October 1 a new Florida law went into effect that makes it illegal to charge up front for home redemption or short sale processing services unless you are an attorney. Many investors have moved into the business of home redemption, helping homeowners to request loan modifications and forebearance agreements, while others are working with homeowners to negotiate a short sale with lenders.
On average, specialists in the foreclosure market have charged from $500 to $1500 up front to manage the paperwork process and negotiate with the lender. It is a time-intensive process, and there is, frankly, no guarantee that the bank will accept the proposal. To make sure there is some financial reward for starting the process, most charge something up front.
What seems to be happening is that now homeowners are spending more, because the average attorney fee to get a loan mod or negotiate a short sale is $1500 to $2500. Many investors and Realtors continue to charge, at great risk of being reported to the state Attorney General’s Office. The fines are very stiff.
I recently listened to a teleconference where members of the Ft. Lauderdale Real Estate Investors organization interviewed two attorneys from the State of Florida who were involved in writing the legislation. It became clear that most of the ways Realtors and investors have invented to get around the law are not, in fact, legal, including aligning with an attorney and running the business through the attorney’s office. This could be construed as practicing law without a license. A definite no, no!
The only process that the two Florida Attorney General’s office lawyers found to be viable is by breaking the service into small pieces and billing for services completed in small increments. This limits the loss if the homeowner backs out or gets a negative reaction from the lender, but gets payment for services actually rendered immediately after the service is complete.
So, investors and Realtors trying to help Florida’s desperate homeowners, be aware that you need to follow the new law. To ignore it is risking your client turning you in to the state Attorney General’s office and being fined $15,000. That money, by the way, specifically goes to the homeowner and not the lender, so there is great incentive for homeowners to turn in anyone who is not offering completely above board service.
Liz Nichols
