Foreclosure Consultant’s Beware! 
 

According to DataQuick, there were more than 84,000 foreclosures in California in 2007, and that number is likely to more than double in 2008. The vast number of foreclosure has created new opportunities—many legitimate, others illegal.

It is unfortunate, but some unsavory types have seized the opportunity to take advantage of vulnerable homeowners facing foreclosure. At the heart of these foreclosure schemes is the collection of advance fees.

Unscrupulous operators comb the public records to obtain information on the properties against which a notice of default has been filed. These operators then contact the borrowers with promises of rescue in exchange for an advance fee. Often, the advance fee is collected by credit card and ranges from several hundred dollars to several thousand dollars. To induce the borrower to pay the fee, scammers tell the borrower they have the expertise and connections that ensure a loan modification can be negotiated with the borrower’s lender to permanently reduce payments to sustainable levels. However, once the money is collected, no work is performed and the victim loses their home to foreclosure.

Of course, there are many legitimate businesses that engage in foreclosure consulting and, in fact, collect perfectly legal advance fees. Often, the foreclosure consulting services offered by real estate brokers consist of assisting a borrower with a loan modification. However, any real estate broker contemplating collecting advance fees must proceed with caution. The real estate law requires that all advance fee contracts used by a broker must first be approved by the department prior to use. The law also requires the broker to hold the money in a trust account until such time the agreed-upon services are rendered. For more information, you may wish to review Business & Professions Code Section 10085, as well as Commissioner’s Regulations 2970 and 2972.

However, if a notice of default has been filed, the collection of an advance fee (even under an approved contract) to perform services to save a homeowner from foreclosure is generally precluded by the Foreclosure Consultant law, found in Civil Code Sections 2945 et seq. So, while advance fees are not necessarily indicative of a scam, they may be an indicator of trouble.

Knowing the rules in advance may save you or a client from being victimized.

Jeff Davi is commissioner of the California Department of Real Estate.