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Loan Modification Laws in California

You will probably be aware of loan modification 'sharks' who prey upon people in financial distress. Loan modification law in California (as it applies to loan modification lawyers and consultants) was recently tightened (SB94) to ban loan modification consultants collecting advanced fees.

If you retain a lawyer or consultant to provide loan modification services, special loan modification laws now apply. Specific disclosures must be made letting you know that you can do the loan modification yourself and avoid fees.

Loan modification laws CA | lenders' obligations

Even with the HAMP program, only a small percentage (around 9% to November 09) of loan modification applications have actually been processed. Despite the HAMP incentives to encourage loan modifications, lenders remain inconsistent, understaffed and (it seems) indifferent to the financial distress of people facing foreclosure.

An Important Loan Modification Law in California

Civil Code Section 2945 is an important California loan modification law. Commit this to memory, since it governs the advice your receive.

This California loan modification law governs all foreclosure consultants, including loan modification consultants and prohibits the payment of up-front fees from homeowners in foreclosure. 

Prior to 2009 the California loan modification law provided an exclusion for attorneys, allowing them to charge up-front fees for loan modifications as they would for their other legal services.  This created two problems:

  1. Legitimate non-lawyer based loan modification firms were disadvantaged compared to attorney based loan modification firms; and perhaps more importantly,
  2. Homeowners in foreclosure were paying the up-front fees to the attorneys who were not achieving results.

Fortunately, in 2009, the California loan consultant law was changed to prevent attorneys from charging the up-front fees for loan modification services.  As a result of this new law, many CA loan modification companies went out of business because they are finding it too difficult to achieve the results expected from their clients.