A Colorado broker, Renee, is representing a buyer who wants to purchase a property through a short sale. The sellers are behind on their mortgage and owe $450,000 on a property worth $380,000. Renee's buyer has submitted an offer of $375,000. The listing broker tells Renee that the sellers already signed a contract with a foreclosure consultant who is charging a $5,000 upfront fee to negotiate the short sale. Renee is concerned about whether this arrangement is legal under Colorado law. Which of the following correctly describes the legal issue?
Correct Answer
A) The foreclosure consultant's upfront fee arrangement violates the Colorado Foreclosure Protection Act, which prohibits collecting fees before services are performed
Under the Colorado Foreclosure Protection Act (C.R.S. § 6-1-1101 et seq.), foreclosure consultants — including those who negotiate short sales for distressed homeowners — are prohibited from collecting upfront fees before performing the promised services. The $5,000 upfront fee charged before completing the short sale negotiation violates this prohibition. Renee's concern is well-founded, and she should advise the sellers to seek legal counsel.
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Related Topics & Key Terms
Key Terms:
Related Concepts
A comparison of the major mortgage loan types—conventional, FHA, VA, and USDA—covering their eligibility requirements, down payment amounts, mortgage insurance rules, and best use cases.
Predatory lending refers to unfair, deceptive, or abusive lending practices that impose unjustified terms on borrowers, often targeting vulnerable populations. It includes practices like excessive fees, inflated appraisals, and unnecessary refinancing.
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
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