Why Lawyers Are Legally Prohibited From Helping You With Your Loan Mod
For several years immediately following the crash of the real estate and financial markets in the U.S. the news was rife with stories about loan modification scammers who took up-front fees, sometimes many thousands of dollars, ostensibly to assist people with applications to their lenders for loan modifications.
The sorry refrain was that these scammers did nothing to assist the desperate homeowners, and only made their situations worse by scamming the little cash they had left. Regrettably in some instances these scammers were lawyers.
In response to this situation in late 2009 the California legislature enacted Senate Bill No. 94. That law amended sections of the Business and Professions Code, the Financial Code, and the Civil Code. Civil Code section 2944.7 was added to provide, in part:
“. . . it shall be unlawful for any person who negotiates, attempts to negotiate, arranges, attempts to arrange, . . . a mortgage loan modification . . . for a fee . . . to do any of the following:
(1) Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform. . .”
The statute then goes on to say that anyone who violates it can be punished by a fine of up to $10,000 and imprisonment of up to a year, or if the violator is a business entity (like a law firm) the fine can be up to $50,000.
The statute, which applies to “any person” applies to attorneys. It makes it illegal for attorneys to receive compensation for assistance with a loan modification or forbearance until all services promised or contracted for have been accomplished.
This means that an attorney cannot ask for nor receive payment until all work on the loan modification has been finished. It has been interpreted by some that an attorney cannot ask for nor receive compensation until a successful loan modification has been achieved.
It has been held that an attorney who takes a retainer and puts it in his or her trust account is violating this statute by taking an advance fee. There are other restrictions as well. Civil Code section 2944.6 requires anyone who offers to assist with a loan modification or forbearance to provide the homeowner with a notice “in not less than 14-point bold type” stating that it is unnecessary to hire a third party for assistance with a loan modification or forbearance because you can accomplish the same thing working directly with your lender.
The net sum of all this is that an attorney cannot ask to be paid nor receive payment as the work goes along. It essentially makes payment for loan modification work contingent on both successfully achieving the loan modification from banks that appear very reluctant to extend modifications, and then still further contingent on the homeowner having the ability and intention to pay after the services have been rendered.
Your legislators have made it illegal for attorneys to help you with loan modifications.