In NJ, there is a "Debt Adjusters Act" that states that only persons licensed under the Act can legally negotiate mortgage modifications or short sales. Attorneys are exempt from the act and there are a few other narrowly tailored exemptions. To get a license there are background checks and the licensee must purchase a Bond for the client's protection.
Anyone who peforms these activities without a license risks criminal sanctions and Consumer Fraud Act actions.
I'd like to hear how it is done elsewhere. Anyone care to comment on their State?