Loan Modification Firms Begin Using Perceived "Attorney Defense" Loophole To Pocket Upfront Fees From Homeowners Facing Foreclosure

In Central Florida, The Tampa Tribune reports:

• [I]t's against the law in Florida to charge up-front fees for foreclosure help. [...] Federal and state authorities are investigating, prosecuting and shutting down companies that violate the law. But some have found what they think is a loophole in the law: Florida attorneys are exempt from the ban on charging up-front fees.

• When [homeowner Sandi] Stewart questioned the fees, she said she was told it was legal because she was hiring an attorney. However, she had no correspondence with the attorney and spoke only to the "loan modification department." Plus, the attorney, Christian M. Dillon, is not licensed in Florida. Repeated phone calls to representatives for the company, uFirst Direct, and for Dillon himself, were not returned.

• The attorney defense for charging up-front fees is not an isolated case. Another reader called recently about a Chicago company, American Homeowners Alliance. It asked for $1,500 up front. When reached by phone, the company president, Jim Hamilton, told me he was well aware of Florida's law but that it doesn't apply to him because his company is based in Illinois. Furthermore, he said, his company is exempt from Illinois' law against up-front fees because he has an attorney on staff.

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• The attorney general has not received complaints about Hamilton's company. However, the attorney defense for charging up-front fees just doesn't hold up, according to regulators. Offices for the Attorney General in both Florida and Illinois say companies operating in Florida must obey local laws, no matter where their home office is.

• "Merely having an attorney on staff, even assuming he is licensed to practice in Florida, is not enough to qualify for the exemption, said Sandi Copes, communications director for the attorney general. "There must be an attorney-client relationship established before the exemption applies."(1)

For the story, see Home sweet home: Beware of foreclosure rescue scams, fees.

(1) Florida homeowners who think they've been victimized by foreclosure rescue fraud, call the Florida Attorney General's hot line at 1-866-966-7226 or go to the office's new Web site, http://myfloridalegal.com/mortgagefraud, which provides complaint forms, information on current investigations and tips to identify and avoid foreclosure rescue fraud.

It might not hurt to file a complaint with the State Bar alleging the unauthorized practice of law against the loan modification company if they purport to review legal documents to find errors in the paperwork or who claim to perform other services associated with the work of an attorney. An out-of-state attorney who is not licensed to practice law in the state where the homeowner is located might also make for a good target for an unlicensed practice of law complaint. Florida homeowners looking to file such a complaint can go here for Filing an Unlicensed Practice of Law Complaint with The Florida Bar. UnauthPractOfLawTheta