Gov. Arnold Schwarzenegger has signed SB 94 by Sen. Ron Calderon into law.
SB 94 prohibits anyone, including loan modification agencies or attorneys, from collecting up front fees for mortgage loan modification services for residential properties. The bill also prevents anyone from collecting any security to guarantee future payment (such as a lien) or collecting a “Power of Attorney” for the purpose of negotiating with lenders to perform a residential loan modification. The bill sunsets in 2013.
SB 94 has received both praise from consumer groups who argue it will crack down on fly-by-night loan modification outfits which take money from desperate homeowners, and criticism from attorneys who argue that the bill will make it more difficult for homeowners to find an attorney who will represent them.
Although it is not clear yet what the long term affect of SB 94 will be, the bill will likely help by immediately inhibiting unscrupulous loan modification companies that have cropped up offering “loan modification” services for a fee without ever following through on their promises.
It will be interesting to see what happens to the many law firms (see here and here) which have become a cottage industry during the mortgage crisis of the past year, offering services such as loan modifications and foreclosure litigation. Other law firms have already been shut down.