In California Monday in an emergency procedure Governor Shwartzenegger signed into place Senate Bill 94. This bill took in effect right away ceasing all further loan modifications, even with attorneys, up until 2013. How many attorneys do you know that work for free? Well for the same reason you will see a lot of companies trying to step in line to meet guidelines but it is many of these companies that homeowners will be forced to go to when they are rejected by their attorneys from taking on their case. We have frequently seen this be the issue when government intervenes between the client-attorney relationship.
We by all means adhere to these new guidelines by any means but we see that market getting freed up by losing the sharks currently swimming through these murky waters.
Is this a good thing or a bad thing? Chime in!
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Interesting article. Always important to read these bills all the way through. I have read most of the bill and I do think this bill has many merits. The first being it prevents all of those “loan modification sharks” from preying on homeowners. Secondly, if you read all the way down past the 1st paragraph of the bill, it exempts attorneys and other related practitioners from this “Consultant Bill”.
In today’s market there are way too many people taking advantage of others in desperate situations. The key word in this bill is “solicit” Lawyers and others soliciting and making promises to help homeowners thru a loan restructuring, loan mod or even principle reduction programs for a cost. Many times these fees can go as high as $3000! Ludicrous! What happens at the end….the loan does not get modified, whether it be because of the type of loan or the incompetance of the specialist handling this process. Could that be why over 85% of all loan modifications do not get done and of those loans that do get modified, about 90% of those end up in foreclosure 1 year later.
Just like Realtors, we work with our buyers/sellers to either sell them a home or in most cases in Arizona, short sale their home. I may spend weeks and even months getting the transaction closed but do I get paid ahead of time for work that I promise to get done? NO. I get paid when the transaction has closed. That is when Loan Mod Consultants should also get paid. Why milk these poor families for even more money that they don’t have because they are hanging their last bit of hope on a promise and a prayer.
I think the bill is great. Anything that will stop the predators from preying on homeowners. Short Sale Realtors may still be the last decent vestige in these difficult times. It takes a love of the business and the real desire to help people to be a successful short sale agent. I am proud to be one.
Elise Fay
Glendale AZ Short Sales
http://www.homesbyelise.com
Elise,
It seems all the reports that I have read stated that, “Attorneys, too, who specialize in loan modifications are no longer allowed to ask consumers for payment before they perform services. The ban expires on Jan. 1, 2013.”
I saw this in several places. I could be wrong. They could be wrong. I read through a portion of the bill and will be posting it up on my site (www.MLReport.com) but I’ll be the first one to tell you that I have not read through the entire thing and probably never will (my attorney will though
). We have been working clean so we are good to go but many others are going to be scrambling or leaving the business all together. We are mainly processing short sales for Free these days for our clients so for the few mods we do here and there they will just fall into the same platform.
The one thing I noticed was that the bill mentions other previous bills that were being affected by this bill and in many cases it is quite confusing if it is pertaining to what the law was or what it is going to be.
I’m sure as more attorney’s review through this we will have a few more interpretations to what the law says.
This bill appears to be bitter sweet. We all wanted the sharks out of the waters to protect homeowners, but what we didn’t want were the bad apples to ruin it for everyone else and cease the majority of operations. Believe it or not, there are companies out there that had homeowners’ best interests in mind and operated ethical operations. The biggest difference between the short sale/ standard real estate transactions and a loan modification is the use of an escrow. You don’t have to worry about being compensated if the deal goes through because escrow will disperse your funds. However, in the event of loan modifications, SB94 does not allow for an escrow. The Advance Fee agreements that brokers were permitted to use by the DRE allowed the use of a trust account, where portions of the fee could be released contingent upon achievement of pre-determined milestones. This is an ethical way to operate. It protects homeowners so they are actually paying for services rendered and it protects the fee of the loan mod companies doing the work. Even if loan mod companies were to get paid at the end and/or only contingent upon a successful modification, the use of the escrow or trust account would at least secure payment. At this point, loan mod companies are forced to be collection agencies with accounting nightmares or else close shop, get into debt settlement or jump on the short sale band wagon. Nothing against deal making but a modification appears to benefit the homeowner far greater than a short sale at least on paper. A homeowner is left with badly damaged credit, potential tax liability and no house in the short sale scenario. A homeowner has dinged credit and saves their life long dream in the loan modification scenario. Both scenarios the broker gets paid, but which scenario does the homeowner benefit more?
Jonathan,
Are you an attorney in California? I believed you were since you are writing on a bill that only affects California attorneys, however unless you work for Homeland Secutiry, I cannot find you. I am an attorney, I have been assisting clients with loan modifications and am directly affected by this bill. I am trying to determine what type of a retainer I can collect. Let me know if when you attorney read this entire bill if he had any ideas. Thank you
Tiffany,
Thank you for the information above. I am not an attorney but a Loss Mitigation Specialist (certified for the time that I used to work for one of the largest lenders in the US) and actually have experience working with hundreds of cases. Anything that impacts the industry though is of interest to me. This new law, as you mentioned really only impacts attorney’s to some extent as there has already been pre-existing foreclosure counseling laws and since the DRE got involved there has been a band on all real estate licensees from performing loan modification prior to receiving approval (at least if they wanted to collect any upfront funds).
For someone in your position I can not say what kind of retainer that you will be able to collect as it is fairly apparent that it seems that law does not want want anyone to charge up front. A little lame because attorneys like yourself should be compensated for your time.
We ourselves, funny enough, were not really doing loan modifications. Now though we are looking to get back into them as we don’t charge for processing our clients short sales why would we charge our clients for loan modification. Now that the pool of sharks have most likely left the water there is room for legitimate companies such us our to step back into the market.
No one wants to get involved with the trash heap of loan modification fly-by-night scams so we feel comfortable that this will help weed through those that were only out to make a quick buck and did not care about the results for their customers.
WE have been here since 2005 and we hope to be here through 2055 because of our ethics.
Take care and I hope you find what you are looking for. IF you have any short sale clients feel free to send them our way
.
Regards,
Jonathan Katz | Account Manager | Absolute Consultant Group
Anyone who thinks Civil Code 2944.7 (SB 94) says an attorney cannot have the client put money in trust is not reading clearly or does not understand the terms of art being used. Placing client property in trust clearly is not prohibited.
SB 94 says a person cannot “Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform.”
Money placed in a trust account remains the property of the client. It is not claimed by the attorney. That is the whole reason it is in the trust account so it stays out of the attorney’s bank account (the place the attorney holds his or her compensation).
Furthermore, money in trust account is not compensation for an attorney until it is withdrawn and becomes taxable. If it was compensation for the attorney, attorneys would pay income tax on it when it was deposited into the trust account, but they don’t.
Section 2 prohibits taking “any wage assignment, any lien of any type on real or personal property, or other security to secure the payment of compensation.” But a client trust is clearly not a wage assignment; it is not a lien lien because the attorney has no claim or hold on the trust money until it is earned after all services have been performed (at which time the attorney can properly claim in under Section 1) ; and it is not a security interest because the attorney has no property right in the money in trust (again, until the attorney can properly claim in under Section 1).
If the legislature did not want attorneys to be able to hold client property in trust they would have clearly inserted language that addressed client trust accounts. They also would have used the words hold instead of “claim,” and would have used the words real or personal property instead of “compensation” in the prohibition put forth in subsection 1.
Tiffany,
Looks like you got your answer. Great post Siena! I knew that someone would review Civil Code and find a loop hole. The one thing that I would like to mention is that to assume that they did not include the verbiage you mentioned does not mean that it is not included because they chose to. They could have missed it or not considered it or like you said they chose to. That though is point of being creative.
Creative attorneys, accountants and loss mitigation representatives are what it is going to take to get us of this mess.
Take care everyone.
Regards,
Jonathan Katz | Account Manager | Absolute Consultant Group
I guess we should listen to people who do not live in CA and are short sale brokers. I am sure their opinion is right and does not have any self dealings. I am not a broke or a loan mod person. This bill just shows that CA will continue to take away the right to do business. Yes, there are bad businesses that have hurt people, but the percentage is less than 5 %, which means that 95% have helped people. I wonder if the state bar or attorney general’s office is going to help the thousands of people losing their homes.. NOT.. just playing with the lives of thousands, becasue a few where hurt; make everyone suffer. CA seems to be heading again in the wrong direction. More control, more damage than good..
Tony,
What are you talking about? What you are saying doesn’t even make sense. People that are outside of the state of California do not make the laws in the state as it is a Civil Code set by the state (and its representatives) and not a Federal Law. I guess you have not been in California yourself. I know you must be on a different planet to think that 95% of the loan modification companies out there are legitimate.
We ourselves used to be in the Loan Modification when we opened for business in 2005 after working for one of the largest lenders in the united states. When the sharks came out we backed out of doing loan modifications till now. Now we ourselves are cautiously reentering the market with our no-money down loan modifications.
We don’t charge homeowners for processing their short sales so we have slightly tweaked our model to do the same for loan modifications with no upfront fees and only paid upon completion.
One of the main reason we originally left the market is because these scam Loan Modification companies (some where attorneys as well) that promise the world. They promised principal reductions, lowering the interest rate to unheard of amounts and most of all they were promising things that are not in their hands to promise. When I used to work for a lender the one thing they ingrained in us was that we as Account Managers in the Loss Mitigation department could not promise anything because it was not even up to us but our investors to make those decisions.
In fact when Countrywide decided to begin modifying loans against their investors approvals they immediately got sued.
Tony, Please read up and get your head out of the clouds.
Regards,
Jonathan Katz | Account Manager | Absolute Consultant Group
I’m a bankruptcy attorney and can no longer do loan mod negotiations. Because under Chap 7 I *must* take my fee up front, and under this law I *can’t* take my fee up front. I can do one or the other and would rather do BKs.
Burkley,
I understand your concern and all I can say is that we all play our role in this economic recovery. We are just getting back into this market as the sharks come out.
With your expertise being in BK anyways seems like loan modifications aren’t even your line of work. Everyone should focus on what they are good at and not try to venture into areas that they may have little to no experience.
It is because of many loan officers like this that has given the industry a bad name and even worse brought on legislation that may not actually help but hurt the homeowners out there that need help. With millions out there needing help we only hope that they find it.
We will continue to help hundreds in this position and we are glad to be apart of it.
Regards,
Jonathan Katz | Account Manager | Absolute Consultant Group
The bill doesnt prevent attorneys from modification work. It makes attorneys do exactly what they say they will do prior to being compensated. What ever the retainer specifies you will do, you have to do it then you can collect the retainer fees. No where does it state Attorney must obtain modification approval. If you specify you will do a financial work up, NPV test, assist with completing all required documents and fax to the lender, then your job is done. That takes care of that. You get compensated for the work. You write the retainer to specify exactly what your going to do and just do it. You can complete all required documents right at time of client appointment and fax to the lender and whalla your job is done. The rest is just making calls from time to time. Where all that negotiating jargon is coming from I wonder. I think brokers came up with “Negotiate” to make the public believe they are doing some major work for the compensation. B.S
Marta,
I don’t know where you comments come from. Who said that attorneys can’t do it (besides the title which is in reference to their ability to charge upfront). Have you read the entire post?
Also, I don’t know if you are an attorney or have ever dealt with an attorney (imagine that what I am about to tell you is not coming from an attorney — as I am not one myself) but don’t you go to an attorney for advice. If they don’t get paid for their time/advice then what are they in business for? As most of us do go to them for advice you would notice they charge us for their time. It is their advice that is valuable and the fact that they are representing us to the best of their ability that is what they get paid for. They swear to an oath that they will represent someone the same way that they would expect to represent themselves in the same matter.
Now here’s the kicker. We think that this law came into play because there were many companies that opened up to partner with attorneys and attorneys just became a front. Also if you are saying the brokers have made up the negotiations side I think you have not completed many loan modifications. I have dealt with over 30,000 cases and they definitely do entail a large bit of negotiations because the way the file is presented can change through the process of the negotiations and definitely change the outcome.
I understand that you are stating that the retainer can be written up in certain way in order to keep it legal but it is important that the services rendered match the compensation. Being that is all relative I guess we will all see how this works out.
Regards,
Jonathan Katz | Account Manager | Account Manager
OK, real estate agents get paid upon the sale, but they get paid an outrageous sum that bears no relationship to the amount of work that they do. A real estate agent needs a high school diploma and a forty hour course. This is less education and training than a manicurist requires in the State of California. Additionally, real estate agents are paid out of escrow so the unscrupulous characters have the buyer’s agent paid by the seller creating huge conflicts of interest. But in any event, the real estate agent doesn’t have to rely on the good will of the client to write a check. If the real estate agent had to rely on the buyer or seller to write him or her a check, I have a feeling the agent would want a deposit.
In these situations, an attorney is dealing with a borrower who is in financial distress and may file for bankruptcy. Obviously performing six months or a year of work for such a person and then presenting them with a bill is going to probably result in a 50% or lower rate of successful payment of bills regardless of what results you get for the person.
What if I already paid a company in advance back when the DRE had an approved list of companies, but my loan mod hasn’t even started the trial period payments? Does the company have to give my money back?
I had already started paying an attorney in Aug.2009 for a modification to be finalized, because I had already got the trial mod. by myself, but the second was insisting on foreclosing. The attorney refused to try and talk to the second, and work something out. But in the meantime I was forced to go into bankruptcy 13. The first kepts saying they never received diff. updated docs. from my attorney. The trustee dismissed my case after 5 continuances of waiting for the first to add the rears, and finalize the mod. AI had to immediately go back into the Ch. 13 because the 2nd put a forelosure date onto the house again. Now my attorney says my only choice is to surrender the home, because the Trustee is’nt going to grant the Ch. 13, unless the Mod. is totally finalized. I feel my attorney took $2500 for the mod. and I never got it. I paid an additional $3000. for my Ch. 13. I want to know does the attorney have to give me my money back for the modification, because I never received it? She says because I paid her, before the new law was in affect. But I had been paying her still after the law was in effect. And she is still my attorney now, because I already paid her for the bankruptcy she has to finish!
I don’t know what to do? Im in Ch. 13 the case was dismissed once because of things out of my control. I am back in Ch, 13. and I have to surrender my home. When I was in the case the first time I was seperated from my spouse, and trying to get a primary home modification. Then I decided to get back with my spouse, so I moved in with him, in his home, and rented my home out. I had already given my attorney all of my docs. for court, like my lease with the tenants to prove they were paying rent. The day I went to court the attorney handed me docs. to show the Trustee. like the lease. I did’nt know she had altered them to look as though the renters were living in the home I was really living in. When I talked to her months later about going back to court after it was dismissed. She showed me, She said she had to kept my docs. as though I was still living in the home for loan stripping purposes. So at this point I realize she was wrong for doing this. i had listened to everything she said, Because I thought she knew best. I did’nt know you could’nt get a loan strip on a rental prop. until she told me this. Later I eventually had to evict the tenants for not paying. So there is an unlawful detainer on file. Now I’m back in court for the Ch. 13 and the attorney made sure she had the correct info. because she knew I was upset, because alot of her actions. But she has been very incompitent thru this whole thing. And I am considering taking her to small claims court, for my modification money back, which is $2500. I never got the mod., and I am having to surrender the home. I told her I wanted to talk to the trustee, and letting him know what had happened the first time, before I go back to court . She the attorney, underlined warned me that if I try and talk to the trustee, he will dismiss my bankruptcy again, and he might investigate me for fraud. Because I was supposed to be living in the home that I was trying to get modified, and loan stripped the first time. I think the attorney is scared I am going to get her in trouble, as well as ruin her career. I don’t know what to do. I’m also wondering if I take her to court, for my mod. refund, is she going to try and get me in trouble, by having the trustee look into the first Ch. 13 case. I just feel like I’m stuck and confused. And shes still handling my case. I don’t trust her, and I have no more money for another attorney at this point. What do you think I should do?
There still are crooked loan modification companies and law firms promising the world. If it is too good to be true why would you put a $ 2500 to $4000 retainer on your credit card?
When you filed the Docket summary and the modification application and hardship letter and 4506T you signed. You read what you signed.
Claiming the attorney falsified a rental agreement will not save your house. There are probably five places in the modification application that indicate you say it is owner occupied. You will have to prove that the attorney falsified it and you can’t read (hard to prove without paperwork and you will need to hire another attorney- more $- if you lose you are out more.
You could make a written complaint to the State Bar, this won’t get your money back either.
The lender will look at your tax returns- what is your home address on everything? What is address on bank statements? How did you give them owner occupied utility bills? They can see it direct from the IRS if you rented the subject.The Unlawful Detainer is also a public record, A modification is only for owner occupied.
It looks like the banks WIN again! Yes, it is true that too many home owners are getting abused and scammed, but ONLY the bank and their affiliates have the right to pilage homeowners. The game is not set up for consumers to succeed. The only defense is education and outreach.
This law has done absolutely nothing for homeowners but put them on a three phase payment plan and with usually no refunds anyway.