Upfront Loan Modification Fees in Florida are Illegal

Last week over lunch I was having a spirited debate with undefeated foreclosure defense lawyer Thomas Willis, about whether Florida’s Foreclosure Rescue statute the prohibits up front fees to “foreclosure rescue consultants” would apply to the booming loan modification industry.  It seems these days every out of work mortgage broker wants to be a loan modification consultant.  This is ironic in that if some of these mortgage brokers would not have sold crappy loans with huge transaction costs, hidden yield spread premiums, and adjusting rates the homeowner might not have a need for modification in the first place.  Leave it to a mortgage broker to make money screwing a homeowner and then ask for more money to unscrew the homeowner.  Of course in South Florida, what is sold as an unscrewing is often a repeat screwing where the loan modification company takes an upfront fee but never delivers on the promised loan modification.

 

During my lunch with Thomas Willis I pondered, if the homeowner is current on their loan then they are not in danger of foreclosure so why should the foreclosure rescue statue apply to a loan modification if there is no foreclosure issue.  Mr. Willis thought that the statute would apply to loan modification.  His thought was that loan modification is essentially a loss mitigation program to prevent bank losses.  If an wealthy investor with continuing high current income made a bad decision by over paying for a home or not obtaining a competitive mortgage the lender will not modify a profitable loan out of sympathy.  Loans are modified when banks believe that modification will prevent a default by the homeowner or when the government creates programs that financially reward lenders to modify loans for certain types of homeowners. Willis saw all loan modification as foreclosure related and argued that all loan modification companies would be prohibited from charging upfront for loan modification services.

 

The Florida Attorney General sees things the same was as Thomas Willis and by weeks end had filed suit against one loan modification company and had obtained an injunction against the other.  Before the week was up the Attorney General posted the following press release about Lincoln Lending, a loan modification company that  extensively marketed in South Florida on Spanish language television:

 

Temporary Injunction Obtained in Foreclosure Rescue Fraud Lawsuit

TALLAHASSEE, FL – Attorney General Bill McCollum today obtained a temporary injunction against LINCOLN LENDING Services, LLC and owner Rita Gomez, prohibiting the company from engaging in any type of consumer-debt related service or mortgage modification service and from taking payment from consumers for such services until further order of the court. The company will also be required to preserve and allow inspection of its records and refrain from liquidating its assets.

In addition to freezing the company’s assets, the order requires that the company refund any up-front payments made by consumers for foreclosure-related rescue services subsequent to October 1, 2008, the effective date of the law prohibiting up-front charges. These refunds should be completed within 90 days and will be made without the necessity of consumers filing a claim.

The Attorney General's Economic Crimes Division sued Lincoln Lending and Gomez earlier this week for allegedly charging up-front fees for loan modification services in violation of the Foreclosure Rescue Fraud Prevention Act. The Attorney General’s office has received hundreds of complaints regarding this case since the lawsuit was filed. Both parties agreed to this order.

 

Our firm has a client that went to Lincoln Lending for loan modification prior to retaining our firm to defend a foreclosure action filed against her by the lender.  According to the client, when she went to Lincoln Lending she was current on her mortgage but Lincoln told her to stop making payments on her mortgage in order for Lincoln to obtain a loan modification.  Lincoln never obtained a loan modification and as a result of our client’s failure to make her mortgage payments she ended up in foreclosure.  To Lincoln’s credit and the client made multiple complaints to Lincoln she was issued a refund.

 

My advice to homeowners is to choose carefully when it comes to loan modification.  Review the qualifications of the loan modification company and find out if your loan modification will be handled by an attorney or experienced professional of passed off to staffer with no experience or qualification.  Ask for references.  If you home is already in foreclosure speak to an attorney who is a member of the Florida Bar who is willing to go to Court to protect your home.