California Loan Modification - When are advance fees allowed

Loan Modification advance fees seem to be the subject of a big debate, but, in reality the rules are simple.

Before an NOD - brokers with no action letters from the DRE, and attorneys holding active licenses with the California State Bar can collect advanced fees.

After an NOD - only California lawyers within their own practice may collect advance fees.

In my opinion most of the so called "attorney backed" operations are not law firms. Since they are not law firms they probably are subject to the foreclosure consultant act. (In fact some of these "attorney backed" operations seem to lack a DRE license holder... in which case they may be illegal foreclosure consultants.)

California Civil Code 2945 (the foreclosure consultant Act) prohibits anyone who falls under the broad defintion of foreclosure consultant, including real estate licensees, from taking advanced fees from california real etate owners. This rule appies even if the licensee has submitted a retainer aggreement to the department of real etate and received a no action letter.

California licensed attorneys are exempted from this prohibition if they are rendering services in the course of their practice. (according to the California department of Real Estate) In my opinion, "attorney backed" is turning into a sham or even a scam. Marketeers getting around the restrictions of CC 2945 and the DRE and the lawyers lending their name to many of these operations my be running afoul of ethical and legal standards. (lawyers are not allowed to work for others who peddle their legal services - it is a basic tenant of being a lawyer). There is a legal prohibition against lawyers working for say the Sears legal services department. For the very same reasons lawyers can not be working for All California Federal and International Loan Mods. (hopefully this is not a real name). Law firms are not be be owned or controlled by non lawyers.

Before the Notcie of Default is filed

quote from DRE website:

"If a Notice of Default has not been recorded against your property, it may be permissible for a real estate broker to assist you in working out a loan modification or otherwise negotiate a possible resolution to your problem with your lender or loan servicer and ask you for payment in advance for their services." In order to charge an up fron fee the loan broker must have submitted his agreement to the california department of real estate and received an approval. Here is a list of the brokers who may be allowed to charge up front fees:

• Advance Fee Agreement Listing

Please note the DRE says "it may be permissible for a real estate broker to assist you in working out a loan modification." I request the DRE elaoborate on what is permissible and what it not permissible. "it may be" may be very misleading.