Forecosure Rescue Clampdown

Yesterday evening I had the privilege of attending a political dinner. I chatted with Rob Bishop, shook hands with Governor Herbert, and was able to chat with some state legislators extensively. One of the topics that came up was mortgage fraud and new legislation to crack down on unscrupulous behavior involving "Foreclosure Rescue" and loan modifications.

I was very surprised to find out that the legislation that has been passed was in direct response to activities by someone with whom I am well acquainted.

The new law makes it illegal for anyone to participate in "foreclosure rescue" and loan modification activies without being licensed by the state. It also puts teeth into the law when it comes to disciplining wayward players in the market.

Lets take a look at some interesting points about the new law.

Here is the State definition of foreclosure rescue:

            61          (12) "Foreclosure rescue" means, for compensation or with the expectation of receiving
             62      valuable consideration, to:
             63          (a) engage, or offer to engage, in an act that:
             64          (i) the person represents will assist a borrower in preventing a foreclosure; and
             65          (ii) relates to a transaction involving the transfer of title to residential real property; or
             66          (b) as an employee or agent of another person:
             67          (i) solicit, or offer that the other person will engage in an act described in Subsection
             68      (12)(a); or
             69          (ii) negotiate terms in relationship to an act described in Subsection (12)(a).
           

Strait forward enough.  So what is and is not allowed for foreclosure rescue?  Here are the grounds for disciplinary action by the State:

362          (23) (a) engaging in a foreclosure rescue if not licensed under this chapter;
             363          (b) engaging in an act of loan modification assistance that requires licensure as a
             364      mortgage officer under Chapter 2c, Utah Residential Mortgage Practices and Licensing Act,
             365      without being licensed under that chapter;
             366          (c) requesting or requiring a person to pay a fee if:

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             367          (i) the person is required to pay the fee before entering into a written agreement
             368      specifying what one or more acts of foreclosure rescue will be completed if the fee is paid; or
             369          (ii) in a case when the financing that is the subject of the foreclosure rescue is
             370      foreclosed within one year from the day on which the person enters into a written agreement,
             371      the person is required to forfeit the fee for any reason;
             372          (d) inducing a person who is at risk of foreclosure to hire the licensee to engage in an
             373      act of foreclosure rescue by:
             374          (i) suggesting to the person that the licensee has a special relationship with the person's
             375      lender or loan servicer; or
             376          (ii) falsely representing or advertising that the licensee is acting on behalf of:
             377          (A) a government agency;
             378          (B) the person's lender or loan servicer; or
             379          (C) a nonprofit or charitable institution; or
             380          (e) recommending or participating in a foreclosure rescue that requires a person to:
             381          (i) transfer title to real property to the licensee or to a third party with whom the
             382      licensee has a business relationship or financial interest;
             383          (ii) make a mortgage payment to a person other than the person's loan servicer; or
             384          (iii) refrain from contacting the person's:
             385          (A) lender;
             386          (B) loan servicer;
             387          (C) attorney;
             388          (D) credit counselor; or
             389          (E) housing counselor; or
             390          (24) for an agreement for foreclosure rescue entered into on or after May 11, 2010,
             391      engaging in an act of foreclosure rescue without offering in writing to the person entering into
             392      the agreement for foreclosure rescue a right to cancel the agreement within three business days
             393      after the day on which the person enters the agreement.

These are some pretty hard hitting changes to the law.  I know several investors who will be affected by this.  The foreclosure rescue process was so legally complex that there was plenty of room for unscrupulous players to take advantage of unwitting home owners in a legal (though unethical) way.  The "rescuers" just needed some good attorneys to write up the paperwork.  This legislation closes almost all those loopholes.  It should add much needed transparency and supervision to an otherwise cloudy part of the market.