Short Sales Should Not Leave You Short of Cash $$$$$

For quite some time the Department of Real Estate (DRE) has required  licensed agents to obtain a signed contract with their clients for any advanced fees paid to them prior to the close of escrow for expenses or services rendered; however, before an agent can take those fees, it has to be approved by the DRE.  This pertains to ‘standard’ real estate transactions; however, once a Notice of Default [NOD] has been recorded on the property, NO advance fees for services are permitted to be paid.  Attorneys however, prior to 2009, who were licensed in California, were not subject to such prohibitions.

This all changed with the passage of Civil Code SB 94 in 2009.   This law requires that, under all circumstances, the loan modification firm, Lawyer, Realtor or others must first fully perform all the services they contract to perform, or represent that they would perform, before being paid.   Most homeowners seeking a loan modification are already in trouble with a payment they can’t afford; by only paying for successful services rendered, this protects them from unscrupulous individuals that over promise and under deliver. 
 
The ban on advance  payment of fees now includes attorneys.  This precludes them from requiring a deposit in the form of a retainer which typically has to be lodged in their trust account prior to commencement of any work for the client. The money in an attorney-client trust account belongs to the client until it is earned by the attorney.  This retainer acts as security for the attorney to ensure that they are paid, whether they are successful or not.   SB 94,  prohibits any kind of up-front security for payment.     

In a nut shell this new law  Civil Code SB 94 makes it illegal for someone, including an attorney, assisting a client with a loan modification to:

(1) Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform.  Including promising to get a loan modification when others have failed.

(2) Obtain rights for any wage assignment, any lien of any type on real or personal property, or other security to secure the payment of compensation.

(3) Secure any power of attorney from the borrower for any purpose.”

These broad guidelines generally prohibits an attorney from placing a clients deposit in their trust account, as it could easily interpreted as “security to secure or insure the payment of the attorney’s compensation or fee.”

Civil Code SB 94 now subjects attorneys to the same rules Realtors have abided by for years by prohibitiing them from charging  up front fees for loan modifications or short sales before they actually deliver on what they promised to do. They can either forego requiring a fee deposit or retainer, or explicitly warn the client that negotiating a modification is NOT part of their services and that the client is on his own for a modification.  That being said, be sure read in it's entirety, no matter how boring, any retainer agreement.

Many Realtors have received specialized training and have unique practical experience working with homeowners and lenders in successfully obtaining Loan Modifications or negotiating Short Sales.  It would be prudent for homeowners to first include a consultation with a qualified Realtor to ascertain whether they even qualify for a loan modification and further, if their new payment even makes sense; before they spend time fighting and pinning their hopes on  something they ultimately may not want or simply can’t afford.  

A typical loan modification costs between $3000-$4000, only after it is successfully obtained; while a short sale does not cost the homeowner anything.  The compensation for the agent negotiating and obtaining approval for the short sale on behalf of the homeowner, is paid by the lender.

Please contact me for a free list of qualified Realtors in your area that are experienced in short sales, loan modifications and principal reductions. Or to determine if you qualify and what your new payment might look like.