If your clients are facing foreclosure and ask for help in obtaining a loan modification, how would you advise them? Can you legally assist them or do you have to refer them elsewhere?
Last week’s column looked at how loan modifications work. The next question to address is whether working with loan modifications makes sense for your business.
In a recent interview, real estate coach Julie Harris explained that she became involved in training Realtors on how to work with loan modifications because so many agents were receiving requests about this topic from their sellers. Specifically, sellers wanted to know whether doing a loan modification was a better choice than doing a short sale.
If you’re considering working with loan modifications, the first step is to determine what is legal in your state. For example, in Maryland, agents can refer the seller only to their lender, to an attorney, or to a loan modification company. In contrast, agents in California can assist sellers with obtaining a loan modification and collect a fee for doing so. There are restrictions, however.
"If a notice of default has not been recorded against your property, it may be permissible for a real estate broker to assist you in working out a loan modification or otherwise negotiate a possible resolution to your problem with your lender or loan servicer and ask you for payment in advance for their services."
Licensees can collect an "upfront fee" provided they place it in their broker’s trust fund. The fee cannot be paid to the agent until the loan modification is complete.
To determine the loan modification requirements in your state, check with your state’s department of real estate, department of commerce, or your board of Realtors. Keep digging until you find someone who is knowledgeable on the topic, as the laws governing loan modifications change rapidly.
To protect yourself, Harris recommends that you recheck for compliance requirements at least every 60 days.
If you are more interested in working on a referral-fee basis, you can make a referral to an attorney or to a loan modification company. Since there are so many scam artists in this area, always conduct an online investigation to determine if there are any complaints or legal actions against anyone to whom you might make a referral.
To determine whether the loan modification company you are considering is legitimate, Harris suggests asking the five following questions:
1. Is the loan modification company in compliance with their state’s regulations? Can the company prove this? Usually the attorney who oversees the transactions can e-mail you the proof of compliance. If you get the runaround on this issue, go elsewhere. …CONTINUED
2. Does the loan modification company have an affiliate program for Realtors — and if so, how does it work? Go elsewhere if the person you’re speaking with says, "What do you have in mind?"
3. What type of online prequalification or underwriting systems does the loan modification affiliate provide for your use? A number of the legitimate loan modification companies allow homeowners to do a preliminary prequalification online. If the owner doesn’t qualify, there is no point in pursuing a loan modification.
4. What happens to the sellers whose loan modifications are turned down? Are they returned to the agent as short-sale clients? If the homeowner doesn’t qualify for a loan modification, then that person is a dead lead for the loan modification company. The agent can still assist the owner with a short sale.
5. What type of involvement does the Realtor maintain during the loan modification request process? If the loan modification is approved, you may not earn a commission right now. There is a high probability, however, that your assistance will pay off in terms of viral marketing, referrals and future business from the person you helped.
According to Harris, compensation is based upon how much work the agent does. Just sending a prequalified lead to an attorney or loan modification affiliate company can pay between $100 and $500 if that lead closes.
If the agent prequalifies the client, gathers all the required documents, helps the client with the application and the hardship letter, and then turns the file over to the attorney or loan modification company to finish the work, the agent typically nets $1,500 for this work. The agent will be paid as a "contract marketer" or "contract negotiator" under the umbrella of the attorney or loan modification company.
If agents can legally assist in the loan modification process and are knowledgeable about how to navigate the process, they will make a market average of $2,900 per transaction. This can be higher on more expensive properties.
According to Harris, "The thing to avoid is knowing nothing about loan modifications, believing the negative hype, buying into rumor, and turning our backs on opportunity to help homeowners."
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com and find her on Twitter: @bross.
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