Loan modification scams may not be the worst of monetary crimes, but they are certainly in the running. Taking advantage of financially distressed homeowners, the most common form of these scams is this: They take a large up-front fee (in the thousands) and then do nothing, or next to nothing, producing no beneficial results for the beleaguered borrowers.

People who do this are receiving a lot of attention in California. Among those who are looking are the State Attorney General, the Department of Real Estate, the FBI, the California State Bar, and even the California Legislature.

In the spring of this year the Department of Real Estate was investigating more than 750 complaints; nationally, the FBI was looking into more than 2,100 companies suspected of defrauding troubled homeowners; and the California State Bar is currently dealing with more than 800 cases relating to foreclosure complaints. Says the Bar's Chief Trial Counsel, Russell Weiner, "In my 21 years in attorney discipline, I have not seen a crisis of this magnitude. It is truly unprecedented."

Recently, the California State Bar took the highly unusual step of identifying sixteen attorneys who had received "a significant number of complaints" and who were under investigation. (Readers in my market area might be interested to know that slightly more than 2/3 of those attorneys were in Orange County, California). The bar's press release noted that it was highly unusual to go public with the names of those who were under investigation (and not yet found guilty), but in this case the organization was "waiving investigation confidentiality in favor of public protection." (Interested readers can go to www.calbar.ca.gov; or, to see the list of names – too cumbersome to reproduce here – just email me for a link.)

The California Legislature has also weighed in on the problem. The legislation in question (AB 764 – Nava) noted that current law allows both real estate brokers (with procedures approved by the Department of Real Estate) and California attorneys to charge up-front fees for negotiating loan terms. But, within those confines, too much bad stuff has occurred. Hence the passage of the bill on Sept. 28, 2009. It would prevent anyone from collecting advanced fees for loan modification negotiations until a successful result had occurred. The bill would also contain the requirement that any contract for loan modification services must contain specified language that states that it is not necessary to pay someone for attempting to negotiate a loan modification. The statement includes the web address www.hud.gov where a list of free loan counselors may be obtained.

AB 764 had a large number of supporters and no organized opposition. It now sits on the Governor's desk, awaiting his signature. He should sign it.

Published: November 17, 2009

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Bob Hunt is a former director of the National Association of Realtors and is author of the recently published book, "Real Estate the Ethical Way." A graduate of Princeton with a master's degree from UCLA in philosophy, Hunt has served as a U.S. Marine, Realtor association president in South Orange County, and director of the California Association of Realtors, and is an award-winning Realtor. Contact Bob at .