Monday, May 23, 2016

California Homeowners' Claims Attributable To Attorneys Running Illegal Loan Modification Rackets Play Significant Role In Driving State Bar's Client Security Fund Into Insolvency

The following excerpts come from the recently-issued audit report by the California State Auditor blasting the California State Bar for financial mismanagement:
  • [T]he primary purpose of the State Bar’s Client Security Fund is to compensate victims of dishonest attorneys through a claims process.(1) However, the number of claim applications to the Client Security Fund program soared beginning around 2009, in large part because many Californians had become victims of loan modification schemes.

    By the end of 2015, the State Bar indicated it had about 5,500 applications either in process or awaiting payment, and it estimated that it would pay a total of about $18.9 million related to those claims. Unfortunately, the available balance in the Client Security Fund had dropped to approximately $2.2 million by that time; this lowered balance thus severely reduced the State Bar’s ability to pay these claims.(2)
    A 2015 report by the State Bar to its board of trustees (board) noted an unprecedented increase in claim applications for its Client Security Fund program beginning in 2009, with about half of the fund’s pending claims as of July 2015 related to loan modification schemes. In 2009 the number of new claim applications nearly tripled, as shown in Figure 3. The State Bar’s reports show that applications it received peaked at 3,900 in 2010, compared to only 800 applications in 2008.

    By the end of 2012, pending applications totaled 7,800. The Client Security Fund’s administrative costs rose as it employed temporary help and authorized overtime in 2013 and 2014 to help reduce the large inventory of pending applications, but at the end of 2015 the State Bar indicated it still had about 5,500 applications in process or awaiting payment, compared to only 710 applications at the end of 2008. The Client Security Fund currently has 11 staff, including three attorneys, who process the applications.

    Client Security Fund applicants can experience significant delays in obtaining reimbursement for their claims in part because the State Bar has to wait to complete the processing of most applications until the California Supreme Court (Supreme Court) orders that the attorney in question be disciplined, as Figure 4 on page 26 illustrates. The State Bar reported that in 2014 the median total time from its receipt of a complaint to the final decision by the Supreme Court was 505 days.

    Further, in March 2016, the State Bar reported that 1,100 claims filed during 2009 and 2010 against one attorney for loan modification schemes were still awaiting completion of the discipline process. Once the Supreme Court orders that an attorney be disciplined, the State Bar can pay the related claims from the fund if it has money available.(3)
For the California State Auditor's report, see The State Bar of California: Its Lack of Transparency Has Undermined Its Communications With Decision Makers and Stakeholders.
(1) The California State Bar's Client Security Fund is intended to be a public service of the California legal profession. The State Bar sponsored the creation of this fund to help protect consumers of legal services by alleviating losses resulting from the dishonest conduct of attorneys. The amount the fund may reimburse for theft committed by a California lawyer depends on when the loss occurred. A maximum of $50,000 is reimbursable if the loss occurred before January 1, 2009. A maximum of $100,000 is reimbursable if the loss occurred on or after January 1, 2009.

For similar "attorney ripoff reimbursement funds" that sometimes help cover the financial mess created by the dishonest conduct of lawyers licensed in other states and Canada, see:
Maps available courtesy of The National Client Protection Organization, Inc.

(2) California State Auditor's Report, p. 1.

(3) Ibid., p. 24.