Is communicating &discussing a Loan Modification offer considered Legal Advice?

I don't think this part of the process has been discussed much if at all. Here is the question directed to the people here who actually DO the loan mod, not the affiliates or referral types.

When the lender hands down an offer that is not acceptable to the homeowner, or is a decline or counter-offer, what do you do to reach final disposition on that file? Assume 2 things here:

• All the negotiating, offer/counter-offer is finished, this is the "final" offer
• Homeowner is NOD at the time that this offer is being rendered.

Do you try to "sell" the merits of the offer as being reasonable and appropriate for the situation to get the homeowner to accept? (ie decent offer on the rate/payment, but no deal on principal reduction that homeowner wanted)

Do you tell the homeowner this is the best that can be done and up to them to decide what to do?

Do you tell them this is no good, maybe the homeowner should consider a different way out like a short sale, deed in lieu, cash for keys, BK, or?

Do you do nothing or give refund if homeowner doesn't accept?

Is the offer communicated to the homeowner by an attorney?

Would you consider that discussing the offer with the homeowner and whether or not they should accept it, might constitute rendering legal advice?

I shared this scenario already with crankyusi for his thoughts. I know what I have been told and the caveats that apply, I'll reply again later.

Typically I try and follow up with the customer 5 days prior to the due date of the stip or mod.  If I have provided the customer with the best possible option and they are unwilling to sign and return the agreement I recommend the sale of the property or listing of the property. 

Well, it is pretty obvious I may confused everyone with my post, sorry about that. Here is the question distilled down. My question primarily relates to a homeowner that is NOD, but may apply other times too.

The situation:

If your client is declined for a mod, or if the terms are not clearly not feasible in the client's opinion, are you giving legal advice if you suggest or recommend other options to mitigate the client's situation?

What if you knowingly or unknowingly recommend the "wrong" solution thereby causing the client financial damage?

What if you fail to recommend a solution that may be more appropriate thereby causing the client financial damage?

My position is that this type of function is one of "legal advice" and therefore belongs to an attorney, not the loss mit guy who is in a position of trust and representing the client, not the bank.

What do you say?

Steve,

Why did you cut and paste your comments from BO to here when only one person responded?

I offer the best input regarding the modification options and or lack there of. If it is to the point to where they get denied and have no other options, I would make it clear that I DO NOT GIVE LEGAL ADVICE but to seek a BK Attorney for BK options, because this may be their only other option besides letting the property go.

Stick to what you know and use dependable resources otherwise.

Why would't I want to do that? That thread is picking up life over there, but that is not the point.

There are a lot (actually more) of experienced folks here, so getting opinions from here is important to me.

Now that many loan mod companies are "attorney backed", does that actually mean something other than them being able to collect advance fees? Wouldn't being "attorney backed" have the benefit/obligation of the attorney to actually make a legal judgment and make recommendations to the homeowner if they get denied? or if the offer is not sustainable? Isn't that their obligation to the homeowner?

Another reason I believe this to be a relevant topic, is that according to IndyMac/FDIC 40% of the loans that were modified so far, are re-defaulting. This leads me to think that (among other things) that PROBABLY some homeowners received bad advice from the person who helped them with getting a modification.

Seems to me that here is the next wave of "not-my-fault" homeowners wanting to sue someone that gave them bad advice.

40% thats not to bad currently we are seeing about a 60% default rate on MOD's.  It pretty amazing when you see MOD where the LTV was put down to a 100% and you reduce the payment greater than 50% yet the customer defaults again.  Not to mention in some cases they are paying more for there car payments. 

Kinda of makes you think, where are their priorities? Some people just look at it as more money to spend on toys and not on ensuring they have a roof over their head. On the positive side 40%-60% og loan mods were successfull.

The answer isn't in what you tell the borrower, but more in the contract they sign. When we do CA NODs, everything goes straight through our attorney. We do not have a relationship with the client. So, as for my company, we do not tell them anything. CA NODs go through the attorney, we are just the paper pushers. So, no legal advice as we are not the attorneys.

Easy enuff.

I'm glad my state (MD) basically said "Do not do loan mods or you may lose your originator's license and face criminal charges.". It made it a much easier decision not to get involved. I know many people are straight shooters (Beau in particular) but the entire Mod industry never sat well in my gut. The grey area is too scary. I referred a client to the loan mod world because I coulnd't help her. I gave her the name of 3 attorney based mod companies so she could make her own educated decision. She did get her $300k loan modified and saved over $200/mo. However, she was livid that it only saved $200/mo and wanted to sue to get her $3k back from the mod company.

It could have been my reputation and license on the line if I got involved and compensated from the transaction. Even though the deal was great (IMO), the client was totally unhappy.

There are truly great mod companies out there. Unfortunately, 100's of shams popped up overnight to cash in on easy money and take advantage of distressed homeowners.

El Lupo:

40% thats not to bad currently we are seeing about a 60% default rate on MOD's.  It pretty amazing when you see MOD where the LTV was put down to a 100% and you reduce the payment greater than 50% yet the customer defaults again.  Not to mention in some cases they are paying more for there car payments. 

I am fascinated by the entitlement mentality, as well as the concept that the govmint is going to swoop in and save the day for Joe Homeowner.  If you can legitimately afford the payments, and it is an ARM that you have been put into or a forbearance agreement (I have seen that one a couple of times), then why ot be happy with what you have?  Negative equity is not really a reason to  bail  on a house after a loan mod has been done, but oh well.  Senor Lupo, what have you been seeing in regards to mods for the investors that are negative on their monthly rents, especially those self employed ones - Realtors, LO's, small business owners- that dont really show income?

Did you ever get a response to this?

I'm mostly interested in what to do if borrower does not accept modified terms one presents on behalf of the lender?  Should their money be refunded?  I don't agree with this in that the work has been performed; loan mod request was accepted, and new terms offered.  If money is refunded due to borrower not accepting loan mod, then all the work done would have been for free.

By the way, this borrower not NOD yet (behind yes, but NOD had not yet been filed).  As an authorized 3rd party, have I violated any laws by accepting feespaid upon presentation of loan mod document?  (negotiated with lender 3x, each time they came back with better terms).

Try this answer on for size...

Client behind 3 months...16k behind with fees. Payment of 1750 reduced to 1250 for 3 months "trial period" with Lender, THEN they will modify permanently to that payment. 16k added to the end of the loan. No balloon.

Since this is a trial or good faith start by the Lender, Client won't get final mod in writing till 3 on time payments received AND Client's financials re-evaluated by the Lender.

Client doesn't trust Lender to follow thru...Attempt to push payment from mid month to end of month would require the Lender to "redo" the mod from scratch and no guarantee of even the first offer still being available.

What did I do?

Since we are an attorney based firm, we advise the client that we feel this is the Lender's best offer. 3 payments and they are current and up to date and the payment saves them 500 a month. We feel the Lender is acting in good faith. Now it's up to them.

You can only advise so much till it sounds like a hard sell.