The number of real estate brokers authorized by California regulators to collect advance fees for negotiating loan modifications and short sales on behalf of homeowners has grown from less than two dozen in mid-November to almost 600.

California requires real estate brokers who negotiate with lenders to enter into agreements with borrowers detailing the services they will provide if they plan to collect their fees upfront. Fees collected in advance are placed in a trust account and can be drawn down only as services are performed.

The California Department of Real Estate must sign off on the language in the agreements brokers plan to use before they can collect upfront fees. According to the Department of Real Estate’s Web site, 596 real estate brokers were authorized to collect advance fees as of April 24. That’s up from 21 companies in mid-November and 205 through Feb. 5.

Many nonprofits offer counseling for distressed homeowners at little or no cost. The Homeownership Preservation Foundation operates a hot line at (888) 995-4673 that provides access to U.S. Housing and Urban Development Department-approved counselors who can recommend options for avoiding foreclosure.

The Obama administration’s "Making Home Affordable" refinance and loan modification program has a dedicated Web site,, that includes online tools to help borrowers determine their eligibility for the program. An industry alliance of loan servicers provides assistance at and through a toll-free hot line, (888) 995-4673.

Inman News in November talked to companies charging homeowners advance fees of $2,500 to $3,000 to negotiate with lenders. Some said they could provide a higher level of service and expertise than overburdened nonprofit housing counselors (see story).

Some companies that are authorized to collect fees in advance for negotiating loan modifications for borrowers are splitting fees with partnering brokers, and also offering to help real estate agents and brokers negotiate short sales with banks.

While many companies offering such services are legitimate, state prosecutors and federal regulators have filed lawsuits and initiated enforcement actions against numerous foreclosure rescue companies.

The U.S. Federal Trade Commission recently moved to shut down five companies accused of using deceptive marketing practices to sell their foreclosure rescue services and issued warning letters to 71 others.

The companies, which often charged up-front fees, were accused of using copycat names or look-alike Web sites in order to appear to be nonprofits or government entities, and of making deceptive claims about their success rates (see story).


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