Many mortgage lenders and brokers and other businesses are engaging in, or are considering engaging in, various activities aimed at assisting homeowners facing foreclosure or struggling to meet their mortgage loan obligations.  Such activities may include negotiating with a consumer’s current lender to achieve loan workouts, short sales, short refinances and loan modifications.  Individuals and businesses involved in providing these services to consumers should be aware that many state regulatory agencies, including the Maryland Division of Financial Regulation and the Maryland Attorney General’s Office, are carefully scrutinizing individuals and businesses providing these types of services and are enacting new laws and/or vigorously enforcing existing laws that impose licensing requirements and other requirements and restrictions with respect to these activities. 

Maryland, among other states, has recently enacted foreclosure consulting statutes and other similar statutes.  The Maryland Protection of Homeowners in Foreclosure Act (“PHIFA”), enacted in 2005 specifically to protect homeowners facing foreclosure and amended in 2008, applies to “foreclosure consultants,” encompassing business that provide virtually every activity aimed at assisting a homeowner who is in or potentially facing foreclosure and/or who is 60 days or more in default on their mortgage loan.  A foreclosure consultant is also defined as a person who “systematically contacts owners of residences [60 days or more] in default to offer foreclosure consulting services.”

• “Foreclosure consulting services,” as defined in the statute, include:
• Receiving money for the purpose of distributing it to creditors in payment or partial payment of any obligation secured by a lien on a residence in default;
• Contacting creditors on behalf of a homeowner;
• Arranging or attempting to arrange for an extension of the period within which a homeowner may cure the homeowner’s default and reinstate the homeowner’s obligation;
• Arranging or attempting to arrange for any delay or postponement of the sale of a residence in default;
• Arranging or facilitating the purchase of a homeowner’s equity of redemption or legal or equitable title;
• Arranging or facilitation the sale of a homeowner’s resident or the transfer of legal title, in any form, to another party as an alternative to foreclosure; or
• Arranging for or facilitating a homeowner remaining in the homeowner’s residence after a sale or transfer as a tenant, renter, or lessee under terms provided in a written lease.

If PHIFA applies, in addition to other requirements and restrictions, the foreclosure consultant must provide the homeowner with a written contract that satisfies the statutory requirements, including the right to cancel the contract at any time (not just three days), and the foreclosure consultant may not collect any fees before completing each and every service the foreclosure consultant contracted to perform or represented that the foreclosure consultant would perform.  A violation of PHIFA may be a misdemeanor and could result in imprisonment and/or a fine of up to $10,000.  Moreover, an aggrieved person may bring a suit to recover damages, including treble damages for willful violations, plus attorneys fees.

Moreover, many states, including Maryland, have determined that loan modifications and other services are covered under an existing credit services business statute or consumer protection law.  The Maryland Commissioner of Financial Regulation has taken the position that loan modification services are likely covered under the Maryland Credit Services Business Act (“MCSBA”).   Businesses providing such services in Maryland must obtain a license under the MCSBA and satisfy certain requirements regarding written contracts.  Like PHIFA, fees may not be collected before the services have been completed. 

If you wish to discuss how these requirements may affect your business, please contact Rachel Wolf, Esq. or Steve Lovejoy, Esq. at 410-825-5223.