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Warning Regarding Mortgage Loan Modification Activity

A recent development in the ongoing mortgage and foreclosure crisis is the emergence of a new type of business which purports to offer “loss mitigation consulting,” “foreclosure prevention,” “mortgage loan modification,” and similar services.  The Department of Banking and Insurance has seen an increasing number of advertisements, direct-mail solicitations and other marketing materials offering New Jersey consumers assistance in negotiating resolutions of their delinquent residential mortgage loans with lenders and servicers in exchange for up-front fees. 

The Department has also seen solicitations to licensees and to attorneys to partner with companies that purport to offer such services.  These marketing materials suggest that these businesses will help delinquent borrowers obtain payment plans, loan modifications, short sales and deeds in lieu of foreclosure.  Mortgage bankers, brokers and solicitors have been targeted by these businesses in hopes of obtaining referrals. 

The Department has begun to receive consumer complaints regarding fees paid to parties providing these services.  The Department has also received inquiries from persons interested in entering such a business.  As a result, the Department is providing answers to some of the most frequently asked questions below:

Bulletin 08-13: Debt Adjusting Activities (PDF)
Consumer Assistance - Inquiries/Complaints
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Frequently Asked Questions
1. What is a Loan Modification? 

A loan modification involves modifying the terms of an existing loan, typically to make it more immediately affordable for a borrower in default or in imminent danger of default, for instance because of a scheduled rate increase.  The terms commonly modified are the interest rate and/or the term of loan.  A loan modification is not a form of mortgage loan refinance or second mortgage activity.

Typically, loan modification activity falls into the category of “debt adjustment” as defined in New Jersey’s Debt Adjuster Act. 

A "debt adjuster" is a person who either (a) acts or offers to act for a consideration as an intermediary between a debtor and his creditors for the purpose of settling, compounding, or otherwise altering the terms of payment of any debts of the debtor, or (b) who, to that end, receives money or other property from the debtor, or on behalf of the debtor, for payment to, or distribution among, the creditors of the debtor. [N.J.S.A. 17:16G-1c(1)].

2. What businesses may legally engage in loan modification activity that involves debt adjustment?

a) The lender or owner of the loan;

b) The mortgage servicing company, acting as an agent for the loan’s owner;

c) An entity licensed by the Department as a Debt Adjuster under the Debt Adjuster Act; and

d) Other entities that are exempt from Debt Adjuster licensure, as set forth at N.J.S.A. 17:16G-1c(2): 

The following persons shall not be deemed debt adjusters: (a) an attorney-at-law of this State who is not principally engaged as a debt adjuster; (b) a person who is a regular, full-time employee of a debtor, and who acts as an adjuster of his employer's debts; (c) a person acting pursuant to any order or judgment of court, or pursuant to authority conferred by any law of this State or the United States; (d) a person who is a creditor of the debtor, or an agent of one or more creditors of the debtor, and whose services in adjusting the debtor's debts are rendered without cost to the debtor; or (e) a person who, at the request of a debtor, arranges for or makes a loan to the debtor, and who, at the authorization of the debtor, acts as an adjuster of the debtor's debts in the disbursement of the proceeds of the loan, without compensation for the services rendered in adjusting those debts.

3. What businesses may not legally engage in loan modification activity that involves debt adjustment?

a) Any person or entity not exempt from the Debt Adjuster Act licensing requirement, and not licensed as a debt adjuster; and

b) Any mortgage banker, correspondent mortgage banker, mortgage broker, or mortgage solicitor licensed or registered under the Licensed Lenders Act, who is not the owner or agent of the owner of the loan being modified. 

4. What do consumers risk by seeking help from entities offering loan modification services who do not have a debt adjuster license or exemption?

a) Payment of exorbitant upfront fees for services available from a proper source for free or at minimal cost;

b) Loss of fees paid, with no services rendered, and/or no protection from financial loss under a surety bond (Debt Adjuster licensees are required to be bonded in the minimum amount of $50,000.);

c) Loss of precious time in the midst of a default or foreclosure process;

d) Loss of title to the home without any real benefit, under certain scams; and

e) Further damage to credit profile.

The Department will investigate complaints relating to unlicensed persons offering loss mitigation consulting, foreclosure prevention, loan modification and similar services and will pursue appropriate remedies.  Consumers who wish to file a complaint with the Department may go to the appropriate form on this site:

5. What business risks are involved in conducting loan modification activity without a license or exemption?

a) State of New Jersey enforcement action for fines and injunctive relief under the Debt Adjuster Act;

b) Criminal prosecution; and

c) Actions by individual consumers or the NJ Attorney General under the Consumer Fraud Act and other civil law suits for money damages sustained by consumers.

All persons who may provide or seek to provide loss mitigation consulting, foreclosure prevention, mortgage loan modification, or similar services are urged to carefully review the Debt Adjusters Act with their counsel to assure compliance.

OPRA is a state law that was enacted to give the public greater access to government records maintained by public agencies in New Jersey.
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