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California Law Bans Advance Fees for Mortgage Loan Modifications

[Oct 22, 2009.]


A new law in California makes it illegal for mortgage loan modification firms to collect advance fees from people who need help modifying loans. The bill is one of several that were signed into law in California this month to target abusive practices in the mortgage lending industry, according to the San Jose Mercury News.

Payment Before Services

Many U.S. homeowners struggling to avoid foreclosure have turned to mortgage loan modification firms. There are legitimate companies out there who can help people save their homes. However, some companies had taken advantage of a loophole in California's laws to collect advance payments before mortgages were actually modified. Some of those people were licensed attorneys and real estate brokers, while others were scam artists.

California's Attorney General has had more than 2,500 complaints against mortgage loan modification companies this year, compared with less than 200 in 2008. Problems with advance payments for loan modifications has plagued homeowners throughout the U.S., and complaints and lawsuits have been filed throughout the country.

Home Mortgage Protections

Other recently passed legislation in California also is aimed at protecting consumers who get home mortgages. That includes a bill that goes into effect Jan. 1, and prohibits mortgage brokers from steering people to expensive sub-prime mortgages when they qualify for a better deal. Mortgage brokers also won't be able to offer negative amortization loans, where the balance increases over time. Another bill requires mortgage lenders to give seniors who take out reverse mortgages a written summary of the deal in their language if they don't speak English.

If a homeowner is having trouble making payments on a mortgage and is worried about foreclosure in California and other states, here are some tips to keep in mind:

—Never pay fees before receiving mortgage loan modification services.

—Do not ignore letters from the mortgage lender.

—Do not transfer the title to a home to any so-called foreclosure rescue firms. Some people try to get homeowners to do this and say they can stay in the home as a renter until they are able to buy it back when they can qualify for a new mortgage. However, the homeowner often ends up losing the home or having the equity stripped.

—Always read loan documents before signing them. Never sign documents that aren't completely filled in.

—Only make mortgage payments directly to the mortgage lender or loan servicer. Payments should not be made to mortgage consultants who may pocket the money for themselves.

Homeowners should be smart about working with loan modification companies. They should never allow their desperation to avoid foreclosoure keep them from making good decisions and finding a reputable company to work with.


About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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