Loan Modification Issue Has State Bar's Phone Lines Burning; Lawyers Seek Ethics Guidance As Homeowners' Complaints Flood In

Buried in an article in the March, 2009 issue of the California Bar Journal was this excerpt on how the phone lines over at the State Bar offices are burning up due to the loan modification issue:

• [T]he bar’s Ethics Hotline, a free confidential research service for attorneys, has been receiving between one and two dozen calls a day for the last six months dealing with the residential mortgage crisis and loan modification — about 15 to 25 percent of its daily call volume.(1)

• Scott Drexel, the bar’s chief prosecutor, says that for the last three months, the bar has received 50 complaints each day — about 950 complaints a month — about lawyers involved in some way with the foreclosure crisis. While the complaints run the gamut, Drexel said the most common concerns lawyers who lend their name to a loan modification operation but non-lawyers do most of the work. The non-lawyers get fees upfront through the lawyer and either do not complete the modification or do it incompetently. As a result, he said, the client loses his or her money.(2)

• Calling the number of complaints “shockingly high,” Drexel said his office is “quite concerned. We’re especially concerned with attorneys allowing their names to be used by non-attorneys in some of these loan modification schemes or scams.”(3)

• The Department of Real Estate reports complaints about lawyers involved in loan modification programs who act as fronts or work inhouse. “We’re not certain if they are practicing law or just lending their names,” said chief counsel Wayne Bell.(4)

For more, see Bar issues foreclosure ethics alert.

(1) Reportedly, so many have contacted the State Bar for ethics advice that its professional responsibility committee issued an alert last month offering guidance to lawyers thinking about signing up with loan modification firms. “The most important thing is for lawyers to understand this area is fraught with danger from an ethics point of view,” said Jon Rewinski, a Los Angeles litigator who drafted the ethics alert.

(2) California's malpractice lawyers should have a field day with this issue, at least those who have no problem suing their wayward colleagues.

(3) For an example of a recent action by The State Bar of California involving an attorney allegedly providing a front for non-attorneys who were accused of practicing law involving the handling and settling of personal injury cases, see State Bar Uses Authority To Prosecute Non-Attorneys Running Law Office And Settling Cases.

(4) According to the article, Bell said when consumers who are in desperate financial straits see the word lawyer, “they somehow believe they’re going to get a higher level of care.”