October 1st, 2008 12:26 PM by Lehel Szucs
There were over 84,000 foreclosures in California in 2007. That number may double in 2008. It is unfortunate, but some have seized the opportunity to take advantage of vulnerable homeowners facing foreclosure. At risk are homeowners who either want to stay in their home, or who are desperate for an exit st rategy that will leave their credit intact and at the same t ime relieve them of their home and loan. Foreclosure rescue scams are on the rise and at the heart of these schemes are the illegal and/ or improper collection of advance fees.
Unscrupulous operators comb the public records to obtain informat ion on the properties against which a notice of default has been filed. These operators then contact the borrowers with promises of rescue, but with a catch
Of course, there are many legitimate businesses that engage in foreclosure consulting and in fact collect perfectly legal advance fees. Often, a real estate broker ’s foreclosure consult ing services consists 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 informat ion, you should review Business & Professions Code Section 10085 as well as Commissioner ’s Regulat ions 2970 and 2972.
However , in cases when a notice of default has been filed, the collect ion 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 your client from being victimized.