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New Law Prohibits Advance Fees for Lawyers Doing Foreclosure Work

Gov. Schwarzenegger signed Senate Bill 94 Oct.11, immediately prohibiting any person, including attorneys and real estate licensees, from collecting an advance fee to perform foreclosure relief services. The new law, adopted as an emergency measure, closes a loophole that permitted foreclosure scam artists to exploit the ability to charge advance fees.
It is now 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 borrower...to claim, demand, charge, collect, or recieve 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."
The new law also requires the following written disclosure in at least 14 point bold type regarding loan modification and/or loan forbearance services prior to entering into any fee agreement with a borrower:
"It is not necessary to pay a third party to arrange for a loan modification or other form of forebearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge. A list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) is available from your local HUD office or by visiting www.hud.gov."
If loan modification services are offered in Spanish, Chinese, Tagalog, Vietnamese or Korean, a translated copy of the disclosure must be provided in that language. A violation of the law can result in fines and up to a year in jail.
The text of SB 94 is available at leginfo.ca.gov; click on "bill information." Information is also available from the Deaprtment of Real Estate at dre.ca.gov.
Article from the California Bar Journal, November 2009

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