Some people do their own modifications. Some succeed. Some fail. Some get an inferior modification.
Some engage one of the the nation-wide, out-of-state modification firms. Many of these firms do not have an attorney on staff. A lot of people are very disappointed with the results. If you hire such a company, the FTC rule prohibits paying them any part of their fee in advance.
Some modification firms have an attorney in the background but not out front. In such cases we say that the attorneys is “renting” his name to a non-attorney modification firm. Demand letters do not go to your lender on an attorney’s letterhead. You may never talk with an attorney. The attorney may never talk with the lender.
Such modification companies – either no attorney or the attorney unseen varieties – are pretty much out of business. The Federal Trade Commission enacted new regulations which in effect leave mortgage modification to the attorneys, which is where it should be.
And you can read the FTC’s final regulations too.
In a nutshell, the new FTC rule prohibited non-attorney mortgage modifiers from collecting up front fees. Non-attorney mortgage modifiers cannot be paid one penny until the lender offers a modification and the borrower accepts. That pretty much puts them out of business.
Attorneys are allowed to collect advance fees, however, they must follow state rules on how to handle fees paid in advance.
More and more attorneys are getting into the modification business. When you work with an attorney modification firm, you talk with an attorney early in the process. The letters which go to your lender are on an attorney’s letterhead. Because this work is paperwork intensive, your lawyer often hires a paralegal assistant. I hire my wife. It is her job to call the lenders weekly and see what they need.
Mortgage modification is legal work and it should be done by attorneys. There are many very significant legal issues intertwined with the modification process. Many people hire me because I can advise them regarding such legal issues, for example, what implications bankruptcy offers.
Having all correspondence come from an attorney has more impact. Have you ever gotten a letter from a lawyer and felt hot flashes? I’m an attorney, and when I get a letter from a lawyer, heck, even I get hot flashes.
As an attorney, I look for legal violations the lender may have made. My demand to the lender is made on my attorney letterhead. The compromise achieved can be better.
The ultimate factors which prod lenders to agree to mortgage modification fall into two categories. The first is the simple economics of your situation. If the lender forecloses, it will have to pay foreclosure costs, for property management, for repairs, for resale costs, and for possible vandalism during the resale period. If the property is underwater, and if the lender forecloses, the lender will be able to resell it for no more than market value, so why shouldn’t they agree to reduce the mortgage balance to market value? They will net the same amount of money and avoid all the other costs.
The second factor which prods lenders to agree to mortgage modification is their possible legal liability for their violations of lending laws. One of the things I do is take notes on the errors the lender makes during the modification process. I do not handle litigation, however, I am always preparing the file for referral to my favorite barrister. A barrister is a litigation attorney.
Bear in mind that mortgage modification is a significant financial transaction. We are talking about lowering your interest rate temporarily or permanently, extending your amortization, and lowering your principal balance or deferring payment of your principal balance and interest on it for decades. This could save you tens of thousands of dollars over the years. An average modification is better than a good refinance.
Attorneys do not necessarily charge more than the out-of-state non-attorney modification companies. Spending a little more on an attorney modification might pay large dividends over the long haul. As my mother advised me: “Son, sometimes it’s better to pay a little more to get something worth keeping.”
Why can attorney-based modifiers better? Because the lenders know we can sue them. Therefore, they take us more seriously. We give the bank notice that they may be liable. We give them a deadline for turning over copies of the borrower’s mortgage file. We make a list of the violations of RESPA, TILA, and other federal laws. There are almost always violations, particularly with ARM loans and option ARM loans.
Yes, you can do your own mortgage modification. Most of my clients are people who tried doing it themselves. They got the runaround from their lender. Or they realized that there is more to modification than they originally thought. Or they realized that they do not have the time to research modification and figure out the best way to handle this complex legal matter. They have other things to be doing. They decide to hire a specialist.
A law was passed in California which prohibited advance payment of fees to modification companies and even to modification attorneys. It is true that a lot of people paid advanced fees to modification companies who got nothing for their money. Abuses by attorneys, however, were rare. Further, when attorneys take clients’ money and do improper work, clients have the Bar Association to turn to.
Modifying a loan is the the practice of law. It is negotiating for a change in the terms of a binding contract. To prohibit attorneys from charging in advance for their fees effectively prevents clients from hiring an attorney. Modification clients are already in financial trouble. After the attorney has done the work, he should not have to worry about collecting his fee.
There is an additional problem in collecting fees after the work is done: Some lenders refuse to honor the position of the attorney (as well as the non-attorney modification company) in the modification process. Throughout the process lenders will tell borrowers that they do not need any assistance from third-parties. When lenders send out documents, they send them directly to the client, almost never to the attorney. When lenders need to communicate with the borrower, they almost always call the borrower directly, never the attorney. When the modification is complete, the final agreement is sent directly to the borrower, not to the attorney. The borrower might not even tell the attorney that his work has paid off. The attorney (or third-party modification company) who does not collect his fee in advance, may not collect a fee at all.
The systematic effort of lenders to cut attorneys out of the loop is unprofessional. Telling borrowers that they do not need an attorney helping them, is in itself the giving of legal advice and the unauthorized and improper practice of law by a non-attorney. I believe that a lender who does this adds another cause of action that a borrower can use as basis for suit.
Martin Andleman has written extensively on the absurdity of prohibiting attorneys from asking for payment in advance. Click here.
James Robert Deal, Broker and Attorney
Broker with Agency One Realty LLC
WSBA # 8103, DOL # 39666
James at James Deal dot com