Department of Real Estate commissioner Davis of California warned Mortgage Brokers and Real Estate agents about taking advance fees for loan modification services rendered to consumers recently. The rules and regulations regarding the collection of advance fees have been part of Real Estate Law for many decades. In fact, section 10085 of the Business and Professions code which requires a submission of an advance fee agreement to the DRE was added to the law in 1958. They were put in place to protect consumers from being victimized by Real Estate professionals taking upfront money in return for promised services that were not performed.

A licensed Broker must submit his or her advance fee agreement to the DRE to review. The Broker cannot use the agreement or collect any fees in advance until they are approved by the DRE, and as of this writing only 20 DRE licensees are authorized to collect advance fees for loan modification services, despite the many Loan modification, “Attorney Based” or “Attorney Backed” companies currently doing so. Consumers are being duped and do not understand they are not actually retaining an attorney when hiring these companies who are violating the law. Real estate law provides very specific exemptions for Attorneys who provide legal services to their client, so one must make sure they are dealing with a law firm or law center and retaining an attorney as opposed to a company that has only hired attorneys. Business and Professions Code Section 10133.1 provides specific exemptions for attorneys as re-negotiating an existing mortgage contract is by definition the practice of law.

In speaking with Attorney Robert J. Scurrah of Consumer Debt Advocate Law Center, a law firm specializing in Real Estate law and helping consumers with loan modifications (www.cdalawcenter.com), Mr. Scurrah states “that a consumer must be sure to do their proper diligence into the legitimacy of the law office. Ask to speak with the Attorney or ask if the attorney is available to meet you in their office. I have found that many of these companies who purport to have attorneys do not actually have one on site or have an attorney work “hands-on” your case. Check to make sure the attorney is licensed with the BAR and in good standing as well.”

The DRE has found that many mortgage brokers are forming loose affiliations with attorney’s to circumvent DRE’s advance fee or licensing laws. When the DRE makes a determination after an investigation, it will seek to issue a Desist and Refrain order closing down the company that is violating the Real Estate Law or the exemption set forth in the Mortgage Foreclosure Consultants Act (See Civil Code Section 2945.1(b) (1). The DRE is currently conducting hundreds of these investigations and thousands of consumers have paid fees but have never received the services they paid for, worsening their already desperate situation.

Loan Modifications however still remain the best way for a homeowner who cannot qualify for a new mortgage loan due to bad credit, missed payments, or no equity, lower their monthly payment. Hiring an attorney to prepare financials and represent their interest in contract negotiations is still the best recipe for a successful outcome, however a consumer needs to understand that they need to do their proper diligence in determining the legitimacy of the Law Firm they are dealing with.