BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
Loan Modification Schemes
Q: I have been approached by a company that does loan modifications for homeowners. They want me to sign up with them, send them the names of my past homebuyer clients who still own their homes, and who may be in need of having their loan(s) modified. They state that they will pay me a substantial referral fee for each client with whom they work.
This particular company states that they do the loan modification for the homeowner for free, but charge a “forensic audit” fee of approximately $2,000. If the “audit” shows that the homeowner could be eligible for a loan modification, then they do the modification at no charge. They tell me that they are fully compliant with federal and state laws and regulations. Am I safe in working with this company?
A: There are a number of different approaches that loan modification companies are taking, and this is one of them.
See Weekly Practice Tip: “Loan Modification Referrals”
The California Department of Real Estate has taken the position that these types of schemes do not pass muster just because there is purportedly no charge for the loan modification itself. The DRE position is that the “forensic audit” is merely an attempt to get around the prohibitions from taking advance fees on these transactions.
PRACTICE TIPS:
1. If you are approached by a loan modification company or person offering a referral fee for sending your homeowner clients to them for a loan modification, do not sign anything prior to discussing it with your broker.
2. Because there are so many loan modification companies popping up in this market, with various approaches and schemes, it is best to view all referral offers from them warily and not just trust their representations that they are legal and compliant with laws and regulations.
3. A simple way to check out these companies is to call the closest DRE office (
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This Weekly Practice Tip is attorney-client privileged and for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
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