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California bill targets mortgage modification counselors

It would forbid them to collect money from homeowner clients before the client's mortgage is modified and monthly payments are reduced.

October 02, 2009|Marc Lifsher

SACRAMENTO — Consumer advocates and a Santa Barbara lawmaker are urging Gov. Arnold Schwarzenegger to sign a bill that would protect homeowners from predatory firms that collect advance payments after bragging about their ability to persuade lenders to lower monthly mortgage bills.

Often, the so-called debt modification counselors collect thousands of dollars in fees, then fail to do anything while lenders foreclose on the properties, Assemblyman Pedro Nava (D-Santa Barbara) said at a news conference Wednesday in the state Capitol building.

The measure, AB 764, would prohibit counselors, who advertise heavily with official-looking direct mail, from collecting any payment until after a client's mortgage is modified successfully and monthly payments are reduced.

"AB 764 will end these scams, ban the collection of advance fees and impose severe penalties for those who violate the law," Nava said.

If enacted, the bill would carry civil penalties of up to $20,000 for an individual and $60,000 for a corporation, plus a possible criminal penalty of up to one year in county jail.

Tough penalties are needed, Nava said, citing what happened to Kerstin Feist, a disabled senior citizen in danger of losing the family home she's lived in since 1963.

Feist said she refinanced the home in Albany, east of San Francisco, to pay for her parents' nursing home care.

After her parents died, she paid $3,000 in November 2008 to a loan modification counseling service in Irvine to reduce the interest on her expensive, adjustable-rate mortgage. The company, which claimed a 98% success rate, promised to negotiate with her lender, Feist said.

Instead, Feist said, she received a notice to vacate in March after learning that her home had been sold three months earlier. She's fighting the eviction.

"The house is gone after 45 years of living in it," she said.

Nava's bill is backed by Consumers Union, publisher of Consumer Reports magazine; the California Reinvestment Coalition; AARP; the State Bar of California; other consumer groups; and Los Angeles Mayor Antonio Villaraigosa.

The bill has no organized opposition, though a number of Republican lawmakers voted against it.

Schwarzenegger, who has until Oct. 12 to consider the bill, has not indicated whether he will sign or veto it.


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