California Abolishes Advance Fees for Loan Modifications
California Governor Arnold Schwarzenegger approved Senate Bill 94 today hereby abolishing the practice of advance fees for loan modifications in the state.
At the same time, a similar measure – Assembly Bill 764 – was rejected with the following statement from the governor:
“To the Members of the California State Assembly:
I am returning Assembly Bill 764 without my signature.
Although I support the prohibition of individuals charging advance fees for mortgage loan modifications, I do not agree with the provision of this bill that will only allow fees to be collected if a modification is successful. This could adversely affect legitimate businesses that provide loan modification services. As such, I am signing SB 94 that accomplishes this prohibition against advance fees without unnecessarily harming legitimate companies.
For these reasons, I am unable to sign this bill.”
It is a victory for the loan modification industry and homeowners alike in that SB 764 would have virtually ensured the collapse of all third party assistance.
SB 94, like AB 764, abolishes advance fees but has a more liberal approach as it allows for the work and payments to be completed in stages of the loan modification process. This gives protection to consumers while also allowing mitigation companies to be fairly compensated for their work.
Still, some companies will not survive SB 94 as the abolishment of advance fees is counter to what most in the industry are doing. But for companies such as American Mitigation Law Group, the passage of SB 94 simply means business as usual.
The Del Mar-based company has had a system in place for months now that closely mirrors the concept of SB 94. While the company says it will need to make some minor changes to full comply with the newly-passed bill, their decision long ago to not charge advance fees makes them one of the few companies ready for the effects of SB 94.
Above all, the bill marks a significant victory for the state’s homeowners. Requiring advance fees was a common practice by fraudulent companies and it was often difficult for those in need of help to distinguish the good from the bad.
It’s also a victory in the sense that there are still hundreds of thousands of foreclosures that could hit the market in the coming years. A legitimized system of third party assistance will prove critical to the long-term ability of homeowners to avoid foreclosure.
This should help homeowners who need assistance find legitimate loan modification providers.