The FTC announced last week that starting January 31, 2011, it would proceed against any firm that collects upfront fees without obtaining the required written proposals at no charge from lenders. If a firm charges anything or collects money in advance, it will be in violation of federal law and subject to harsh civil penalties.
The only exemption to this rule is actually attorneys. However, here in California, after SB94, there is already an advance fee prohibition which prevents attorneys from collecting an advance fee (or "retainer") to assist with a loan modification.
And today, Comptroller of Currency, John Walsh instructed banks to cease foreclosures if borrowers had started loan assistance programs. This was not well received by the banks, who argue that the foreclosure process is already so lengthy that it makes sense to pursue a parallel process.
As I have blogged about before, borrowers are often confused because they can apply for a loan modification program with a lender, pay payments during a probation period while the application is being reviewed, but the lender has continued to pursue foreclosure on a parallel or "dual" track -- which I believe is misleading to the borrower because they are making payments in good faith.
Typically, private money lenders will enter into a forbearance agreement with borrowers which makes it clear to the borrower that the foreclosure sale is still scheduled unless the forbearance payments are made, and then for each payment milestone, the trustee's sale is postponed an additional 30 days.
Tip for lenders -- whatever choice you take, make it crystal clear to borrowers.
Tip for borrowers - do not assume that the lender is going to stop the sale just because you are making partial payments. Their loan documents typically allow them to continue to collect partial payments without jeopardizing their right to foreclose.