New law denies homeowners access to legal representation

Posted on October 23, 2009. Filed under: Banking, Case Law, Foreclosure Defense, Housing, Legislation, Loan Modification, Mortgage Law, Politics | Tags: , , , , , , , , , , , , , , , , |

California has a new law on the books that bans collection of advance fees from firms that provide loan modification services to people struggling to avoid foreclosure.

Other real estate related bills signed into law this month by Gov. Arnold Schwarzenegger aim to crack down on abusive lending practices by mortgage brokers; provide more safeguards for seniors taking out reverse mortgages; and require lenders to provide a summary translation of loan papers to non-English speakers.

Effective Oct. 11, Senate Bill 94 made it illegal for anyone to collect advance fees from consumers seeking a loan modification. The legislation closed a loophole that previously allowed state- licensed real estate brokers and attorneys to collect advance payments for loan modification services provided a client signed off on forms approved by the state Department of Real Estate.

SB 94 was written by state Sen. Ron Calderon, D-Montebello.

“Over the past two years, unscrupulous attorneys and real estate brokers have abused their trusted roles and exploited desperate homeowners seeking to avoid foreclosure. The loophole that allowed this abusive practice has now been closed, and homeowners should avoid any person charging upfront fees for foreclosure relief services,” state Attorney General Jerry Brown said in a statement.

Advance payments previously collected before Oct. 11 are not impacted by the law but no additional fees can be collected going forward,


said Tom Pool, a Department spokesman.

About 1,000 real estate brokers had previously submitted the required paperwork to collect advance payments before the law became effective, he said. More than 1,300 consumers have contacted the department with complaints about foreclosure rescue firms, most of which involved paying advance fees and not getting the loan modification assistance that was promised, he said. In many cases, the fees were collected by people who were not even licensed to offer loan modifications.

SB 94 only allows fees to be collected after the promised services are provided. Consumers must also be told that similar services are available from nonprofit housing counseling agencies approved by the federal Department of Housing and Urban Development. Consumers must also be told they have the option of calling their lender directly to request a change in loan terms.

Effective Jan. 1, three other laws will kick in to provide more protections to consumer who take out home loans:

  • Assembly Bill 260, written by state Assemblyman Ted Lieu, D-Torrance, extends federal mortgage lending laws to state-regulated mortgage brokers. Among other things, mortgage brokers would be prohibited from steering borrowers into higher-priced, subprime loans in cases where they could qualify for a lower-interest, fixed-rate loan.AB 260 restricts the type of home loans that consumers have access to, said John Holmgren, an Oakland-based mortgage broker and spokesman for the California Association of Mortgage Brokers, which opposed the legislation.

    For now, subprime loans have pretty much gone away in response to tougher lending standards but Holmgren expects that demand for such products will eventually return when the economy improves.

    “It would be wonderful if every consumer had perfect credit” but that is not the case, Holmgren said. “It’s bad for those consumers (with poor credit scores) because it restricts their choice and that’s what this does … In this troubled economy, there is a number of people whose credit has suffered.”

    Mortgage brokers would also be banned from offering negative amortization loans, which results in a growing loan balance the longer the borrower holds the loan. Strict caps would also be placed on prepayment penalties.

  • Assembly Bill 329 adds existing consumer protections for reverse mortgages, which allow seniors to convert equity held in a home into tax-free income or a lump-sum payment while continuing to live in the home. Among other things, the law extends counseling requirements that apply to Federal Housing Administration-backed reverse mortgages to all lenders who offer reverse mortgages. The bill was written by state Assemblyman Mike Feuer, D-Los Angeles.n”‚Assembly Bill 1160 requires mortgage lenders to provide a translated summary document in the language in which it was originally verbally negotiated with a borrower whose primary language is not English. The translation requirement applies to Spanish, Chinese, Tagalog, Vietnamese and Korean languages. The law, written by state Assemblyman Paul Fong, D-Cupertino, extends translation requirements that already apply to mortgage brokers.

    Contra Costa Times

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