And then came a sigh a relief: the "loan modification experts" who could negotiate with the lenders to reduce the loan principal balances, reduce the mortgage interest rates, or modify the mortgage payoff terms. Suddenly everyone was an expert in loan modification, the lawyers, the real estate brokers ... everyone and their best friend had some expertise in the field.
Well, it seems like the loan modification industry has also turned upside down. For a while now the news talks about government regulation of this industry. Here is a highlight of the news in California:
* On January 22, 2009, Senators Calderon, Corbett and Steinberg introduced Senate Bill 94, proposing to amend several California statutes in response to the urgent mortgage loan problems.
* On July 23, 2009, California Attorney General, Edmund G. Brown Jr. made a news release warning homeowners "to avoid 'shadowy and unscrupulous' loan modification consultants who use aggressive telemarketing tactics and charge thousands of dollars in upfront fees for foreclosure relied." This news release and related materials can be found on Attorney General's web pages entitled "Stop Loan Modification Fraud."
* On September 18, 2009, the State Bar of California made a news release about 16 attorneys who were "under invesitgation for misconduct related to loan modification."
* On October 11, 2009, California Governor Arnold Schwarzenegger signed into law Senate Bill 94 (Calderon) prohibiting any person from demanding of collecting any advance fee, retainer fee or other pre-payment from a consumer for loan modification or mortgage loan forbearance related to a residential unit of 4 units or less. The California Department of Real Estate has placed a Consumer Alert on its web site detailing Senate Bill 94's provisions.
* The November 2009 edition of the California Bar Journal contains an article by Nancy McCarthy entitled More Lawyers in Trouble for Foreclosure Activity. The article recites 3 more California attorneys having resigned the California State Bar, and one California attorney placed on inactive status, "as a result of their misconduct related to their loan modification activities."
Although the law is not putting a complete halt to loan modifications, it will significantly reduce the industry's activities. The few who will remain in the field will be under close scrutiny, but they will be assist those truly in need of their services.
Robin Mashal is a partner at the law firm of Hong & Mashal LLP. He can be reached at (310) 286-2000.