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."