The problem, of course, is that very few loans are actually being modified. You can find lots of figures relating to how many people start loan modifications but those are not the numbers that count. The key point is not how many people start loan modification programs, it’s how many succeed with trial periods and then go on to keep their homes. The failure rate is enormous. The latest mortgage modification report from the federal government shows that the re-default rate for modified loans is nearly 60 percent (59.5%) after just six months.

Now the California state attorney, Jerry Brown, has come out with a new directive. It has ordered 386 mortgage foreclosure consultants to post $100,000 bonds and register with his office. Brown has also sent letters demanding that 27 loan consultants substantiate success claims made on the internet and in direct mail advertising.

At the same time, the state bar association has begun to crack down on attorneys who are nominally in the loan modification business. Here’s why: Under California law the ability to collect an up-front fee is limited — unless you’re an attorney. So, some loan modification operations appear to be run by law firms but are actually just fee-splitting operations where the attorney’s real job is to collect cash up-front rather than to provide case-by-case legal services.

California has the right idea — and other states should also start asking tough questions when it comes to loan modification claims.

Mortgage Modifications: California Says “Prove It” is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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We know that loan workouts — whether modifications or payment plans — can mean months of delay and hopefully time to get homeowner finances straight. Unfortunately, we also know that many if not most loan modification efforts do not work. According to the Office of the Comptroller of the Currency, even when loans are modified within six months more than half (55.14%) re-default.

Now in California, state attorney general Jerry Brown is suing a foreclosure consultant and an attorney — Paul Noe Jr. and Mitchell Roth — who allegedly “conned 2,000 desperate homeowners into paying exorbitant fees for “phony lawsuits” to forestall foreclosure proceedings.”

Big Modification Fees

These lawsuits, alleges the California AG, “were filed and abandoned, even though homeowners were charged $1,800 in upfront fees, at least $1,200 per month and contingency fees of up to 80 percent of their home’s value.

“Noe and Roth ripped off homeowners desperate for help by charging unconscionable fees for phony lawsuits,” Brown said. “Instead of aggressively pursuing the lawsuits, Noe and Roth strung them along so they could continue to rake in fees.”

The California suit alleges that:

Beginning in mid-2008, Noe promised homeowners facing foreclosure or default he could help them lower or eliminate their mortgage debt.

He convinced more than 2,000 homeowners to sign “joint venture” agreements with his company, United First, and hire Roth to file suits claiming that the borrower’s loan was invalid because the mortgages had been sold so many times on Wall Street that the lender could not demonstrate who owned it. Similar suits in other states have never resulted in the elimination of the borrower’s mortgage debt.

After filing the lawsuits, Roth did virtually nothing to advance the cases. He often failed to make required court filings, respond to legal motions, comply with court deadlines, or appear at court hearings. Instead, Roth’s firm simply tried to extend the lawsuits as long as possible in order to collect additional monthly fees.

Under the terms of the agreement, United First charged homeowners approximately $1,800 in upfront fees, plus at least $1,200 per month. If the case was settled, homeowners were required to pay 50 percent of the cash value of the settlement. For example, if United First won a $100,000 reduction of the mortgage debt, the homeowner would have to pay United First a fee of $50,000. If United First completely eliminated the homeowner’s debt, the homeowner would be required to pay the company 80 percent of the value of the home.

$2 Million

Brown’s office is seeking $2 million in civil penalties, full restitution for victims, and a permanent injunction to keep the company and the defendants from offering foreclosure consultant services.

According to Brown’s office, “Paul Noe Jr. was convicted of wire fraud in 1989 and the subject of a California Department of Insurance Cease and Desist Order in 2004. Mitchell Roth resigned for the California State Bar in late May 2009, after the State Bar closed his law firm.”

California Seeks $2 Million From Mortgage Modification Providers is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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