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On October 11, 2009, California made advance fee bans for loan modification illegal. Pursuant to Senate Bill 94, it became illegal for any person, lawyer, real estate broker, real estate salesperson, real estate licensed-entity, corporation, company, partnership, or any other licensed or unlicensed person or party, to demand, charge, or collect any advance, up-front, or retainer fees, or any other type of pre-payment compensation, for loan modification work or services, or any form of mortgage loan forbearance. Please see the California Department of Real Estate Consumer Alert for more information.
The California DRE interprets this ban very liberally. They have taken the “shoot first, ask questions later” approach whenever they confront any type of loan modification service or apparatus for collecting fees in advance of actually receiving a modification of a mortgage. They also have trained their eyes on any loan modification service providers who had collected advance fees for loan modifications but changed their practices prior to the October 2009 ban. While one wouldn’t say that they are seeking retribution from those who engaged in the practice prior to the present regulatory regime, one can say that they will enforce any violations they uncover to the fullest extent that they are permitted to under California statute and regulations.
Therefore, it is extremely important that real estate licensees who were involved or are involved in the loan modification industry to consult with an attorney. First and foremost, they can review your present practices to ensure that they are in compliance with the law. Secondly, they can review your prior practices and documentation to ensure that appropriate measures were taken to correct actions that violated the relevant sections of the Business and Professions Code or Regulations of the Real Estate Commissioner. If the review does find violations – even minor infractions – the attorney can then best advise you on what actions to take to mitigate or rehabilitate. This could include preemptive restitution, appropriate continuing education courses, documented correction and training concerning the conduct, counseling, and/or community service. All of these activities, if done in advance, could influence the DRE from even starting an investigation or filing an Accusation.