Should California prohibit lawyers from charging an up-front flat fee for loan modification services?
California does. Does that hurt your chance of getting a loan modification, trial mortgage modification, modification in Chapter 13 bankruptcy, or even a good short sale? I think it does.
This is an unfortunate situation. Many lawyers and "loan modification specialists" (non-lawyers) were collecting fees to help modify a loan and then taking no action. California stepped in last year to protect consumers. The problem is that attorneys must now work with no compensation all the way through the loan modification process. Consumers are protected but there is a significant risk the attorney won't get paid. After all, the client is experiencing extreme financial distress. Even though the attorney-client fee agreement specifies compensation on completion of the loan modification process, it may be hard (or impossible) for the attorney to collect any fee.
This conundrum protects consumers but also discourages many attorneys from working for consumers.
The law provides the following:
California Civil Code section 2944.7(a)(1) prohibits the collection of advance fees by anyone, including attorneys, who work on loan modifications. Fees may only be collected after the loan negotiator working on your behalf has fully performed each and every loan modification service in your agreement.
Beware of agencies that demand up-front fees in violation of the law. Mansfield Law Office does not collect advance fees for loan modification work.
Mortgage modification work is subject to great uncertainty. Some banks are not required to participate in the Federal programs. Those that do use a formula to determine if it is more profitable to foreclose on your home or agree to modification. That formula is secret -- the government refuses to disclose it. Given this difficulty homeowner's expectations must be realistic but the need for an attorney is even greater.