Up front loan modification fees banned in California
Email Bookmark Share
PrintThe state legislature banned the taking of advanced fees for loan modification services in California. These so called "cash up front" modification contracts have been used to dupe many consumers out of thousands of dollars. The Governor signed the provisions into law.
California loan modification: Fees can still be charged
Fees can still be charged for loan modification, however, consumers have to be notified that there are alternative ways to get loan modifications and the fee can only be charged after the promised services have been delivered.
However, those who service loans may not charge a loan modification fee, either up front or after the services have been performed.
Response to loan modification scams in California
These changes are in response to many arrests by the Attorney Generals office of scammers who falsely told homeowners that they would renegotiate their mortgages, reduce monthly payments, and transfer any delinquent loan amounts to the renegotiated principle for an up front fee, ranging from $1,500 to $5,000, to participate in the loan modification program.
The authors of this law felt compelled to act to stop what they called a "cottage industry that has sprung up to exploit borrowers who are having trouble affording their mortgages."
“This kind of mortgage protection simply couldn’t wait,” said State Senator Ron Calderon (D-Montebello), one of the authors of the bill.
Support for bill
The following organizations supported the bill, among others: AARP, California Association of Mortgage Brokers, California Association of Realtors, Coalition for Quality Credit Counseling, Consumer Credit Counseling Service of Orange County.
Required notifications prior to charging loan modification fees
Those who charge a fee for loan modification services are required to provide the following notice to borrowers prior to signing an agreement to charge a fee:
"It is not necessary to pay a third party to arrange for a loan modification or other form of forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge. A list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) is available from your local HUD office or by visiting www.hud.gov."
