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On October 11, Governor Schwarzenegger signed Senate Bill 94 into law which takes effect immediately. The new law prohibits (until January 1, 2013) any person, including attorneys and real estate brokers, who negotiates, arranges or offers to perform residential mortgage loan modifications or other forms of mortgage loan forbearance for a fee from demanding or receiving any up-front fee that requires any security as collateral for final compensation, or taking a power of attorney from a borrower. The new law also requires any person who negotiates, arranges or offers to perform residential mortgage loan modifications or other forms of mortgage loan forbearance for a fee or other compensation paid by a borrower to provide a statement, in 14-point font, disclosing all loan modification fees.
The above provisions do not apply to actions taken by a person who offers loan modification or other loan forbearance services for a loan owned or serviced by that person, including, but not limited to, collecting principal, interest, or other charges under the terms of a loan, before the loan is modified, including charges to establish a new payment schedule for a nondelinquent loan.
In addition, the bill prohibits those licensed by the California Finance Lenders Law from making a materially false or misleading statement or representation to a borrower about the terms or conditions of that borrower's loan, when making or brokering a loan.
The enactment of the law follows several enforcement actions against loan modification companies and individuals. In a coordinated nationwide sweep, the Federal Trade Commission and dozens of state Attorneys General filed lawsuits against 21 individuals and 14 companies offering loan modification services. California Attorney General Edmund 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 advertising claims made on the Internet and in direct mail advertising. The California Attorney General’s Office has received more than 2,500 complaints against loan modification consultants and their businesses so far this year. This is a dramatic increase from 2008, when fewer than 200 complaints were filed against loan modification consultants.
This client alert is a publication of Loeb & Loeb LLP and is intended to provide information on recent legal developments. This client alert does not create or continue an attorney client relationship nor should it be construed as legal advice or an opinion on specific situations.
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