The Advance Fee for 'Loan Modification Help'
Harbor Help Mortgage is an Oregon-licensed mortgage broker. It advertises 'loan modification help-stop foreclosure.' In January it collects a $3,500 'documentation fee' from a homeowner before submitting anything to a lender and deposits it in its operating account. The agreement says the fee is nonrefundable. The homeowner cancels 10 days later after hiring a lawyer; Harbor Help refuses a refund and says the fee covers 'analysis.' No written loan modification agreement was provided, no lender approval was obtained, and the homeowner's loan is 90 days delinquent. The MLO who signed the agreement says Oregon has no rule on advance fees because mortgage brokers are licensed.
1. Is the $3,500 advance fee permissible under Oregon law?
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No. Oregon restricts advance fees for loan modification and foreclosure-related assistance. Collecting a fee before performing the promised service, before any lender approval, and before the homeowner receives a written agreement creates a prohibited advance-fee arrangement. The 'nonrefundable' label does not make the fee lawful, especially where the company performed only an analysis and did not obtain a modification. The MLO's claim that licensing eliminates the issue is wrong: holding a mortgage broker license does not authorize advance fees for loan modification services. The company should refund the $3,500 promptly and stop collecting similar fees. The transaction also raises unfair or deceptive practice risk because the advertising promises foreclosure help while the agreement locks the homeowner into a nonrefundable payment.
2. What trust account and recordkeeping problems are present?
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The fee was deposited into the operating account rather than segregated and tracked as borrower funds. Even where a fee is ultimately earned, the company must maintain clear accounting, receipts, refund records, and a file showing what service was performed and when. Here the file lacks a written loan modification agreement, lender communications, proof of submission, and a refund log. The company also cannot show that the fee was earned before the borrower cancelled. Oregon examiners will look for a complete transaction record, including advertising, the fee agreement, the cancellation request, and the refund. Commingling borrower funds with operating funds and refusing a timely refund compound the violation and may support additional enforcement claims.
3. What should the MLO and broker do now?
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The broker should stop advertising or collecting advance fees for loan modification help, refund the $3,500, and send the borrower a written cancellation and refund confirmation. The MLO should preserve all records and cooperate with any DFR inquiry. The company should review all similar files to identify other homeowners who paid advance fees and make appropriate refunds. It should revise its advertisements and agreements so services, fees, refund rights, and timing are clear, and it should train staff that a mortgage broker license is not a license to charge advance fees for foreclosure relief. Because the homeowner is delinquent and represented by counsel, the company should route communications through counsel and avoid any collection or foreclosure-related misrepresentation.