Wednesday, October 21, 2009
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California "No Advance Fee" and SB 94 FAQ
What is the general purpose of SB 94?
SB 94 was drafted in an attempt to eliminate the common practice of loan modification companies charging advance fees in California. Charging Advance fees prior to performing any services is a frequent tactic used by fraudulent loan modification companies and individuals. SB 94 prohibits any company or individual from charging fees in advance of performing the work specified to be performed in the signed contract.
What does "advance fee" mean?
An advance fee is defined in SB 94 as a fee collected "from a principal before fully completing each and every service the licensee contracted to perform, or represented would be performed, as specified."
In other words, it is a fee collected before contracted work is performed.
How does the advance fee definition apply to me?
It essentially means that you as a homeowner do not have to pay a fee until your specified level of service has been finished as defined by the contract you executed between you and the company working on your loan modification.
Can a real estate licensee with an advance fee agreement from the California DRE still charge an upfront fee?
With regards to existing advance fee agreements, the California Department of Real Estate has posted the following on its website:
"If you are a real estate broker, or the designated officer of a licensed corporation, who has been issued a “No Objection” letter by the Department of Real Estate for loan modification or other mortgage loan forbearance services, you can no longer enter into these agreements effective as of October 11, 2009, nor can you collect any advance fees for such services."
What if I paid an advance fee before the law went into effect?
The California DRE website has the following statement:
"Agreements entered into and advance fees collected prior to October 11, 2009 are not affected. Advance fees inadvertently collected after October 11, 2009 must be fully refunded. "
AES does not charge advance fees.
When was SB 94 enacted and is it permanent?
The bill was enacted on October 12, 2009 and immediately went into effect. The bill will be repealed on January 1, 2013 effectively resetting the law to the way it was prior to October 12, 2009.
Is there anything I should look for on the contract of the mitigation company I hire?
Yes. SB 94 contains a provision that the following must appear in 14 pt. bold type in the contract.
"It is not necessary to pay a third party to arrange for a loan modification or other form of forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge. A list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) is available from your local HUD office or by visiting www.hud.gov."
Are these contracts reviewed by a government agency?
Not necessarily, but SB 94 does state that any materials related to obtaining an advance fee agreement may be requested for review. This means any advertisement or contract could be subject to review, but is not explicitly required.
How Long Has AES Been Working as a "No Advance Fee" company?
AES implemented a "No Advance Fee" model in April 2009, well ahead of any legislative requirement by the state of California. For most companies the common practice was to collect advance fees during this time.
Does SB 94 apply to commercial properties?
No. SB 94 states that the prohibition of advance fees only applies to "property containing four or fewer dwelling units."
SB 94 was drafted in an attempt to eliminate the common practice of loan modification companies charging advance fees in California. Charging Advance fees prior to performing any services is a frequent tactic used by fraudulent loan modification companies and individuals. SB 94 prohibits any company or individual from charging fees in advance of performing the work specified to be performed in the signed contract.
What does "advance fee" mean?
An advance fee is defined in SB 94 as a fee collected "from a principal before fully completing each and every service the licensee contracted to perform, or represented would be performed, as specified."
In other words, it is a fee collected before contracted work is performed.
How does the advance fee definition apply to me?
It essentially means that you as a homeowner do not have to pay a fee until your specified level of service has been finished as defined by the contract you executed between you and the company working on your loan modification.
Can a real estate licensee with an advance fee agreement from the California DRE still charge an upfront fee?
With regards to existing advance fee agreements, the California Department of Real Estate has posted the following on its website:
"If you are a real estate broker, or the designated officer of a licensed corporation, who has been issued a “No Objection” letter by the Department of Real Estate for loan modification or other mortgage loan forbearance services, you can no longer enter into these agreements effective as of October 11, 2009, nor can you collect any advance fees for such services."
What if I paid an advance fee before the law went into effect?
The California DRE website has the following statement:
"Agreements entered into and advance fees collected prior to October 11, 2009 are not affected. Advance fees inadvertently collected after October 11, 2009 must be fully refunded. "
AES does not charge advance fees.
When was SB 94 enacted and is it permanent?
The bill was enacted on October 12, 2009 and immediately went into effect. The bill will be repealed on January 1, 2013 effectively resetting the law to the way it was prior to October 12, 2009.
Is there anything I should look for on the contract of the mitigation company I hire?
Yes. SB 94 contains a provision that the following must appear in 14 pt. bold type in the contract.
"It is not necessary to pay a third party to arrange for a loan modification or other form of forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge. A list of nonprofit housing counseling agencies approved by the United States Department of Housing and Urban Development (HUD) is available from your local HUD office or by visiting www.hud.gov."
Are these contracts reviewed by a government agency?
Not necessarily, but SB 94 does state that any materials related to obtaining an advance fee agreement may be requested for review. This means any advertisement or contract could be subject to review, but is not explicitly required.
How Long Has AES Been Working as a "No Advance Fee" company?
AES implemented a "No Advance Fee" model in April 2009, well ahead of any legislative requirement by the state of California. For most companies the common practice was to collect advance fees during this time.
Does SB 94 apply to commercial properties?
No. SB 94 states that the prohibition of advance fees only applies to "property containing four or fewer dwelling units."
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