It looks like two California bills that address loan modification practices will have to wait a little longer for an ending. While a deadline of Oct. 11 had been set for Governor Schwarzenegger to decide on more than 700 bills, he appears to be sitting still in an attempt to hold the legislature hostage until it delivers on some important items.
For the loan modification industry in the nation’s foreclosure hotbed that is California, it means a delay in knowing the fate of how third party companies can represent distressed homeowners.
Both AB 764 and SB 94 were drafted in response to problems with fraud in the industry, but only SB 94 recognizes the importance of legitimate third party companies while AB 764 threatens to kill the industry.
What makes AB 764 such bad policy?
AB 764 would abolish any fees prior to a loan modification being granted which opens up the distinct possibility that a company could spend 10 months working on a file and never receive compensation. That’s a hard way for anyone to stay in business and, simply out, the bill represents a certain death to third party loan modification assistance in the state.
In fact, many have already stated that they would simply close the doors if this bill is signed into law. What do you think that will do for the state of homeownership in California when help is no longer anywhere to be found?
The bill’s motivation is honorable, but it’s methods are akin to using nuclear weapons to clean up a termite problem.
The difference with SB 94
SB 94 still abolishes advance fee practices but it allows for homeowners to enter into a series of contracts that require payment only after each contract is fulfilled.
In doing so, homeowners legally have the right to see progress being made on their file before they owe anything for the service being performed. For the mitigation company, it means being able to accept fair compensation over the course of the work being done.
Basically, it recognizes a homeowner’s right to see a return for their investment but also acknowledges the importance of the work being done by the mitigation company.
Some companies have been conducting business in similar fashion to the methods outlined in SB 94 for months. It’s a fair system for both clients and businesses alike.
The Case for Third Party Mitigation Companies
While much is said about fraudulent practices pertaining to foreclosure assistance, too little is said about the positives. There are many legitimate, hard-working companies fairly representing clients and obtaining workout agreements with their lender.
What’s often left unsaid is that the servicing companies frequently look for ways to avoid granting a loan modification and will make things extremely difficult on homeowners who have no representation. A law group has a stronger position with the lender and often gets results that homeowners, through no fault of their own, aren’t capable of getting.
There is also the matter of expertise. When a lender is looking for any reason, no matter how small, to reject a loan modification, the smallest mistakes are magnified. A company that does this for clients day in and day out knows what the lender is looking for and presents the case accordingly.
When you consider a new foreclosure is being filed every 13 seconds and the problems are only mounting, third party representation plays a vital role to helping homeowners stave off foreclosure. Relying on government programs and counseling that has been largely ineffective would only lead to bigger problems not easily solved by a piece of legislation.
When the governor finally gets around to signing his pile of bills, let’s hope SB 94 is the choice.
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