Nevada Lawyers Under Fire For Foreclosure Mediation Practices

Brian Wargo of the Las Vegas Sun wrote an interesting article in Friday’s edition about Nevada’s new mediation law for people facing foreclosure.

The Nevada legal community is getting behind a new mediation program designed to reduce the state’s ongoing foreclosure problem, but some attorneys are facing criticism for trying to profit from it.

As of July 1, homeowners who receive notices of default from their lenders have 30 days to seek mediation. So far, more than 450 homeowners have requested mediation, which could begin by late August or early September, said Bill Gang, spokesman for the Nevada Supreme Court, which is overseeing the program.

http://www.lasvegassun.com/news/2009/aug/21/foreclosure-filings-catch-flak/

FTC Fines United Home Savers in Florida $4.1M but settles on $21,694

The Federal Trade Commission has put a stop to a deceptive foreclosure “rescue” operation that charged homeowners $1,200 based on the false promise that it could save them from losing their homes.

The operators of the business are barred from any further deceptive practices under a settlement with the FTC. The agency charged them with violating the FTC Act by falsely claiming that they would prevent homes from being foreclosed in virtually all instances or refund most of the $1,200 fee. In most cases the defendants neither stopped foreclosure nor provided promised refunds.

The settlement prohibits the defendants from misrepresenting any fact material to a consumer’s decision to purchase a foreclosure rescue service, including that they can prevent or postpone any foreclosure; the likelihood that their foreclosure rescue will succeed; the degree of past success of any foreclosure rescue efforts; the likelihood that a consumer will get a refund if the rescue effort fails; that they can help all consumers, regardless of their individual circumstances; the number of satisfied customers or customer complaints; the terms of any refund or guarantee; any endorsement or rating by the Better Business Bureau or any other consumer association.

The order imposes a $4.1 million judgment, which will be suspended upon transfer of $21,694 in bank account funds that were frozen by the court. The full judgment will become due immediately if the defendants are found to have misrepresented their financial condition. The settlement bars them from selling or otherwise disclosing personal information about anyone whose information they obtained during their operation. The settlement also contains record-keeping and reporting provisions to monitor their compliance.

The defendants are Stephanie Dietschy, Darin Dietschy, and United Home Savers, LLC, all based in Florida. The Commission vote to authorize staff to file the stipulated final order was 4-0. The document was filed in the U.S. District Court for the Middle District of Florida, and was entered by the court on August 19, 2009.

NOTE: Stipulated final orders are for settlement purposes only and do not constitute an admission by the defendants of a law violation. A stipulated final order requires approval by the court and has the force of law when signed by the judge.

The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 1,500 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s Web site provides free information on a variety of consumer topics.

CT & FL AG Targets 2 Mod Companies Claiming Partnership With Law Firms

Diane Lade of the  South Florida Sun-Sentinel wrote an article about how the Connecticut and Florida AG’s offices are investigating First Legal/Nationwide Home Relief.  The Florida AG is investigating both First Legal/Nationwide Home Relief and Housing Assistance Law Center. 

http://www.sun-sentinel.com/business/custom/consumer/sfl-sfl-foreclosure-law-082309sbaug23,0,6462732.story?page=1

The Florida Bar posted an advisory back in March advising attorneys what they can and cannot do when doing business with modification companies:

ETHICS ALERT:

PROVIDING LEGAL SERVICES TO DISTRESSED HOMEOWNERS

 The Florida Bar’s Ethics Hotline recently has received numerous calls from lawyers who have been contacted by non-lawyers seeking to set up an arrangement in which the lawyers are involved in loan modifications, short sales, and other foreclosure-related rescue services on behalf of distressed homeowners. These non-lawyers include mortgage brokers, financial management advisors, foreclosure “consultants” and others who engage in foreclosure related rescue services or other similar services. Non-lawyers have proposed a variety of agreements, even offering to hire lawyers as “in-house counsel” to provide services to the non-lawyer’s customers. The Foreclosure Rescue Act, Section 501.1377, Florida Statutes, went into effect October 1, 2008 and imposed restrictions on non-lawyer loan modifiers to protect distressed homeowners. The new statute appears to be the impetus for these inquiries.

Lawyers should be wary of these proposals, as many violate the ethics rules and may subject the lawyer to discipline. Florida Bar members:

• Cannot pay a referral fee or give anything of value to a non-lawyer for referring distressed homeowners to the lawyer. [Rule 4-7.2(c)(14)]
• Cannot be paid by a non-lawyer to provide services to distressed homeowners. [Rule 4-5.4(a)]
• Cannot directly or indirectly divide fees with a non-lawyer. [Rule 4-5.5(a)]

 Cannot assist in the unauthorized practice of law by:

• providing legal services for a distressed homeowner while employed as in-house counsel for a non-lawyer company;
• forming a company with a non-lawyer to perform foreclosure related services if any of the services are the practice of law; or
• assisting a non-lawyer individual or company in providing services that the individual or company is not authorized to provide or are otherwise illegal.

[Rule 4-5.5(a)]

• Cannot assist a non-lawyer in violating the provisions of the Foreclosure Rescue Act, Section 501.1377, Florida Statutes. [Rule 4-8.4(d)]
• Cannot directly contact distressed homeowners to offer representation (including by telephone or facsimile) and cannot allow someone else to directly contact distressed homeowners on the lawyer’s behalf. [Rules 4-7.4(a) and 4-8.4(a)]
• Cannot accept referrals from non-lawyers acting in the guise of a “lawyer referral service” (legitimate lawyer referral services must comply with a rule which requires all advertisements and contact with prospective clients to be in compliance with the attorney advertising rules, in addition to other requirements) [Rule 4-7.10]
• Must have a direct relationship with distressed homeowners who hire the lawyer for representation. [Rules 4-1.1, 4-1.2 and 4-1.4]
• Cannot allow a non-lawyer to choose a lawyer for a distressed homeowner or direct a lawyer’s representation of a distressed homeowner. [Rules 4-1.1, 4-1.2, 4-1.4, and 4-5.5(a)]

 Several ethics opinions, Opinions 92-3 and 95-1 in particular, discuss similar proposals and the ethics problems that arise when lawyers enter business arrangements with non-attorneys. These opinions can be accessed on the Florida Bar’s website by selecting “ethics opinions” then “list of Florida Ethics Opinions by number.”

 This alert does not address every potential problem or concern. Lawyers should not assume that conduct is permissible merely because it is not listed above. If you are a Florida Bar member with specific questions about your own conduct related to this type of situation, you should contact The Florida Bar Ethics Hotline at (800) 235-8619.

 This alert also does not address the issue of what conduct by non-lawyers is permissible. Questions regarding whether conduct of non-lawyers constitutes the unlicensed practice of law should be directed to The Florida Bar Unlicensed Practice of Law Department at (850) 561-584

Want To Modify or Short Sell Your House? FICO Wants to Knock 50+ Points Off Your Score

In the Friday’s edition of the South Florida Sun-Sentinel, Harriet Johnson Brackley had a great article about FICO penalizing homeowners for trying to navigate their way through this housing mess.

As if there weren’t already enough to worry about on the foreclosure front, let me warn you about yet another troubling detail you may not have heard about, if you’re trying to modify your mortgage:

Starting in September, there’s a new guideline for how lenders can report a loan modification to credit bureaus. They can…

http://www.sun-sentinel.com/business/realestate/condos/sfl-credit-harriet-brackey-081609,0,514033.column

Andrew Cuomo To Amerimod: Arrivederci, Baby!

NEW YORK, NY (August 13, 2008) – Attorney General Andrew M. Cuomo today announced that his office has filed a lawsuit against New York-based American Modification Agency, Inc. (“Amerimod”), one of the largest foreclosure rescue companies in the country, and its owner Salvatore Pane, Jr. for engaging in a wide variety of deceptive business practices and false advertising to induce beleaguered homeowners on the brink of foreclosure to sign up for their services. Today’s lawsuit is part of Cuomo’s ongoing investigation into foreclosure rescue scams that target New York homeowners.

Attorney General Cuomo’s investigation into Amerimod revealed that while claiming to modify home mortgage loans and lower monthly payments of consumers on the brink of foreclosure, Amerimod typically falls short on its promises. In fact, after Amerimod collects illegal, up-front fees, the homeowners often find themselves in worsened circumstances with respect to their mortgages and unable to obtain accurate information from Amerimod’s representatives or other customer service. The lawsuit seeks refunds and damages for Amerimod’s customers who were charged illegal up-front fees and were deceived by the company’s empty promises, misleading representations, and false advertising. It also seeks to shut down the company’s New York operations.

“Amerimod shamelessly took advantage of thousands of vulnerable homeowners desperately trying to save their homes,” said Attorney General Cuomo. “By charging up-front fees and making misleading and deceptive claims about its ability to prevent foreclosure, Amerimod blatantly ignored the law and tried to squeeze the last dollars from struggling consumers nationwide. My office is determined to obtain relief for these individuals and families, and to prevent Amerimod and other foreclosure rescue companies from continuing to engage in this kind of unlawful conduct.”

The lawsuit asserts that Amerimod:

• Fails to obtain loan modifications for the vast majority of its customers, many of whom end up in foreclosure or negotiate loan modifications on their own.
• Illegally charges thousands of dollars in up-front fees, and fails to refund these fees as promised when loan modifications are not obtained.
• Engages in deceptive and misleading practices by grossly exaggerating its success rate, making false promises about its ability to save customers’ homes, underestimating the amount of time it takes to achieve a loan modification, and misrepresenting that the company is a law office and that lawyers will work on customers’ files.
• Makes false guarantees of 100% customer service when, in fact, once Amerimod has collected its up-front fees, its representatives often fail to return calls of customers facing imminent foreclosure who are desperately seeking a status update on their files.
• Makes false and misleading statements on its website, in newspaper advertisements, and in radio advertisements.
• Fails to include legally required disclosures and notices in its customer contracts, including notice of a customer’s right to cancel a contract within five business days.
• Provides detrimental advice to customers, such as recommending that they stop making monthly mortgage payments, ignore communications from their lenders and avoid consulting with non-profit housing counseling agencies.
• Targets Spanish-speaking consumers who are signed up by Spanish-speaking representatives, and then fails to provide the consumers Spanish-language contracts as required by law.

Amerimod’s central office is in Uniondale, NY, and it has had more than ten branch offices throughout the state, as well as offices in various states throughout the United States. The lawsuit seeks a court order directing Amerimod to stop marketing and providing loan modification services in New York State, provide an accounting of customer fees, pay refunds and damages to all injured customers, and pay monetary penalties to the State.

The lawsuit against Amerimod is part of Cuomo’s wide-ranging investigation into the so-called “foreclosure rescue” industry. To date, Cuomo’s office has issued subpoenas to 18 other loan modification companies that have targeted New York homeowners facing the risk of losing their homes.

For more tips, see the Attorney General’s brochure, “Avoid Foreclosure and Rescue Scams”: http://www.oag.state.ny.us/features/foreclosure_rescue_scams/brochure_download.html.

The lawsuit against Amerimod is being handled by Special Counsel Mary Alestra, Assistant Attorneys General Brian Montgomery, Laura Levine, and Stephanie Sheehan, and Senior Enforcement Counsel David Holgado of the Bureau of Consumer Frauds & Protection under the supervision of Bureau Chief Joy Feigenbaum.

Cal Bar Continues Blood Thirsty Pursuit of Shady Mod Lawyers! 3 More Nabbed!

San Francisco, August 12, 2009 — Continuing its aggressive pursuit of lawyers who commit professional misconduct by taking advantage of vulnerable homeowners, The State Bar of California announced today that it has obtained the resignations of two lawyers and filed charges against a third for their loan modification activities.

The State Bar’s special team on loan modification complaints coninues to investigate more than four hundred active complaints from consumers about lawyers’ roles in loan modification scams.

The team, comprised of six investigators and four attorneys in the Office of the Chief Trial Counsel, led by Supervising Trial Counsel Suzan J. Anderson, is working with local prosecutors, the office of the Attorney General of the State of California, and the California Department of Real Estate.

Among the State Bar’s recent results:

• On August 3, State Bar prosecutors obtained attorney Christian Dillon’s (Bar No. 89376) resignation with charges pending. At that time, Dillon was under investigation for consumer complaints received by the bar regarding his affiliation with USMAC Law Group. Dillon has been enrolled as an inactive member of the State Bar and is ineligible to practice law pending a Supreme Court Order accepting his resignation.
• On August 4, State Bar prosecutors obtained attorney Nabile Anz’s (Bar No. 183324) resignation with charges pending. Anz ran the Federal Loan Modification Law Center in Irvine. In July the bar had filed in the State Bar Court an application to have Anz enrolled involuntarily inactive, alleging that Anz abandoned clients who retained Federal Loan Modification Law Center by failing to perform on behalf of those clients, closing Federal Loan Modification Law Center without any notice to clients and failing to return unearned fees. Along with the resignation, the Office of the Chief Trial Counsel filed in the State Bar Court a Stipulation whereby Anz admitted the misconduct alleged in the application for involuntary inactive enrollment. Anz has been enrolled as an inactive member of the State Bar and is ineligible to practice law pending a Supreme Court Order accepting his resignation.
• On August 5, State Bar prosecutors filed an application against attorney Christopher Diener (Bar No. 187890) who was affiliated with Home Relief Services, to have Diener enrolled involuntarily inactive. Bar prosecutors allege that Diener misrepresented the scope of his services to clients, collected advanced fees from clients under false pretenses, and failed to perform any services to obtain a loan modification on behalf of his clients. A hearing on that application is scheduled for August 28 in State Bar Court.

“The State Bar of California is firmly committed to its mission of protecting the public,” said Interim Chief Trial Counsel Russell Weiner. “As long as the need exists, this office will continue to devote substantial resources to the investigation and prosecution of attorneys who lose sight of their ethical responsibilities and take undue advantage of desperate homeowners under the pretense of helping them with mortgage loan modifications.”

Founded in 1927 by the state legislature, the State Bar of California is the administrative arm of the California Supreme Court in bar admissions and discipline matters, serving the public and seeking to improve the justice system for more than 80 years. All lawyers practicing in California must take and pass the California bar exam to become licensed to practice law in California. By August 2009, membership reached more than 223,000.

Jerry Brown is Cracking the Whip on Mod Companies

The California AG’s office has started a new site about fraudulent modification companies.  You can see it here:

http://ag.ca.gov/loanmod/

The AG’s office also sent letters to the 386 modification companies that have not posted their $100,000 bonds as required under California law.  They must file a bond within 10 days or face up to a year in jail or a $25,000 fine.

You can see who they are here:

http://ag.ca.gov/cms_attachments/press/pdfs/n1780_registry_list.pdf

One of the people on that list is Barnhart Capital run by Beau Barnhart.   His other company, New Beginnings LMS made our Top 20 Worst Mod Company list back in March.   

The AG also sent out a letter to Emodifymyloan.com’s President Chris Mozillo (yes, Angelo’s nephew) demanding they substansiate their advertising claims within 20 days.

Class Action Status OK’d for Suit Against Florida Lawyer Doing Mods

A judge in Palm Beach County, Florida is allowing a lawsuit against Attorney David J. Stern be elevated to a class action by a homeowner who retained him to perform a loan modification and claims Mr. Stern did not perform.  According to the article, it could affect up to 2,500 homeowners.  You can read the article from the Miami Herald which originally appeared in the Palm Beach Post:

http://www.miamiherald.com/business/real-estate/story/1175688.html

Sorry California, Your Right To Legal Counsel Is About To Be Taken Away!

By Martin Andelman

What do you call 500 lawyers at the bottom of the ocean?  A good start.

Very funny stuff, right?  Unless, of course, you’re being sued… or you’re charged with a crime… or you’ve just been fired without cause… or if your spouse just walked out after 20 years… or if you’ve been cited for Driving Under the Influence… or harmed as a result of another’s gross negligence.  When you need an attorney to enforce or otherwise protect your rights, you’re not laughing at lawyer jokes nearly as much.  In fact attorneys, I would imagine, get hugged a lot too… maybe just as often as they’re made fun of, I don’t really know.

From its very beginning, American society has been based on law… and forged by lawyers.  Our lawyers have been charged with setting our nation’s values—through the “landmark cases” that brought major reforms, and through the trust in a lawyer’s day-to-day dealing with his or her clients.  In point of fact, our lawyers must be the conscience of our legal system, and of the people—because if not them, who?

It occurs to me that there are certain professions that we need to trust in our society, and attorneys are one of them.  Police officers are another and physicians a third.  Police brutality, for example, is seen as being the very serious offense that it is, not solely because of its victims, but because it threatens to teach a segment of society that the police cannot be trusted.  And that can be a very dangerous thing.

Police officers, for the most part, are looking out for our safety and if we don’t trust them, it’s quite possible that we could be harmed as a result, perhaps fatally harmed.  And physicians are another group of professionals that in general we need to trust, because if we don’t, we put our health at risk.

Attorneys are a profession that we need to trust when we need them.  We trust that what we tell our lawyer is “privileged,” meaning that our lawyer is prohibited from disclosing whatever we’ve said to others. And it’s important that we trust this to be the case, because if we can’t tell our lawyer the truth, he or she may not be able to provide us with a proper defense and we may be deprived of life, liberty, or property as a result.

Yet, here in California, the legislature is dangerously close to passing a bill that would establish quite clearly that lawyers… all lawyers… are individuals not to be trusted.  And even more so, that attorneys in large number are the type of criminals that left unchecked would plot to steal $3,000 from homeowners distressed as a result of being at risk of losing their homes.

The bill in question, California Senate Bill 94, which was proposed by Banking & Finance Committee Chair, Senator Ron Calderon, was originally designed to prevent a company or individual from charging an upfront fee when offering to help a homeowner avoid foreclosure by working with his or her lender or servicer to obtain an agreement to modify the terms of his or her mortgage.

Now widely referred to as “loan modifications,” there is little question that few homeowners knew of such terminology just a few years ago.  But as the foreclosure crisis steadily tightened its grip on California homeowners over the last 18 months, the term loan modification has quickly become a part of the lexicon.

Initially, many who had been employed in the mortgage industry prior to its meltdown, seeing it as a variation of a refinance transaction, entered the completely unregulated field, and predictably problems ensued.  And although neither the precise cause, nor the extent of these problems has been ascertained, there is no question that some percentage of the operators of these early loan modification companies were unscrupulous con artists who defrauded homeowners out of several thousand dollars by promising to save their homes from foreclosure.

How many scams took place?  No one is certain, but any number is too many according to some.

The State of California’s response was less than coordinated.  The Attorney General and Department of Corporations was one possibility for regulation and enforcement, the California Department of Real Estate was another, and when law firms entered the picture, the California Bar Association was a third.

The initial front-runner was the Department of Real Estate, who introduced their “Advance Fee Agreement,” beginning in October of 2008.  The idea was simply to allow licensed individuals to accept a fee in advance, but required that fee to be placed in a trust account and only withdrawn as earned.  Months later, the Attorney General introduced the requirement that individuals post a $100,000 bond in order to operate as a foreclosure consultant.

Law firms, however, who were already well regulated and under the jurisdiction of the California Bar, remained law firms and presumably functioned as such.

Then, beginning in late 2008 and into early 2009, the California Bar started to receive an inordinate number of complaints each month, between 900-1100, and the sheer number in addition to the allegations was troubling to say the least.  It seemed that some attorneys were allowing firms to operate under their license to practice law, but no law was actually being practiced at the organization in question.  Mortgage brokers had realized that one way around the DRE’s Advance Fee Agreement, which limited the cash flow a company could utilize, was to become an “attorney backed firm,” a hybrid with no basis in law or business convention.

The California Bar sent out an Ethics Alert in February of 2009, warning attorneys that the Bar Association did not condone such practices, and that any attorney involved in such a scheme could be at risk of losing their license to practice law.  The Bar faced a significant problem with the volume of complaints, however.  An attorney had to read each complaint to determine what type of allegation each contained and having never before received anywhere the number being received, they were dramatically understaffed.

Then in February of 2009, Senator Calderon introduced SB 94 and the committee meetings began.  The bill passed through the Senate Banking and Judicial Committees in May and Senate Appropriations in early June.  The bill as written at that time would prohibit mortgage and real estate licensed individuals from accepting advance fees in connection with a loan modification, but attorneys were largely exempt.

Then, just days before July 4^th, with the California Assembly’s Committee on Banking and Finance scheduled to hold a hearing on a similar bill (AB 764) on July 6^th, the bill was amended to ban attorneys from accepting any fees or retainers in advance when representing a client in connection with a loan modification.

The negotiations to obtain a loan modification were widely believed to be 3-4 weeks… but in truth often required 5-9 months, and as a result, the effective outcome of SB 94 and/or AB 764 would be that no attorneys could afford to take on a client who was seeking representation in the negotiations with their lender.  And this would effectively deprive California’s homeowners from being able to engage legal representation.

Attorneys who defend the most unpopular accused persons are especially important.  The more heinous or unpopular the offense, the more necessary the right to counsel, and one of the hazards of pre-trial publicity is that the jury pool can become “tainted”.  Newspaper articles, talk shows, the many opinionated programs on cable television can all serve to poison the public against a defendant… and in this case the defendant is the legal profession, access to which is now crucial to hundreds of thousands of homeowners if they are to remain in their home.

One of the most misunderstood phrases in literature is from Shakespeare.  Shakespeare’s exact line, ”The first thing we do, let’s kill all the lawyers,” was stated by Dick the Butcher in ”Henry VI, Part II”.  Dick was a follower of the rebel Jack Cade who thought that if he disturbed law and order, he could become king.

Shakespeare meant it as a compliment to attorneys and judges who instill justice in society.

To pass into law a piece of legislation that so clearly, thoroughly and seriously maligns the legal profession, based on allegation and innuendo would cause our society harm that could conceivably last for generations.  To believe that attorneys in large number are defrauding distressed homeowners out of $3,000 fees for work that can take many months to complete, stretches the imagination past the point of credulity.

Most notably, CNNMoney.com recently asked homeowners who attempted to obtain a loan modification through the HAMP program WITHOUT ASSISTANCE OF ANY KIND to write in and share their experiences.  Well over 500 letters were received and the overwhelming number expressed intense feelings of extreme dissatisfaction and disappointment.

Additionally, in the last two weeks, we have all learned that banks and servicers have not fulfilled their promises to modify mortgages per the agreed to terms of HAMP, much to the administration’s chagrin.  Treasury Secretary Geithner and President Obama have both admitted the program has not worked effectively and now promise tighter controls.

A review of the complaints received by CNN.com clearly shows that those losing their homes and unable to obtain the help promised by the administration are crestfallen and angry at the failure of their government.

To effectively brand attorneys as untrustworthy thieves and scammers, based on complaints that to this date remain unread, in light of the recent evidence and testimony in Congress, would be unconscionable and result in irreparable harm to California’s homeowners and potentially all Americans who need access to legal representation today, perhaps more than ever before in our nation’s history.

I urge you to speak out immediately against this poorly conceived legislative proposal that would effectively deprive homeowners in California from their right to counsel and damage the reputations of attorneys throughout the nation.

The answer is enforcement of existing laws, not new legislation that will make it illegal for reputable attorneys to charge reasonable fees to clients who wish to engage their services.  Because homeowners need help.

IF YOU’RE WILLING TO  STAND UP AND BE COUNTED,

PLEASE EMAIL ME RIGHT AWAY AT:

MANDELMAN@MAC.COM

And please forward a link to this article to everyone you know.

This threat is very, very real.