Unlicensed Practice Of Law Becomes An Issue With Some Loan Modification Firms

A recent story in The Washington Post raises an issue that could begin taking hold in targeting certain loan modification firms for engaging in illegal conduct when seeking out financially distressed homeowners:

• [T]he pitch companies make varies. But one approach includes paying a company to challenge the legality of a loan -- a process housing experts say can be long and complicated.

• Vienna-based Mortgage Analysis and Consulting, for example, charges $150 for a consultation and $250 to $500 for a preliminary audit. If the audit finds problems with the loan document, Mortgage Analysis will refer the borrower to a lawyer, who may charge an additional $2,000 retainer. If the lawyer requests a more in-depth audit, Mortgage Analysis charges up to $1,750, which clients can pay in installments.

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• Virginia's State Bar is investigating a complaint that [the firm's founder Jose] Semidey has illegally practiced law.(1) Semidey said he makes clear he is not a lawyer and refers clients to a list of lawyers he has compiled.

• One of Semidey's former clients, Edwin Monge, said he became concerned that he would no longer be able to afford the payments on his Woodbridge townhouse after the adjustable interest rate rose and the payments increased. The home's value had tumbled, making it impossible for him to refinance. Monge said he met Semidey through a friend and eventually paid him $7,000, some of which was to be used to pay a lawyer.

For more see Firms Charge Thousands To Modify Mortgages (Nonprofits Offer Service For Free, Advocates Say).

Go here and go here for other posts on issues relating to attorneys, loan modifications, and the unlicensed/unauthorized practice of law.

(1) Unlicensed or unauthorized practice of law has been raised as an issue in at least two recent civil lawsuits against loan modification firms, one by the Tennessee Attorney General (press release; for copy of lawsuit, see State of Tennessee v. Patrick and Patrick, LLC, et al.), and the other by the Florida Attorney General.

In addressing what constitutes the unlicensed practice of law, the Florida Supreme Court, in The Florida Bar v. We The People Forms And Service Center Of Sarasota, Inc., 883 So. 2d 1280; (Fla. 2004), relied on the following survey of its prior decisions in holding that certain activities of a non-lawyer constituted the unlicensed practice of law:

• Florida Bar v. Catarcio, 709 So. 2d 96 (Fla. 1998) (holding that a nonlawyer who has direct contact with individuals in the nature of consultation, explanation, recommendations, advice, and assistance in the provision, selection, and completion of legal forms engages in the unlicensed practice of law);

• Florida Bar v. Becerra, 661 So. 2d 299 (Fla. 1995) (enjoining a nonlawyer from advertising in any fashion that may lead a reasonable lay person to believe that the nonlawyer may offer to the public legal services, legal advice, or personal legal assistance);

• Florida Bar v. Consol. Bus. & Legal Forms, Inc., 386 So. 2d 797 (Fla. 1980) (holding that a corporation engaged in the unlicensed practice of law where its officers and stockholders were nonlawyers with no legal training who supervised and maintained a degree of control over the legal services it furnished through its lawyer employees and noting the inherent conflict of interest between the legal needs of the client and the monetary policy of the corporation and how such a business structure permits unlicensed and unregulated persons to profit from the providing of services which by law they are prohibited from providing).

Where loan modification firms offer and conduct, for homeowners, reviews of mortgage loan and other legal documents for the purpose of determining whether said documents are in compliance with the applicable lending, consumer, and other laws (Truth in Lending, HOEPA, RESPA, etc.), such services seem to fall squarely within the scope of the above survey of Florida laws and, consequently, could constitute the unlicensed / unauthorized practice of law in Florida. Assuming other states have similar case law in this regard, it may only be a matter of time before these types of non-attorney loan modification firms offering "legal reviews" or "legal analyses" of loan documents find the legality of their services being challenged throughout the country as unlicensed practice of law. UnauthPractOfLawKappa