October 17, 2009
In response to escalating foreclosure rescue scams, the state of California now has a new law with a tough requirements for firms offering services to homeowners facing foreclosure. California Gov. Arnold Schwarzenegger signed the bill into law this week.
"Over the past two years, unscrupulous attorneys and real estate brokers have abused their trusted roles and exploited desperate homeowners seeking to avoid foreclosure," said California Attorney General Jerry Brown. "The loophole that allowed this abusive practice to continue has now been closed, and homeowners should avoid any person charging up-front fees for foreclosure relief services."
The new law makes it unlawful for any licensed attorney or real estate agent "who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrowerto claim, demand, charge, collect, or receive any compensation until after the [attorney or agent] has fully performed each and every service the licensee contracted to perform or represented that he, she, or it would perform."
Until now, licensed attorneys and real estate brokers could charge advance fees under certain limited circumstances. Foreclosure scam artists often sought to exploit this exception. The new law closes this loophole.
In August, threatening possible criminal and civil prosecution, Brown ordered 386 mortgage foreclosure consultants to register with his office and post $100,000 bond. Brown also ordered more than two dozen foreclosure assistance companies to substantiate suspect claims made on the Internet and in direct mail advertising.
This action followed a nationwide sweep in July that led to lawsuits against 21 individuals and 14 companies who ripped off thousands of homeowners seeking mortgage relief. In total, Brown has sought court orders to shut down more than 30 companies and has brought criminal charges and obtained lengthy prison sentences for dozens of deceptive loan modification consultants.
Loan modification consultants continue to exploit homeowners desperate for relief. This year, Brown's office has received more than 2,500 complaints against loan modification consultants and their businesses. This is a dramatic jump from 2008, when less than 200 complaints were filed.
Tips for homeowners
As part of a consumer alert, Brown offered the following tips to homeowners:
• Don't pay up-front fees. Foreclosure consultants are prohibited by law from collecting money before services are performed.
• Don't ignore letters from your lender or loan servicer. Responding to those letters is your best bet for saving your house.
• Don't transfer title or sell your house to a "foreclosure rescuer." Beware! This is a scam to convince homeowners they can stay in the home as renters and buy their home back later. It might also be part of a fraudulent bankruptcy filing. Either way, a scammer can then evict the victim and take the home.
• Don't pay your mortgage payments to anyone other than your lender or loan servicer. Mortgage consultants often keep the money for themselves.
• Never sign any documents without reading them first. Many homeowners think that they are signing documents for a loan modification or for a new loan to pay off the mortgage they are behind on. Later, they discover that they actually transferred ownership of their home to someone who is now trying to evict.
