Coming January 31st, FTC to limit loan modification scams
According to this article from the LA Times, the Federal Trade Commission (FTC) is starting to “clamp down” on phony loan modification companies. Essentially, starting January 31st, loan modification companies will be prevented from getting upfront fees. The evaluation by the FTC is simple: “[i]f a [loan modification company] seeks to charge you anything or collects money upfront, it will be in violation of federal law and subject to harsh penalties.” For loan modification companies to continue, they will have to “contact your lender or servicer and give you a written proposal describing the key changes to your mortgage terms that the note holder [usually your lender] is willing to make before any more money can be collected in advance.” In essence, loan modification companies are will be required to complete a pre-loan modification modification, before they can execute a final loan modification, at which point, they may be paid for their services.
The articles goes on to report that attorneys are largely exempt from the law:
The only exception will be for lawyers, who typically require retainers before they begin negotiating on a client’s behalf. They will be permitted to collect retainer fees for modification efforts but only if they deposit the money into “client trust accounts” under state bar regulations. Lawyers who charge advance fees also must be licensed by state authorities and be in compliance with state laws and regulations governing professional conduct.
This new regulation from the FTC is bound to frustrate many loan modification scams that seek to obtain funds from clients, but then provide nothing in return. Fortunately, the FTC leaves in place law firms to handle upfront fees.