Upfront Fees For Loan Modifications In California Prohibited Once Notice Of Default Is Recorded On Home In Foreclosure

A Consumer Alert appearing on the California Department of Real Estate ("DRE") website makes clear that charging upfront fees from California homeowners for providing loan modification services is prohibited once a Notice of Default has been recorded against an owner's home by his/her mortgage lender.(1)

The alert goes on to state that, when a Notice of Default has not been recorded against an owner's home, it may be permissible for a real estate broker to assist in working out a loan modification or otherwise negotiate a possible resolution to a mortgage problem with the lender or loan servicer and seek payment in advance for their services, provided certain requirements are met.(2)

In such a case, however, the broker cannot have a homeowner sign an agreement until it has been submitted to the Department of Real Estate for review and the broker has received permission from them to use it and collect the advance fee. Permission is granted by DRE through their issuance of a “no objection” letter to the real estate broker regarding the use of the agreement.

For more, see Consumer Alert - Advance Fees and Loan Modification Services.

(1) California Civil Code Section 2945, which regulates "foreclosure consultants", forbids anyone who falls under the definition of a “foreclosure consultant”, as well as a real estate licensee, from collecting any advance fees for these types of services if a Notice of Default has been recorded against an owner's property. California licensed lawyers when rendering services in the course of their legal practice(s) are exempt from this prohibition, according to the California Department of Real Estate.

(2) Of course, this assumes that the nature of the services provided by a non-attorney is such that it doesn't constitute the unlicensed / unauthorized practice of law.