherwise negotiate a possible resolution with the borrower's lender or loan servicer and ask the owner for payment in advance for their services.

However, the broker must have each borrower sign an agreement that tells them what services will be performed, when they will be performed and how much the borrower must pay, according to the DRE.

The broker cannot have owners sign an agreement until it has been submitted to the Department of Real Estate for review and the broker has received permission to use it and collect the advance fee, according to the DRE.

For information on non-profit housing counseling services, visiting the websites of the Federal Housing Administration and the Hope Alliance. Links to both sites are available on the DRE page describing loan modification rules: www.dre.ca.gov/mlb_adv_fees.html