Short Sale, Foreclosure and Strategic Default


Wednesday, March 25, 2009

Ethics alert Ca Bar - foreclosure and loan modification

Legal Services to Distressed Homeowners and Foreclosure Consultants on Loan Modifications
Committee on Professional Responsibility and Conduct
(February 2, 2009)
You have all read and heard about the residential mortgage crisis in California. In 2007,
roughly 84,000 California homeowners lost their homes in foreclosure.1 Through the first three
quarters of 2008 alone, that number increased to over 190,000. During that same period, lenders
recorded nearly 330,000 notices of default on California home mortgages. Recording a notice of
default is the first step of a non-judicial foreclosure or trustee sale, the most common process in
California, which typically takes four to six months or more. In other words, the crisis seems far from over.
Seeing a business opportunity in this crisis, “foreclosure consultants” purport to offer distressed homeowners assistance in assessing their options and/or negotiating loan
modifications with their lenders.2 According to the California Legislature,
These foreclosure consultants, however, often charge high fees, the payment of
which is often secured by a deed of trust on the residence to be saved, and
perform no service or essentially a worthless service. Homeowners, relying on
the foreclosure consultants’ promises of help, take no other action, are diverted
from lawful businesses which could render beneficial services, and often lose
their homes, sometimes to the foreclosure consultants who purchase homes at a fraction of their value before the sale.
Vulnerable homeowners are increasingly relying on the services of foreclosure
consultants who advise the homeowner that the foreclosure consultant can obtain
the remaining funds from the foreclosure sale if the homeowner executes an
assignment of the surplus, a deed, or a power of attorney in favor of the
foreclosure consultant. This results in the homeowner paying an exorbitant fee
for a service when the homeowner could have obtained the remaining funds from
a trustee’s sale from the trustee directly for minimal cost if the homeowner had

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