California has joined nearly two dozen other states in prohibiting foreclosure rescue companies from collecting advance fees for helping homeowners negotiate mortgage loan modifications.

Gov. Arnold Schwarzenegger on Oct. 11 signed into law a bill, SB 94, that prohibits any person from demanding or collecting an advance fee from a consumer for loan modification or mortgage loan forbearance services.

California has joined nearly two dozen other states in prohibiting foreclosure rescue companies from collecting advance fees for helping homeowners negotiate mortgage loan modifications.

Gov. Arnold Schwarzenegger on Oct. 11 signed into law a bill, SB 94, that prohibits any person from demanding or collecting an advance fee from a consumer for loan modification or mortgage loan forbearance services.

California had previously allowed real estate brokers and their licensed agents to collect advance fees for negotiating with lenders on behalf of borrowers — but only after entering into written agreements with their clients, using forms and procedures that had been reviewed by the Department of Real Estate. Fees collected in advance had to be placed in escrow to be drawn on as services were performed.

According to the Department of Real Estate’s Web site, more than 1,000 real estate brokers had submitted forms for review and obtained "no objection" letters from the state to collect advance fees for loan modification services before SB 94 took effect.

Nearly 500 companies have also been accused of providing loan modification services without a license, or collecting advance fees without first obtaining a "no objection" letter from the state.

Real estate brokers with "no objection" letters who entered into agreements with borrowers before Oct. 11 to collect advance fees for providing loan modification or other mortgage loan forbearance services may continue to provide those services under the terms of those contracts, but cannot collect additional advance fees from those clients, the Department of Real Estate said in a published notice.

Real estate licensees are still permitted to provide loan modification services to consumers if their fees are collected after those services are provided, the notice said.

Some companies that charge borrowers for loan modification services have defended the practice, saying they have the contacts and persistence needed to work with lenders. Some nonprofits that provide such services at no charge are overwhelmed, they say (see story).

But critics charge that many foreclosure rescue and loan modification companies are making unsubstantiated claims about their success rate, while making little or no effort to help borrowers.

The Federal Trade Commission and state attorneys general have sued dozens of foreclosure rescue and loan modification companies, and the FTC is reportedly considering a federal ban on the collection of advance fees by such companies (see story). The Associated Press reported last month that 20 states have banned foreclosure rescue companies from collecting fees in advance.

***

What’s your opinion? Leave your comments below or send a letter to the editor.

Show Comments Hide Comments
Sign up for Inman’s Morning Headlines
What you need to know to start your day with all the latest industry developments
By submitting your email address, you agree to receive marketing emails from Inman.
Success!
Thank you for subscribing to Morning Headlines.
Back to top
Only 3 days left to register for Inman Connect Las Vegas before prices go up! Don't miss the premier event for real estate pros.Register Now ×
Limited Time Offer: Get 1 year of Inman Select for $199SUBSCRIBE×
Log in
If you created your account with Google or Facebook
Don't have an account?
Forgot your password?
No Problem

Simply enter the email address you used to create your account and click "Reset Password". You will receive additional instructions via email.

Forgot your username? If so please contact customer support at (510) 658-9252

Password Reset Confirmation

Password Reset Instructions have been sent to

Subscribe to The Weekender
Get the week's leading headlines delivered straight to your inbox.
Top headlines from around the real estate industry. Breaking news as it happens.
15 stories covering tech, special reports, video and opinion.
Unique features from hacker profiles to portal watch and video interviews.
Unique features from hacker profiles to portal watch and video interviews.
It looks like you’re already a Select Member!
To subscribe to exclusive newsletters, visit your email preferences in the account settings.
Up-to-the-minute news and interviews in your inbox, ticket discounts for Inman events and more
1-Step CheckoutPay with a credit card
By continuing, you agree to Inman’s Terms of Use and Privacy Policy.

You will be charged . Your subscription will automatically renew for on . For more details on our payment terms and how to cancel, click here.

Interested in a group subscription?
Finish setting up your subscription
×