Loan Modification Companies - any opinions?

Question

I'm exploring this path as a source of revenue and was wondering what your collective opinions are, as to the pros and cons of it, from a business stand point.

Obviously, this will be a legit loan modification service. What are the pricing models people are seeing? I was shocked to hear that some of these "services" charge up to 2 months of mortgage payments (between $5,000 and $7,000 in CA).

I'd appreciate your opinions and experiences with these services, either as a customer or entrepreneur.

Kevin Elmore · Answer

There is another California law that applies to any company that offers advice or assistance to consumers in credit related transactions – called CSO’s – for unsecured or secured loans.  This law most commonly applies to credit repair companies; however, it is written to include any assistance or advice to a consumer in the "obtain[ing of] a loan or other extension of credit."  This law can be found in California Civil Code §1789.12.

This law requires a license; $100,000 bond; the use of a specific contract with a 5 day rescission right; you must give the consumer a list of non profit companies that offer credit counseling (many non-profits offer similar services for free, or at least assist the borrower in doing it themselves for free);  you can’t accept any money from the consumer until you have completed all the services you promised you would do; and you have to complete all services within 6 months from the date of the contract.  You also can’t accept any money as a referral to someone else who does this.

An attorney is exempt as long as the attorney is not affiliated with the company doing the work (i.e. an attorney in the practice of law would be exempt, not an attorney hired by the company to skirt this exemption).  Public non-profit companies are exempt from the law as well (but not private foundations).

The licensing and registration under this code section is the CA Attorney General's office - not an entity that takes violations lightly.

Also, if you read the Foreclosure Consultant law mentioned by Quinn closely you will notice that it requires a bond equal to 2 times the value of the borrower's home.

Jon Holdman · Answer

I think you're probably correct, James, that lawyers are exempt here from this law.

Quinn Kiet · Answer

Yes, I've been reading the regulations and it does appear to be very strictly regulated in CA, as a matter of fact, their are certain bars against receiving ANY advanced fee by a mortgage "consultant" when doing these loan modifications. Check out California's Mortgage Foreclosure Consultant Act at Civil Code 2945.4(a):  "It shall be a violation for a foreclosure consultant to:
(a) Claim, demand, charge, collect, or receive any compensation until after the foreclosure consultant has fully performed each and every service the foreclosure consultant contracted to perform or represented that he or she would perform."

Shocking because I do know a few "consultants" who take these advance fees before completing the workout service. Similarly, the Dept. of Real Estate does not allow their licensees to accept an advanced fee unless the fee has been approved by the DRE.

It's all these complications that had me wondering aloud about how others who are not attorneys are doing this so "easily", but apparently, your responses imply that most of these guys are truly doing this illegally unless they have an attorney on staff.

Jon Holdman · Answer

Here in CO, these would be "foreclosure consultants".  The price they can charge is not regulated, AFAIK.  However, the Colorado Foreclosure Protection Act specifies that they must refund their fees to the homeowner on request.  The request can be made at any time, including after the services are provided.  They must provide a disclosure to the homeowner informing them of the ability to request a refund.  Failure to provide the proper disclosures, or if the disclosures are in the wrong font,  will result in jail time.  So, the effective rate is $0.