California Enacts Law That Prohibits Collecting Up-Front Fees From A Consumer For Loan Modification Or Mortgage Loan Forbearance Services

Author:Mr Michael Mallow and Michael Thurman
Profession:Loeb & Loeb LLP
 
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On October 11, Governor Schwarzenegger signed Senate Bill 94 into law which takes effect immediately. The new law prohibits (until January 1, 2013) any person, including attorneys and real estate brokers, who negotiates, arranges or offers to perform residential mortgage loan modifications or other forms of mortgage loan forbearance for a fee from demanding or receiving any up-front fee that requires any security as collateral for final compensation, or taking a power of attorney from a borrower. The new law also requires any person who negotiates, arranges or offers to perform residential mortgage loan modifications or other forms of mortgage loan forbearance for a fee or other compensation paid by a borrower to provide a statement, in 14-point font, disclosing all loan modification fees.

The above provisions do not apply to actions taken by a person who offers loan modification or other loan forbearance services for a loan owned or serviced by that person, including, but not limited to, collecting principal, interest, or other charges under the terms of a loan, before the loan is modified, including charges to establish a new payment schedule for a nondelinquent loan.

In addition, the bill prohibits those licensed by the California Finance Lenders Law from making a materially false or misleading statement or representation to a borrower about the terms or conditions...

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