This will outline the ramifications of SB 94′s prohibition and restriction of advance fees in relation to loan modifications services, specifically by licensed real estate brokers. This post is not exhaustive of every situation and is only general commentary on the bill.  A specific legal consultation applicable to your specific situation should be obtained only through retaining Pasha Law and not by depending on this post.

Bottom line information you need to know:

1. If you are providing loan modification services, you will no longer be able to charge fees in advance until January 1, 2013 (unless extended)
2. Fees nor the services to be performed may not be divided into “milestones” or “stages” by getting around this advance fee prohibition, i.e. you must complete “each and every service” (specifically prohibited if services are broken up just to usurp this bill)
3. You may not secure a lien of any type to assure payment of compensation
4. Most of the bill only applies to residential mortgages
5. All agreements to provide loan modification services must include specific language disclosures
6. Violating parts of this bill is much more strict including heavy fines and possible jail time. There are also disciplinary changes for violating this law for both licensed real estate brokers and licensed attorneys.
7. Attorneys are also effected by this law, but treated differently in some circumstances
8. There are not any easy “workarounds” in being able to collect a fee in relating to any kind of loan modification service no matter how you define the service.
9. After January 1, 2013, there will still be some permanent changes still in effect including the definition of an “advance fee” and how the DRE commissioner treats advance fee use.

The full bill can be found on the state’s website. As of the date of this post, the bill has not been signed by the governor. This bill is truly an industry killer for those that do not want to collect their fee at the end of the services, for the better or the worse; there seems to still be enforcement limitations, but most in the industry will see the increased risk these laws now provide. For a consultation specific to SB 94 or AB 764.