Capital Home Advocacy Center

Effective October, 2009 in California, it is illegal to collect any fees, regardless of the form, for negotiating or attempting to negotiate a loan modification for a residential mortgage. All modification services must be fully completed before any money can be collected. It is also illegal to divide fees or services into components for the purpose of avoiding this law.

HUD approved housing counseling agencies are exempt from this law. For businesses outside of California, please check with the agency that regulates this industry.

The FTC MARS Rule makes it illegal for businesses offering mortgage assistance relief services to collect any fees, regardless of the form, until it provides a written offer for a loan modification or other relief from your lender and you accept the offer. They must also give you documentation from your lender showing the changes to your loan if you decide to accept the lenders offer. Also, they must clearly tell you the total fee it will charge for their services. It is also illegal to divide fees or services into components for the purpose of avoiding this law.

Under the same rule, attorneys who offer mortgage relief services can require an advanced fee ONLY if they are licensed to practice law in the state where you live or where your home is located; they're providing you with real legal services and they provide mortgage assistance relief services as part of the practice of law; they're complying with state ethics requirements for attorneys; AND, they place the money in a client trust account, withdraw fees only as they complete actual legal services, and notify you of each withdrawal.

Before you hire a firm or anyone claiming to be an attorney, do your research. Check to ensure they are properly licensed and that there is no disciplinary action against them. Ask what their expertise or specialty in law is and if they have ever provided foreclosure relief services. Also ask what the outcome was for any relief services they have offered.

Many companies offer forensic audits, mortgage loan audits, or foreclosure prevention audits backed by forensic attorneys to review your mortgage loan documents to determine whether your lender complained with federal and state mortgage lending laws. They often claim the audit reports can be used as leverage with the lender to stop foreclosures, accelerate the loan modification process, reduce your loans principle, or even cancel your loan. The truth is there is no evidence that forensic loan audits will help you get a loan modification or any other foreclosure relief, even if it is conducted by a licensed attorney, trained auditor, or mortgage professional. While some federal laws allow you to sue your lender based on errors in your loan documents, even if you win in litigation your lender is not required to modify your loan simply to make your payments more affordable. If you cancel your loan, you will have to return the money borrowed, which may result in you losing your home.

Business Consumer Alliance advises to avoid any business offering foreclosure relief that:

• guarantees to stop the foreclosure process, no matter what your circumstances are

• instructs you not to contact your lender, attorney, or credit/housing counselor

• collects fees before providing any services or only accepts payment by wire transfer or cashier's check

• encourages you to lease your home so you can buy it back over time

• recommends that you make your mortgage payments directly to them or any party other than your lender

• urges you to transfer your property or deed to them

• offers to buy your home for cash at a price that is inappropriate for the housing market

• pressures you to sign papers before you are able to review the terms and conditions or before you have time to thoroughly read and understand the agreement.