CA DRE Orders T.N.L.M.A. Owner to Desist and Refrain

According to The National Loss Mitigation Association’s (“TNLMA”) website, its mission is: “to promote integrity, ethical business practices and responsible regulation that inspires public confidence in the loss mitigation industry.”

That might sound good, especially in an industry that’s constantly under fire for the actions of its fraudulent fringe, except that the owner of TNLMA, Dean Shafer, was ordered to “Desist and Refrain” from offering loan modifications and anything else regulated by the California Department of Real Estate (“DRE”) as May 11, 2009.

Shafer’s other company is Loss Mitigation Services Inc., a company that he co-founded in February of 2008 with Bernadette Perry, a former mortgage broker, to offer loan modification services to homeowners. According to the DRE filing, neither Mr. Shafer nor Ms. Perry holds a valid California real estate license, which is required to engage in loan modification transactions, and among other things, was ignoring the department’s rules related to charging homeowners up front fees.

Since last October, the state’s DRE has filed over 60 Desist and Refrain Orders and/or Accusations involving companies promising to modify mortgages, in many cases ordering the companies to stop offering such services permanently.

TNLMA markets itself as an “association,” but it’s really a for-profit corporation 100% owned by Shafer. The “association,” was incorporated in early 2009, ostensibly in response to the onslaught of negative press the industry was receiving. The TNLMA website says that it is:

“The premier national association dedicated to promoting standardized practices in the loss mitigation industry, protecting the interests of loan modification clients and lobbying on behalf of companies in the loss mitigation industry during the development of public policy and regulation.”

Membership costs a few thousand dollars a month to $10,000 a month… a seat on the Board costs members $20,000. TNLMA, now only a few months old, already lists a handful of member firms, as it continues to aggressively market its memberships to other loan modification firms.

Shafer stated that he knew the Desist and Refrain order was coming sooner or later. In an April 7, 2009 interview with a reporter from Bloomberg News, Shafer admitted that his firm was out of compliance, but that in his view the laws governing loan modification firms, and the rules imposed by the DRE were unnecessary.

The California DRE requires companies that offer to handle loan modifications on behalf of homeowners, to comply with terms enumerated in an approved Advance Fee Agreement. Law firms are exempt from such compliance, but Shafer and Perry’s Loss Mitigation Services Inc., not being a law firm, was required to be licensed by the California DRE and comply with the terms of the Advance Fee Agreement. Still, Shafer now stands accused of operating without the requisite licenses and failing to comply with the Advance Fee Agreement’s terms.

This is exactly the type of behavior that the private sector loan modification industry does not need.

I spoke with Tom Pool, Assistant Commissioner at the DRE, and he explained that companies have 30 days to challenge a Desist and Refrain (“D&R”) order by requesting a hearing in front of an administrative law judge. Shafer’s D&R was signed on May 6, 2009 by Commissioner Jeff Davi, but not filed until May 11th, so he has until June 10th to make such a request.

Pool explains that companies that do not request a hearing and remain open in defiance of the department’s D&R end up facing much more serious charges. “Then it becomes a crime,” Pool said. “It all depends on the nature of the offense, of course, but sometimes we get the Attorney General involved, and other times we contact the local District Attorney. Either way, if companies chose to ignore our order to desist, everything moves up a few notches. Fines become much stiffer, and penalties can include time in jail.”

“You’re going to be seeing a wave of enforcement actions throughout the state in the next few months,” Pool adds. We know what’s going on out there and it just takes time before we can take the actions the public expects us to take. Companies that aren’t complying with the laws will be punished. Perhaps not today, but a lot sooner than they think.”

In the by-laws of Shafer’s TNLMA company, it says: “All Members and their Representatives shall comply with all federal and state laws, regulatory guidelines, rulings and determinations including, but not limited to, the privacy of client’s personal confidential information and Company registration as required by applicable State law, excluding any uncontested regulatory opinions and interpretations that may be impractically and unfeasibly able to be complied with and/or are unintentionally detrimental to serving distress homeowners and the public.”

I had to read it a couple of times, but I think that says that TNLMA members will comply with the laws they think are reasonable and ignore the rest. The by-laws then go on to describe California’s Advance Fee Agreement as being untenable and therefore a regulation to be ignored. But it’s the last sentence in the first section of the by-laws that I found most worthy of repeating. It says:

“TNLMA will work with the CA DRE and other governmental agencies to assist in development of progressive solutions that will improve the economy and serve distressed homeowners and the general public.”

So, maybe this is just Shafer’s way of “working with the DRE”? If so, we’ll just have to see how it works out in the end.

In an industry that has been, at least to some significant degree unfairly maligned by the media, it’s unfortunate… and ironic… that a member of that industry would create a scheme to sell other firms expensive memberships in an “association” supposedly dedicated to ethics, all the while knowing that a DRE Desist and Refrain order for breaching those ethics and rules was imminent.

It’s unclear whether Shafer will be shut down or whether he will continue trying to sell memberships in his association, but one thing is clear… the California Department of Real Estate is out in force, so loan modification firms that have been trying to fly under the proverbial radar, skirting the rules in various ways even if they are in fact modifying loans for homeowners, had better look at ways to straighten up and fly right.

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