aEURoeWhether itaEUR(TM)s a scam or itaEUR(TM)s legit, it all starts off the same way.aEUR? aEUR" Richard Hagar, Seattle-based mortgage fraud expert

In 2007, roughly 84,000 California homeowners lost their homes due to foreclosure. Through the first three quarters of 2008 alone, that number increased to more than 190,000. During that same period, lenders recorded nearly 330,000 Notices of Default on California home mortgages. In a recent survey conducted by Realty TRAC, it was found that of the 25 metropolitan areas nationwide with the most foreclosures, 13 are in California.

With the implosion of the subprime lending industry, there has arisen a new wave of self-described consumer bailout aEURoeexpertsaEUR? who call themselves aEURoeforeclosure consultants.aEUR? These individuals purport to offer distressed homeowners assistance in assessing their options or in negotiating loan modifications with their lenders. Unfortunately, this has also given rise to a new cottage industryaEUR"scam artists who take advantage of struggling borrowers by promising to save their homes. California seems to be at the epicenter of this new and thriving industry.

Pursuant to Cal. Civ. Code ? 2945.1(a), a aEURoeforeclosure consultantaEUR? is one who solicits and represents to distressed homeowners that he or she can stop or postpone a foreclosure sale, obtain forbearance from any mortgagee, obtain a restatement of a loan obligation or an extension for reinstating a loan obligation, obtain a waiver of an acceleration clause, assist the owner in getting a loan and/or save the owneraEUR(TM)s residence from foreclosure.

According to the Director of the California Department of Real Estate (DRE), officials have been receiving complaints about loan modifiers since the summer of 2008. There are currently more than 200 open investigations.

In addition, over the last several months the California State Bar has received between 850 and 900 calls per month to its complaint hotline from consumers regarding foreclosures or loan modifications, although many calls have nothing to do with lawyer malfeasance. Many attorneys are being approached by loan consultants to work with them. Lawyers have been calling the ethics hotline about the foreclosure and loan modification business at an approximate rate of 235 calls per month.

California enacted its original statutory Foreclosure Consultant Law in 1979. Major revisions to the statute will go into effect July 1, 2009.

What Is the Foreclosure Consultant Law?

The Foreclosure Consultant Law generally regulates the activities of individuals who provide, or offer to provide, foreclosure-related consultation services. Such services might include helping a homeowner stop or postpone a foreclosure sale. This law requires foreclosure consultant contracts to be in writing in a specific manner. It also provides other safeguards for homeowners in foreclosure. Most notably, it prohibits a foreclosure consultant from collecting an upfront advanced fee. The law requires foreclosure consultantsaEUR(TM) representatives to be bonded real estate licensees. Effective July 1, 2009, foreclosure consultants must also be bonded and registered with the California Department of Justice.

Real estate agents are generally exempt from the Foreclosure Consultant Law except when engaging in certain activities, such as acquiring an interest in the property or making a direct loan. Lawyers are likewise exempt as they may collect a fee before services are fully rendered.

In situations where foreclosure consultants attempt to avoid the statutory prohibition on collecting a fee by engaging a lawyer and/or real estate agent to work with them in foreclosure consultations, problems can arise. Indeed, many proposed relationships between foreclosure consultants and lawyers violate CaliforniaaEUR(TM)s Rules of Professional Conduct and other ethical rules which address the conduct of attorneys. Similarly, a real estate agent may unwittingly implicate the Foreclosure Consultant Law by acting as a foreclosure consultant without being aware of the strict regulations. For example, a real estate agent cannot collect advanced fees for services after a Notice of Default has been recorded against the subject property. Violations of DRE regulations by a real estate agent can lead to criminal prosecution and/or treble damages and attorney fees.

What Are the Primary Ways in Which a Real Estate Agent Can Get Into Trouble With the New Foreclosure Consultation Laws?

Real estate agents should be aware of the following new rules and regulations set forth in the Foreclosure Consultant Law:

n No foreclosure consultant or real estate licensee may collect advanced fees for services as a foreclosure consultant once a Notice of Default has been recorded against the subject homeowneraEUR(TM)s property. [Note: California lawyers are exempt from this particular prohibition.]

n Even if a Notice of Default has not been recorded against the subject homeowneraEUR(TM)s property, in order for a real estate broker to assist the homeowner in obtaining a loan modification, or to negotiate a possible resolution to the homeowneraEUR(TM)s situation, he or she must have a signed agreement with the homeowner that specifically states what services will be performed, when those services will be performed and how much the homeowner must pay.