Home Owner's Protection Panel

Our experience with debt negotiating companies is that they attract customers with large credit card debt by claiming to be able to settle those debts for a fraction of their face value. They often claim that their services are more effective than those provided by credit counseling services and that they are a superior alternative to bankruptcy.

Complaints on these type of companies allege that creditors continue to harass clients, fees and interest continue to accumulate, and the creditors are not contacted. Usually, creditors turn the claims over to collection agencies, file suit and pursue collection of the money owed to them. Debts are seldom settled, customer's credit is ruined, and many people are sued forcing them to seek bankruptcy protection. Typically, it is difficult to obtain refunds.

These companies usually instruct their clients to stop paying their creditors. Some companies direct clients to make their payments to the debt negotiation company instead. They promise that when sufficient cash has been accumulated to offer a settlement to a creditor, they will do so. They go on to say that their program may take two or three years to complete. Most companies collect their fees upfront and generally the fees are based on some percentage of the promised savings.

Other companies simply collect their fee and advise debtors to save their money to pay their creditors themselves. California law limits the amount of fees debt negotiators can charge, but by not collecting the money and distributing it to your creditors, companies can remove themselves from the limiting statutes and charge whatever they wish. What they are supposed to do for you while you’re saving up your money is to contact your creditors and inform them that they’re working with you, negotiate the amount to settle your debt, and ask them stop contacting you. Debtors may not realize that if their creditors do accept a negotiated settlement, the amount forgiven constitutes taxable income.

For businesses outside of California, please check with the agency that regulates this industry.

Foreclosure consultants generally offer to stop foreclosure on homes and/or assist homeowners in restructuring their mortgage. Some companies may imply that they have an affiliation with a mortgage lender or with a government agency. In most cases, the companies do not have affiliations with any government agency or any special relationship with your lender. Generally, mortgage companies will only deal with the borrower on any issue related to the loan.

Complaints concerning similar offers allege that these companies misrepresent their ability to stop foreclosure, that they fail to perform services as promised, and that they deny requests for refunds based on non-performance.

In California, it is unlawful for a foreclosure consultant to charge or accept any compensation until they have fully performed everything they represent they will perform. California law also requires that any representative who solicits, induces, or causes a California resident property owner to contract with, or pay any consideration to a foreclosure consultant must have a bond from a surety in an amount equal to at least twice the fair market value of the real property that is the subject of the contract. In addition, the representative must hold a valid California real estate sales license. The representative must also provide the consumer, in writing, under penalty of perjury, a statement attesting that they are properly licensed and bonded. Failure to comply with these requirements renders the contract void. By law, the contract must also provide for a five day cancellation right, and no money may be collected prior to performing all the services set forth in the contract.

If your written contract does not inform you of your right to a refund or your right to cancel, you may cancel the contract at any time, without regard to the five day time limit. The Better Business Bureau suggests that property owners first speak with their lender before engaging a consultant.