October 2009
California AB 764 & SB 94 pass in the California legislature on Monday October 12, 2009. What does this mean? Both attorneys and loan modification companies in California are now prohibited from collecting up-front fees for loan modifications.
What does this mean?
California loan modification attorneys and California loan modification companies can no longer collect up-front fees. Now California loan mod experts can only collect money at the end of the transaction.
Can Any Business Survive without a Regular Source of Income?
Would you want to wait to get paid for the work you are doing now? – even worse – maybe get paid for the work you are doing now?
Effective October 11, 2009 in California, our state legislature will be implementing to the new regulations aimed at shutting down unscrupulous loan modification companies that take people’s money and run, without providing loan modification services. California AB 764 and SB 94 has been signed by the governor. Many cases have been reported of homeowners facing foreclosure and entering into a contract with loan modification companies, with fee paid up front, but the loan mods never go through.
Many of the problems with newbie loan modification companies is their lack of understanding of bank policy regarding the modificiation of the loan. Unfamiliar with the bank policies theses loan mod companies take clients whether they are qualified or not. The end results is homeowners in foreclosure do not get their loan mod, and lose their home to forclosure. This has been the case with many San Diego homeowners facing foreclosur, and turning to late night TV advertisers that claim that they can modifiy your loan if you are in foreclosure.
The new legislature goes into effect October 12, 2009.
Get Cash Back
Treasury officials be announcing that they will be providing a new subsidy to promote short sales as a way of avoiding foreclosure. This foreclosure subsidy will include a payment of $1,000 to the loan service provider and $1,500 to the seller. This is to encourage a homeowner facing foreclosure to pursue a short sale rather than letting the lender forclose. The purpose behind this new subsidy is to clear the excess inventory. The Treasury may also looking to facilitate this transaction which will result in less loss to the lender than in the case of a foreclosure.
In San Diego and Orange County, California we just have seen our first short sale payoff that gives the homeowner that has a pending mortgage foreclosure money back if they close by a certain date. The money going to the seller is approximately $2,000.00, higher than the amount quoted above. Presumably since homeowners familiar with the foreclosure process can expect “cash for keys” this new subsidy will encourage homeowners to short sale rather than let it go to sale.
Both the Senate and House in California have passed SB 94 and AB 764, designed to stop the mortgage modification process in California. It would prohibit loan modification companies, including lawyers from collecting any up-front fees for homeowners that are delinquent on their mortgage, and most likely facing foreclosure.
Once the govenor signs the bill then the law would go into effect immediately. This ultimately will shut down the private loan modification industry in California, forcing homeowners to either do loan modifications themselves or turn to government-run organizations that for the most part has been hugely unsuccessful in getting a loan modification through.
We have spoken with various loan modification companies and most indicate they will just close their doors if they cannot collect up-front fees. How can a company make payroll if there is no money coming in? Typically loan modifications take 4-6 months to go through.
Would you want to go 4-6 months without a paycheck?
Legislators are not in touch with reality if they think the prohibition of upfront fee collections is a solution to the problem.
We predict that the passing of this bill will create mahem in the foreclosure world – leading to higher forclosure rates in San Diego, and Orange County.
Stay tuned for the wild ride!
