California Loan Modification Lawyers That Can Help

by tammy on March 18, 2010

California has been particularly hard ht by the subprime mortgage crisis, the resulting collapse of the housing market, and the overall economic downturn. As a consequence, many people have sought some form of mortgage loan modification as a means of staying in their homes and avoiding foreclosure. However, due to the nature of how many California mortgages are owned by trusts but administrated by servicing companies, getting a loan modification is often difficult despite the fact that such a modification would probably be in the mortgage holder’s best interest.

The problem is that in California, many mortgage loans are not actually owned by individual entities that oversee their own properties and look for options to maximize their returns. Instead, most mortgages are owned by trusts, who then hire a mortgage servicing company to manage the properties on their behalf. However, if the mortgage goes into default or the property is foreclosed upon, it is not the servicing company that loses money; instead it is the trust that technically owns the property. Further, most of the Pooling and Servicing Agreements (PSAs) that govern the interaction between the trust and the servicing agent specifically contain provisions that increase the amount of money the servicing company gets if they have to deal with defaulting borrowers or foreclosures. The end result is that in California, the servicing companies that stand between the borrower and the lender in the real estate market have a vest interest in not negotiating or accepting loan modification despite the fact that this would be a better option for both the borrower and the lenders involved.

So, the servicing company actually prefers people to go into default and face foreclosure since they make more money on all of these transactions, while both the borrower and the lenders that employ the servicing agents lose money. Therefore since the borrower and the lender only deal with the servicing agent and the servicing agent has an obvious financial incentive actively encourage defaults and foreclosures; it can be very difficult for a homeowner in California to get a loan modification on their own. One factor that can radically increase the borrower’s odds of getting a modification is if they hire an attorney to represent them before the servicing agent. Litigation – except for foreclosure proceedings – is usually a deal buster for the servicing agents. The trusts assume that the servicing agents will behave legally, therefore the costs of litigation usually falls directly on the servicing agent, making resistance to modification discussions potentially much more costly.

Although there was a number of horror stories about fraudulent foreclosure “rescue” companies and other entities trying to take advantage of strapped borrowers, the passing of California SB 94 has largely put an end to these practices. The attorneys that still offer debt reduction and loan modification services today in compliance with SB 94 represent the legitimate firms that can provide real help to struggling borrowers. Further, as part of this law, people offering loan modifications cannot charge fees upfront (so they only get paid if they do something for you) and they have to inform people of the other alternative available. SB 94 means that there is really nothing at all to lose from consulting with a debt relief or loan modification attorney.

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