Illegal Loan Modification

Real Estate Attorney with Law Office of James Burns DRE# 01707953


The craze right now for former loan brokers is to become a loan modification specialist. However, in states like California is it illegal for anyone except attorneys to take a fee before they provide the assistance. The rationale is because attorney’s are held to the highest standard and are members of each state’s bar whereas brokers nearly no duty to anyone.  Legislation requires that brokers and others trying to be foreclosure consultants do the loan modification first and ask for fees after the work is done. This law is in force to protect consumers  because they are vulnerable and many of these unlicensed cowboys and mortgage brokers have abused their relationships in the past and done nothing to help a troubled home owner while still taking a fee from them.

Under California’s Mortgage Foreclosure Act as codified in Sections 2945 et seq. of the Civil Code, all so called foreclosure specialist or consultants are prohibited from collecting an upfront fee from a consumer, even if they work with attorneys or have attorneys inside their shop. Hence, they must perform services before collecting a fee absent being a law firm where an ordinary attorney/client relationship has occurred under a normal retainer agreement.

Recently a mortgage modification shop was shut down by the California Attorney General’s office and the attorney who worked “with them” was brought into the unlawful liability since he never undertook any of the consumers as clients under an attorney/client relationship. Therefore, they were prohibited from taking an upfront fee and should have performed the services first and then tried to collect which typically is hard to do so that is the reason many are trying to ‘work with’ attorneys but both are misinformed on the law and this is probably the first of many more cases to come because it generates revenue for the state…millions in fines for getting this WRONG. This is all laid out in California Civil Code section 2945.1 subdivision (a) as it describes a foreclosure consultant and if it walks like a duck and it quacks like a duck it is a duck.

This sends a shockwave through this mass market where many think they can just be cowboys and steer consumers into the corral for a bilking. Seeking a loan modification or short sale in these tumultuous financial times should be a legal play as the clients need the attorney/client privilege when submitting their documents to the bank looking for relief. These cases are hardship driven and many consumers were would-be real estate investor who forgot the real estate club they went to that sold them 5 or 10 properties at a time were salespeople doing what salespeople do; sell you as much of a product as frequently as they can. Many of the loan broker’s working with these investment clubs probably stretched the boundaries of reality as they made a case for income under a stated loan helping someone buy 5 or more properties at the same time when they truly had the income to handle their own personal residence with no financial hiccups.

The message here is if you are looking for a foreclosure solution consider it a legal solution and hire a law firm that is focusing on these transactions to preserve your rights and protect you from having your loan documents turned against you if your broker over stated your income just to qualify you so they could get their commissions.

If you're ready to really know how to avoid losing your home, go to this site and download a questionniare and fax it back to us


James Burns, Esq.


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Johnny Burke
Keller Williams Realty - Los Angeles, CA

Hi James


Speaking of loan mod companies, I recently came across one that operates out of an attorneys office here in Los Angeles. They ask for fees ranging from $2,500- $5,000 on the first phone call WITHOUT seeing any financials/docs or talking to the client's lender. There was no clear refund policy as well, only in the event the loan mod is not successful, the firm would offer to handle the bankruptcy or short sale for an additional retainer fee. They also informed their phone agents that even those homeowners without a job can still qaulify.  Against the law? or just plain unethical? your feedback would be appreciated.

Feb 08, 2009 08:21 AM #1
James Burns

When you say against the law, which law are you referring to? You'll need to make things clear. Just because you may not like a practice does not mean it is against the law. I don't see alot wrong with the approach as long as it is directed for the best outcome of the borrower and things will and do fail and if it is a law firm there should be no refund as any legal representation does not come with a gurantee whether it is court or a negotiation with a bank...always has been that way and can't see why a "best efforts" policy would change. I think helping them to the next level is prudent like short sale and BK and it is another cost so the person may have to prepare for that. To be in business a person is not going to have time to see financials nor should a law firm start taking financials until they are retained so I think it is appropriate. There are privacy issues and taking financial information for no reason without being retained would be inane. I don't like the bit about a homeowner who does not have a job can qualify as that makes no sense unless they are earnestly pursuing work and have a plan they can communicate in a hardship letter as sometimes a person may be out of work and that is the type of hardship that fits many programs and has always been a part of modification which preexisted what is going on now but was in limited use for those with a severe illness or job loss.



Feb 08, 2009 08:32 AM #2
expert witness

Your correct where uunder California's Mortgage Foreclosure Act as codified in Sections 2945 et seq. of the Civil Code, all so called foreclosure specialist or consultants are prohibited from collecting an upfront fee from a consumer, even if they work with attorneys or have attorneys inside their shop. hy in your opinion would an attorney allow a consultant to work in house? Hence, they must perform services before collecting a fee absent being a law firm where an ordinary attorney/client relationship has occurred under a normal retainer agreement. What services are they performing with an attorney on site?

My point is I am an Expert Witness with 25 years of secondary and capital markets experience. The fraud can be remedies if the Issuance and indenture states a prohibition against modifying a borrower obligation. If the indenture or Master Servicing Agreement specifies terms whereby a sponsor may subsidize or replace the asset (to be modified)  the financing cannot be clandestine or secretive.If the depositor or sub servicer is in fact subsidizing the master servicers and discloses such the loan being modified trigger's a disqualification of the sale. The less than arms involvement of the parties (combinations) will disallow the asset as originally contributed to the trust.

The latter example would create a precedent in this market causing the Trust to experience a windfall of default measured by over 20% delinquency and or classifying impaired assets and thus eliminate the valuable enhancements and capital incentives enjoyed by a Pass Through offering CDO and REMIC issuance's.

Do you see why the use of boiler room sub-servicing sites and clandestine collection's efforts are confusing to borrowers and law makers.  The Pass through platform is fundamentally inoperable and consumers homeowners are suffering from more fraud as short sales are being rejected at near Principal balances for trustee sales back to the lender's at half the balance value. The reason being open market sales are necessary under GAAP definition and FAS 140 versus less than arms remedy or short poayoff resolutions which are not allowable.

Hey y' all - - don't forget that AB 1122 (d) (1)(2)(3)(4) subject subservicing and opaque fiancing methods to fraud claims against the parties assuming to be the holder in due course. You know, I am on a roll tonight and for a reason. So WHO is the holder in due course and what is the reason behind MERS as a nominee?

Is a Nominee and definition as to the right to hold the security make claims against the nominee in a mortgage setting invalid? Or, does the Nominee take advantage of the word "Security" and force the courts to rethink the security for the loan as a stock security protecting the investor uunder a UCC -1 filing. Double liens and double the security for a phantom holder in due course.  Want some good  juice to read - - put down teh TV guide and read a few auditor attestation reports offered in recent 8K and some 10 K findings and see what they are uncovered?

PS. Nice job telling the story about Brokers turned Consultants and civil code Blah Blah....Find a state enforcement agency that will press the fraud mentioned here (which is only a scratch on the windows surface) being perpetrated against the consumer homeowners of America.  Write an artilce about that maybe - hey jus kidding!

Nice site actually


Expert Witness to Counsel



into a trust

May 27, 2009 11:33 PM #3
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