Get the dirt on California's Grittiest Real Estate Lending and Foreclosure law blog!

Palo Alto real estate attorney Julia Wei providing commentary & insight into trends in California real estate law & lending law, mortgages & foreclosures.

California's New Loan Modification Laws and Suspended Lawyers

November 18th, 2009 · 6 Comments · California Lending & Mortgage Law, Current Affairs, Foreclosures, Real Estate Brokers, Trust Deeds

Our governor signed S.B. 94, and so now everyone is prohibited from taking "advance" fees to assist with a loan modification for a borrower.  This prohibition includes attorneys and causes some change in law firm practices. 

Normally, when a borrower is coming to an attorney with a loan problem, it is likely because the borrower lacks funds to pay the lender.  It also means they may lack funds to pay the law firm.  Accordingly, to minimize collection issues, many law firms would ask for a retainer and place the funds into the client trust account (which is technically the client's money until earned) and refund the balance if there is a surplus when ther matter is concluded.

However, this new law seems to simply revert law firms to the normal model of invoicing the client regularly as the lawyer's time is billed and then having to wait and hope the client will pay it.

While this is causing a lot of concern, especially knowing that many law firms will decide against doing any loan modification work at all, the abuses were so widespread, it seemed a draconian legislative response was called for.

Because RealtorsTM are prohibited by the California Department of Real Estate from collecting advance fees, they were bringing in attorneys to circumvent this rule because attorneys were allowed to collect fees in advance by the State Bar.  However, attorneys are prohibited from fee splitting with unlicensed persons and so this whole model was problematic.

Just this week, the State Bar announced the suspension of yet MORE lawyers caught up in the unethical practices of loan modification mills. 

"The State Bar created a 10-person loan modification task force in March after receiving thousands of calls from homeowners complaining that lawyers have done no work after taking fees purportedly to help avoid foreclosure. The task force had 738 active investigations underway last month."



6 Comments so far ↓

  • home mortgage refinancing San Antonio

    It is essential to know all the details about all the laws regarding the same.

  • investment property rental mortgage advice

    Now that the S.B.94 is signed, is it really good that everyone is prohibited from taking “advance” fees to assist with a loan modification for a borrower?


  • Julia M. Wei, Esq.

    James – I think it is a mixed bag. As I posted above, the abuses were unprecedented. However, I know of reputable attorneys who were offering loan modification services for borrowers as part of their legal practice. I do not know how they were charging for that service, but if due to S.B. 94 these attorneys cease offering the service, it is a great loss to the community.

  • shizzle.myizzle

    Our firm has ceased taking on loan mod cases. We limit ourselves to real estate litigation or lawsuits against predatory lending.

  • Nicholas

    After reading the through the various laws I did not see anything applying to Commercial Property. Am I wrong?

  • Rick

    I now have a client that spent $6000.00 in fees to an attorneys office to stop a foreclosure and did nothing for the client. The money was paide prior to the bill being signed. Does the client have any recourse to the attorneys office?

Leave a Comment