According to a recent Mercury News article, San Jose homeowner Salvador Ruiz paid a foreclosure prevention company $8,950 to negotiate the terms of his home loans with mortgage loan modifications on two properties four months ago, but he says they did nothing and haven’t returned his money. “They tell me everything’s OK, but they haven’t done anything so far,” said Ruiz, who is filing a complaint with the California Department of Real Estate.  With non-profits and banks overwhelmed by the demand for their services from people like Ruiz, an army of consultants has sprung up in San Jose and around the state offering homeowners loan work-out assistance banks to provide home loan modifications for a fee.

Some of these businesses charge as much as $5,000 in advance, and many desperate homeowners facing foreclosure will pay to modify their home mortgages to a more affordable loan payment.  But some customers are complaining that little was done for the money they paid, while some services have turned out to be scams.  “It’s a relatively new phenomenon,” said California Department of Real Estate spokesman Tom Pool. “It’s becoming an issue. As always, people get very clever when they see an opportunity.”  Real estate brokers are required to obtain permission from the DRE to collect fees in advance, but do not need permission if they charge after completion of the work. Pool said the agency has issued “desist-and-refrain” orders to a few unapproved companies that were charging advance fees. The DRE advises consumers to check its website to verify that a loan modification company has any negative marks.  “Some of our clients have paid companies for modifications and not received service,” said Keisha Woods of EPA Can Do, an East Palo Alto non-profit. “We are advising our clients not to pay for any type of modification service.”  EPA Can Do helps low- to medium-income homeowners negotiate loan work-outs for homeowners facing foreclosure or future trouble from a future adjustable interest-rate reset, and helps transition those who do lose their houses, Woods said.

The state Attorney General’s office is prosecuting First Gov, also called Foreclosure Prevention Services, a Los Angeles company that promised to renegotiate loans for $1,500 to $5,000 but instead “ripped them off for thousands of dollars” while their homes went into foreclosure, according to the Attorney General’s office.  “Loan modification scams are becoming more and more prevalent across the country, particularly in California,” Attorney General Jerry Brown said when First Gov officials were arrested earlier this month.

Most major banks have their own loan modification processes, which customers can deal with on their own. And non-profits such as Project Sentinel and Neighborhood Housing Services-Silicon Valley will help clients negotiate with banks for free. But these services are clearly overwhelmed by the demand.   “The reality is, we’re swamped,” said Martin Eichner of Project Sentinel in Sunnyvale. “We’re currently averaging 12 hours of counselor time per case. It’s labor-intensive, so the idea of charging for the work is not unreasonable. The problem is charging fees in advance before accomplishing anything.”  Said Marlene Santiago, a foreclosure intervention counselor with Neighborhood Housing Services: “On Mondays, we have 70 voice mails waiting. It takes me two hours to go through them. We need help, we really do.”  Ruiz, the San Jose property owner, ultimately turned to another private company, Home Resolution and Credit Services, which was opened in July by real estate agent Robert Aldana and broker Martha Lopez-Chubb. It’s one of two San Jose companies registered with the DRE to accept advance fees for mortgage modifications.  “Plain and simple, if there was enough help out there for free, we would not exist,” said Aldana, who does local Spanish-language radio and television broadcasts on real estate.   Read Complete Article

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