Senate Bill 94 – The law has changed, now what?
On October 11, 2009, Governor Schwarzenegger signed into law Senate Bill 94. This law addresses how third parties can accept fees for loan modifications. The bill covers not only loan modification companies, but also attorneys who are hired by homeowners to represent them in negotiations with the lender to modify their loan.
I have discussed the ramifications of this bill in previous posts so I will not belabor the point. But for those new readers I will provide a brief overview.
SB 94 makes it criminal for anyone to accept up front fees for performing a loan modification. This includes attorneys, loan modification companies, and brokers. This essentially means that in order to do a loan modification a company or law firms must first perform all their work and hope to get paid at the end. This creates a tremendous amount of liability for anyone performing loan modifications. SB 94 has basically sent every lawyer and loan modification company, legitimate or not, running away from homeowners who need help for fear of violating the laws.
The law is clearly reactive to the few bad apples who were taking advantage of homeowners. Furthermore, the banks totally supported the law because it would insure that the unsophisticated homeowners were at the mercy of the banks when requesting a loan modification. A homeowner will now have to take it on faith that the lender was actually helping them to modify their loan.
So this is where we are today. SB 94 is law and effective immediately. No upfront fees can be collected until all work has been completed. But what does this really mean?
Does this mean that an attorney cannot accept money and hold it in a trust account until services have been performed? Does this mean that as long as the services contracted for are performed that you can collect that money? Can an attorney charge a client for incidental administrative costs (copying fees, filing fees) during the process? What about a consultation fee, if an attorney has a standard practice of charging $100 for a consultation to determine if they will take a case can the attorney no longer charge this fee for loan modification clients? SB 94 Fails to answer these and a multitude of other questions.
Basically SB 94 is not very clear on what it means by advance fee or what constitutes a completion of services. This has left those lawyers who wish to continue helping clients with loan modifications hanging in the wind trying to determine what will be compliant with the new law. The state bar has not made a statement pertaining to SB 94 since its passing.
Many lawyers have attempted to contact the state bar ethics hotline in order to clarify what is acceptable under the new law. However, the state bar ethics hotline is being flooded with phone calls and offers no answers to these questions.
The state bar stood strongly behind SB 94 but now when people have questions they leave them to figure it out on their own and potentially be the first test case as to what is and is not acceptable. No attorney wants to be the first case to determine what is acceptable under SB 94, especially with possible criminal punishments.
Right now the law has passed and is in full effect. Trying to go back and get rid of the law is a waste of time and resources. What is needed is clarification of what is allowed and what is not allowed so that companies who wish to continue helping homeowners can act knowing they are not going to be brought up on criminal charges.
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Source: National Loan Auditors, Inc.
http://www.NLAudit.com
