Loan Modification Services

Type Matter:  Loan Modification Services
Issue:  Is an Agent at risk for giving loan modification advice where there is not compensation flowing from the Seller/Borrower to that Agent?
Answer:  Yes

Facts:  Sellers asked Agent, a longtime friend for advice relating to their multi unit, income producing property. Sellers were not sure if there was any equity in the property about options, including: selling; short sale; and loan modification. Despite having an office policy of not handling loan modifications, the Agent recommended loan modification and offered to assist in that effort without compensation. Nothing was put in writing with regard to the services to be rendered, the lack of compensation or any description of the relationship intended to be formed between Sellers and Agent. Sellers, at the alleged advice of Agent, stopped making mortgage payments in order to obtain the loan modification. Sellers ended up losing the property in foreclosure and sued Agent and her Broker. Agent and Broker claimed they had no duty, was taking no fee, and only providing gratuitous advice.

Result:  A demurrer was filed claiming there was no case due to lack of duty for regarding advice given. The court rejected this argument claiming there were enough facts to allow for the case to go forward. Ultimately, the case settled for a nominal sum prior to extensive litigation. There was simply too much risk that the court would find the advice by Agent was faulty and it was foreseeable that it would result in the loss of the property.

Lesson:  While an Agent may only be providing uncompensated assistance and advice, there is still a risk of exposure related to that assistance and advice. In most situations, advising a client to withhold payments for anything, particularly mortgage payments, is a very risky proposition. Moreover, any advice given gratuitously puts a Broker at risk with no certain benefit. If a Broker does want to venture into these activities, it is best define in writing the nature of the services, the intended relationship, the fact there is no compensation, and preferably a hold harmless agreement. Finally, Agents should not act in ways which are against the office policies of their brokerage. Often there are limitations in insurance coverage or other issues which underlie those policies.

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