How do the Federal Trade Commission’s rules on mortgage assistance relief services (16 Code of Federal Regulations Section 322.1) apply to lawyers who provide loan modification or other forbearance services in California?
The Federal Trade Commission’s rules on mortgage assistance relief services also regulate the provision of loan modification and other forbearance services in California but an exemption is included for attorneys who meet certain criteria. The criteria include compliance with all state laws and regulations relating to mortgage relief assistance. Therefore, the FTC rules require compliance with SB 94 and an attorney who fails to comply with SB 94 would be subject to the penalties provided for in both SB 94 and the federal law.
Does SB 94 apply to an attorney who has been employed to enforce an existing loan modification agreement?
No. SB 94 applies only to employment contracts which are entered into for the purpose of obtaining a loan modification or forbearance for a borrower.
Does SB 94 apply to circumstances where an attorney who represents a borrower in a civil action against a lending institution (for example, alleging that the lender engaged in predatory or unlawful loan practices) receives an offer from the defendant to settle the civil action by granting the borrower a loan modification?
No. SB 94 applies only to employment contracts which are entered into for the purpose of obtaining a loan modification or forbearance for a borrower. If the genuine purpose and goal of an employment contract is to pursue remedies other than a loan modification or forbearance, SB 94 does not apply.
May an attorney who has complied with SB 94 accept payment for loan modification services he or she has provided if the lending institution denies the modification or forbearance?
Yes. SB 94 does not mandate that an attorney’s entitlement to a fee is contingent on a lending institution’s agreement to grant a modification or forbearance. An attorney may accept payment once he or she has completed all loan modification services he or she contracted to perform.
If the services to be provided are in fact loan modification services or other forbearance services, or are an integral part of such services, but the services are not expressly designated as “loan modification” services in the fee agreement, then does SB 94 apply?
Yes. SB 94 would apply even if the services are labeled as something other than loan modification services.
May attorneys who provide a borrower loan modification or other forbearance services agree with the borrower that the services requested will be broken down into component parts and that a fee for each component part will be earned and collected as each part is completed?
If an attorney has been employed by a borrower to assist the borrower in obtaining a loan modification or forbearance, then the answer is “no.” It is a violation of SB 94 to attempt to obtain a payment for any portion of the services contracted for in pursuit of the modification or forbearance prior to the completion of all the services required by the employment contract.
Are attorneys allowed to accept an advance fee if they offer a full refund of the fee if a loan modification is not granted?
No. Again, the language of Civil Code section 2944.7(a)(1) is sufficiently broad and prohibits the collection of any fee for loan modification services prior to the completion of all contracted services.
Are attorneys allowed to accept an advance fee if they place the fee in a Client Trust Account or escrow account until they complete all contracted services?
No. The language of Civil Code section 2944.7(a)(1) is sufficiently broad and prohibits the collection or receipt of any fee for loan modification services prior to the completion of all contracted services.
Are attorneys allowed to accept an advance fee if the borrower agrees to waive the application of SB 94 to their matter?
No. SB 94 does not provide for a waiver of its application by the borrower.