In California, the state Legislature just sent two bills to Gov. Arnold Schwarzenegger that would ban upfront fees for loan modifications.
Those are AB 764, by Assemblyman Pedro Nava, D-Santa Barbara, and SB 94, by Sen. Ron Calderon, D-Montebello. Though the bills vary in approach, both would prevent struggling borrowers from paying fees until the end of the process.
Presently, state law allows firms to collect upfront fees if the borrower has not received a formal notice of default. But loan modification companies must provide an agreement for the borrower to sign that explains what services will be performed, when they will be performed and what they will cost.
Before it's signed, it must also be sent to the Department of Real Estate for review and permission to collect upfront fees. Those fees must then be held in a trust account and only be spent on agreed-upon service.
Schwarzenegger has about a month to veto or sign either bill to ban upfront fees altogether.