A San Diego Attorney Speaks Out on How SB 94 Has Taken Legitimate Lawyers Away from Homeowners
I think it’s fair to say that I’ve written more on the subject of lawyers and loan modifications than anyone else… I’m not bragging, in fact I wish it had never been necessary for me or anyone else to write about the topic in the first place. The question of whether a homeowner at risk of foreclosure and who is seeking a loan modification should be able to hire a lawyer to represent them, if that’s what they want to do, should never have been a question. It just shouldn’t have ever been all that complicated an issue, in my mind anyway.
A few years back, I was teaching 5-6th grade US History/Social Studies at a nearby elementary school and I’m quite sure that if I would have asked my students who they should call if they needed help when at risk of losing a home, they would have all picked “lawyer” off of the list of options. And, as to whether lawyers do a better job getting loans modified than homeowners on their own, the answer is also yes, no question about it. That doesn’t mean that a given homeowner can’t get their mortgage modified without being represented by an attorney, some can and some do. But overall, the vast majority of the hundreds of homeowners that contact me for one reason or another each month, all have similar stories… they’ve been tryingon their own to get their bank to modify their loan for a year or more and to no avail. They hire an attorney to represent them and lo and behold, in almost every instance, their loans get modified.
Moat recently, there was a woman who called me days before Christmas with Bank of America having already turned her down for a loan modification and set a sale date of January 7th. I referred her to a lawyer I know well, and two days before New Years her loan was permanently modified. Would that have happened without an attorney… no, it would not.
Another couple from Northern California also comes to mind. They had been trying to get Chase to modify their loan for over a year. Chase was talking to them but it was going nowhere and they were scared that they could lose their home of 20 years. Again, I referred them to a law firm I’ve gotten to know well, and a few months later, they not only got a modification, but a great modification, in my view, including a principal forbearance of $200,000. Do I think that would have happened without a lawyer involved… not a chance in the world.
I’ve simply seen too many similar stories over the last couple of years for just anyone to tell me I’m wrong about this, but if anyone has any data that says otherwise, I’m certainly open to taking a look or hearing about someone else’s experience if different than my own.
The issue has been muddied ever since President Obama, Treasury Secretary Geithner, and Attorney General Holder, all told the nation in so many words that, “loan modifications are free… you don’t need a lawyer, you just call a HUD counselor or your bank directly.” I was shocked when I heard that message coming from Washington D.C. because it never made any sense at all to me… because nothing that comes from a bank is ever free.
And the idea that a homeowner calling a HUD counselor or their bank directly would be as effective as paying a private sector attorney to handle things just never seemed likely to me. And I don’t think it was much of a mystery to many homeowners either.
To the California State Bar, however, I think it would be fair to say that the whole subject of attorneys being involved in loan modifications has been hard to understand. And much of the reason for this apparent difficulty, is that there have been far too many scams out there from which homeowners can far too easily choose.
It’s astounding, actually. I mean, I realize that our state and federal governments have limited resources when it comes to enforcing the law in certain areas, but my God… I have to believe that if drug dealers had Websites, wouldn’t law enforcement have moved in to shut them down faster than it has taken to go after the innumerable scams that have proliferated around the Internet claiming to be able to save someone’s home from foreclosure? Maybe I’m wrong, maybe the response would be about the same if it were drug dealers… but would it really?
To make matters worse, there have unquestionably been many firms that opened with the best of intentions only to discover that the banks were on a mission to make their lives miserable and their jobs next to impossible. I can’t mention any names, but I happen to know of one loan modification company that was opened by a retired banker… and not just any banker, but a senior level banking executive that ran an entire region of the country for one of the largest banks in the U.S. He came out of retirement to open a company that helped homeowners get loans modified. Why? Because he knew what he was doing, obviously, that’s why. But, today… his company could easily find itself branded a scammer for accepting a fee in advance of getting a loan modified.
I think there were a lot of companies, in other words, that tried and failed when it came to loan modifications, and with our government’s only advice being call HUD or your bank directly, it was left to homeowners to figure out where real help could be found and who might be in business tomorrow.
Then you had the “salesperson effect”. Salespeople working on commission who told a homeowner with monthly income of $2,000 that they could expect to keep their home even though their first mortgage was $475,000, and their current payment with which they were struggling was interest only. Again, I don’t think there should be any question that government could have done a lot to prevent that sort of thing from happening as well. They just didn’t. They rolled out a loan modification program, called Making Home Affordable, that sounded wonderful, but they failed to enforce its rules, and allowed servicers to do as they pleased… and the litigation won’t end for years to come as a result… not that it should.
What the banks have done while Treasury looked the other way, represents the worst abuses to American citizens I’ve ever seen, read about, or imagined could occur… at least since the pre-union abuses of laborers by Robber Barons at the beginnings of the 20th Century.
No one is pro-scammer, mind you… everyone hates the idea of a homeowner being scammed out of money when at risk of losing a home, or at any time, for that matter. But I think it should be clear that the only way to stop the spread of scammers is to make legitimate assistance abundant. Just imagine if the State of California had announced that you could find legitimate assistance with a loan modification at every Starbucks… no more scammers, right? Why would you need to search for such assistance using Google when you could get meaningful help while your decaf low-fat latte was being prepared?
Our regulators need to understand, and it’s about time they did, that homeowners at risk of foreclosure are going to try to get their loan modified on their own if that’s what the government says they should do, but when they find out that they can’t get it done… well, they’re going to write someone a check before they give up and look for a place to rent. If they find legitimate help, great. But they’ll write a check to organized crime before they walk away from their homes without trying something else. And no one is going to change that fact… water is wet, the sky is blue, and… you get the idea, right?
Think about prohibition. Want to get rid of bootleggers? Only way to do that is to put legal liquor stores on the corners. You can break up stills, and chase down illegal rum runners all you want, but put a legal liquor store on the corner and presto… no more bootlegger.
We need our lawyers to get us through this… simple as that.
The one thing you don’t want to do is pass a law that removes only legitimate attorneys from the marketplace, and yet that’s precisely what California did in 2009 with the passage of SB 94. I know… the state didn’t know what else to do… they thought the new law would help, but they were wrong on all counts. SB 94 hasn’t eliminated or even reduced the number of scammers preying on homeowners at risk of foreclosure. In the last few days alone, I’ve received links to Websites offering the most insane schemes to prevent foreclosure I’ve ever seen and some that I couldn’t have come up with in a hundred years.
Have you heard of “assets for value”? Who came up with that convoluted concept that requires you to buy into the supposed fact that there is no federal government having something to do with our nation coming off of the gold standard? Or how about some sort of club that you join to get your house free and clear? There’s a whole slew of “put-off-your-trustee-sale-date-for-a-grand companies. And others that claim to represent a hedge fund that’s going to buy your note from your bank and then sell it to you for less, but they can bever seem to be able to tell you the name of a homeowner fro whom their plan worked, or even the name of the hedge fund, as if such a thing would be kept secret were it in any way true.
And, of course, we’ve all heard about the forensic loan audit that is going to bring your bank to its knees for failing to do something for which the statute of limitations has expired years ago, or that requires you to get relief by refinancing and repaying your loan.
Some of the scams out there are so far out there that’s it’s hard to believe that anyone would be sucked in… until you talk to a salesperson at one of these operations and that’s when you realize how good someone of these people are at getting you to believe their stories. If you weren’t a homeowner in a panic, you’d never buy any of this, but when it comes to losing a home, people will try anything. And that’s why the unintended consequence of SB 94, although I certainly wrote about what its passage would bring on numerous occasions, has not been to stop scammers, but more so it’s made them harder to find as they carefully crafted ways to charge homeowners outside the law.
It;’s common sense really… laws only matter to law abiding people. Scammers don’t care about the laws… which is why they’re called scammers. I mean, when SB 94 was passed in California, thus making it illegal for a real estate licensed person to accept a fee for helping a homeowner get a loan modified, it was already illegal to rip someone off for three grand, wasn’t it? I’m not an attorney, but I’m pretty sure taking someone’s three grand and delivering nothing in return was always against the law.
But what it did accomplish was to take all of the legitimate companies that were offering to help homeowners out of business because no one can work to get someone’s loan modified for God only knows how long the servicer takes to stop losing paperwork and actually look at someone’s file, and then send a bill for services… a year down the road… and even then hope that the homeowner isn’t so all-fire mad by then that they will actually pay the bill. And if someone doesn’t pay, what then? Ruin their credit? Come on now… let’s be adults about this… I pay my bills but I’m not even sure I’d pay that one a year down the road after being jerked around like chum on a line for months at a time.
So, SB 94 took the legitimate providers out of the business and that includes hundreds or maybe even thousands of lawyers as well. The scammers… oh, they’re doing just fine, thank you very much.
I recently taught a continuing education class, along with two attorneys, for the Orange County Bar Association. There must have been something close to 100 lawyers in attendance, but I was shocked when the room was asked how many were offering loan modification services and less than 20% put up their hands. Why were they there, I thought to myself, and then it became clear… none of them knew for sure how they were permitted to get paid by clients needing help with a loan modification.
I’m sorry State of California, but if lawyers can’t figure out what a law allows and doesn’t… there’s a problem with the law. If travel agents weren’t sure how a new law affected them, well… that’s one thing, but an entire room full of licensed practicing attorneys? If they don’t know, who should know?
The FTC’s recently enacted final MARS (“Mortgage Assistance Relief Services”) rule, for example, regulates all providers of loan modification services nationwide, and prevents such providers from charging homeowners before a loan modification has been offered by the servicer. But the FTC’s rule also allows for licensed attorneys to be exempt from that requirement, recognizing that without a retainer up front, an attorney could not offer to represent a homeowner seeking a loan modification. Under the new MARS rule, therefore, lawyers are allowed to charge a retainer up front, as long as that money is deposited in the attorney’s trust account and earned as services are rendered.
You know… the way lawyers have always charged their clients for just about everything.
SB 94 has made it much more likely for a homeowner to find a scammer because it has taken at least hundreds and perhaps even more legitimate lawyers out of offering the services related to a loan modification, while the scammers have just found ways to appear outside the law and therefore are that much harder to catch and shut down.
Something has to be done and I’m going to take a shot at doing it. Stay tuned to Mandelman Matters for updates, and for more exposing of the scams that are turning up around every Internet search. We’re three plus years into this crisis and the government continues to fail at every turn and in every way when it comes to stopping or even slowing foreclosures. There’s just no excuse for this sort of thing to go on any longer, and I’m going to take a shot at both exposing and getting the State Bar to do something helpful. Because we need our lawyers to get us through this, and those lawyers need to know how they are permitted to practice in this area, just like the lawyers now do in the other 49 states.
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