Why You Need An Experienced Foreclosure and Bankruptcy Attorney To Handle Your Mortgage Loan Modification – Beware of Loan Modification Companies
If you are a homeowner and have been approached by a non-attorney who asked for a fee in advance of providing some type of loan mod or rescue service, that person or company is conducting an illegal business and you should exercise extreme caution. If they go further and offer guarantees or promises, something that is simply not possible in this area of law, it is a big red flag. Under New York law, only an attorney who is directly providing loan modification consulting services to a homeowner in the course of his or her regular legal practice is allowed to be paid in advance for this service.
The New York Attorney General has recently issued a cease and desist letter to over 180 loan modification companies, recognizing the dangers to homeowners who use non-attorneys to represent them in this process. See the AG notice here.
Under New York law, which is cited in the letter (complete copy and link below), rescue companies, mortgage brokers and others are not allowed to accept advance payment of fees or make false statements or promises. For homeowners who are seeking modification assistance, they should always use an attorney.
One other aspect of this is that many of these scam companies are effectively engaging in the unauthorized practice of law (a misdemeanor crime). They give legal advice to homeowners without a license or training and often the advice is flat out wrong. Many stand accused nationwide of taking a fee and then disappearing.
Another related issue is that courts may require homeowners with lawyers assisting them with out-of-court loan modifications to nonetheless have their lawyer appear with them in court. Many people seeking a modification are already in foreclosure, a process that can take many months in the New York Supreme Court. The Court system has ordered that mandatory foreclosure settlement conferences be held. These conferences are well-intentioned but seriously flawed. The Court is powerless under the current laws to compel a lender to modify. The conferences usually involve a lot of waiting at the Court and then a quick meeting where a per diem attorney covering for one of the large foreclosure law firm factories hands you a few papers, usually an RMA form and a 4506T with a checklist for loan mods. No decision is ever made at a Court conference about the loan mod as this is an internal decision by the lender. Most homeowners leave these conferences bewildered and unclear about whether they will actually be able to save their home.
In view of the futility of these conferences, my law firm has tried to offer clients the ability to reduce their legal fees and avoid paying legal fees for the foreclosure settlement conferences by excluding court services and by limiting the retention to providing legal advice, reviewing alternatives, making recommendations about strategy and preparing the necessary loan mod papers and handling the follow up with the lender. Some clients do not want to pay for court appearances, or simply cannot afford that.
Last year the Rules of Professional Conduct were amended in New York to expressly permit such limitations in the scope of representation. Before this change, many homeowners were not able to retain counsel because that meant retaining the lawyer to handle the entire case, including a motion for summary judgment, discovery or trial.
As many homeowners do not have viable defenses, retaining counsel for the entire case was not cost-effective. The ability to retain counsel for a limited engagement benefits the client and the attorney.
In the context of foreclosure settlement conferences, however, at least one Referee in the Kings Supreme Court (Brooklyn) is requiring lawyers to appear in court with clients even if the client does not want this service and has signed an informed consent form modeled on the American Bar Association’s requirements for “unbundled services.” The Referee will insist on the lawyer appearing in court since the conferences are mandatory and are connected to the loan mod process – even if the lawyer has never filed a single piece of paper in the court and is not the attorney of record. Whether you think this is appropriate or even within the court’s authority, it is another reason why homeowners should have a local lawyer and not rely on rescue companies or even an out-of-state lawyer who cannot handle the court appearances. The lawyers who are most qualified to assist New York homeowners with this are New York licensed attorneys who are experienced in the areas of foreclosure litigation and bankruptcy law.
If you want help with your mortgage, please email [email protected] or call me at 212-764-7250 x201 or use the free consult link on the right of this page.
Here is the Attorney General’s letter to the non-attorney loan mod companies:
STATE OF NEW YORK
OFFICE OF THE ATTORNEY GENERAL
June 23, 2010
COMPANY NAME
ADDRESS
CITY, STATE ZIP CODE
Dear Sir or Madam:
As you may know, the New York State Attorney General’s Office (“OAG”) is conducting an ongoing investigation into the so-called “mortgage rescue†industry. To date, we have issued subpoenas to more than 20 mortgage loan modification companies, entered into settlement agreements, and pursued enforcement actions against several companies which have been unwilling to end their illegal and deceptive practices. It has been brought to OAG’s attention that your company may be offering services to New York residents to help them avoid foreclosure or obtain a loan modification. Therefore, I want to share with you some preliminary findings of OAG’s investigation and urge you to promptly review your company’s practices to ensure that they do not violate applicable laws.
Our investigation has revealed widespread violations of New York Real Property Law
§ 265-b, which went into effect on September 1, 2008 and was amended effective December 15, 2009. Under this law, distressed property consultants, as defined by New York Real Property Law § 265-b(1)(e), must, among other things:
• Not charge or collect upfront fees for consulting services prior to the full completion of such services. Under the 2009 Amendment, this prohibition on
upfront fees was extended to apply to licensed mortgage bankers, registered mortgage
brokers and registered loan servicers.
• Enter into a written, fully executed contract with homeowners that fully discloses the exact nature of the service to be provided and the fee to be collected.
• Provide homeowners with contracts that are written in the language that the homeowner uses and was used in discussions with the homeowner to describe the consultant’s services or to negotiate the contract.
• Allow homeowners to cancel the contract, without any penalty or obligation, within five business days after signing and provide the homeowner with notice of this right in the contract.
The law sets forth other requirements that you should carefully review. In OAG’s investigation, it was uncovered that loan modification companies routinely fail to comply with the provisions of this law. Violators of the law may be subject to a civil penalty of up to $10,000 for each violation of Section 265-b, and will be required to refund all fees improperly collected. You may review the text of the statute at my office’s website, www.nyprotectyourhome.com.
OAG’s investigation also has revealed instances where companies have developed various arrangements with attorneys in an apparent attempt to circumvent the requirements of Section 265-b, which exempts from the definition of distressed property consultant “an attorney admitted to practice in the state of New York when the attorney is directly providing consulting services to a homeowner in the course of his or her regular legal practice.†(Emphasis supplied.) Please note that this exemption only applies when attorneys are “directly†working on the client’s loan modification file as part of their “regular legal practice.†Merely having an attorney on staff does not exempt a company from the requirements of Section 265-b.
In addition to violations of Section 265-b, OAG’s investigation has also identified companies that may be marketing their services with advertisements or claims that are deceptive or misleading to homeowners. Some of the problematic practices include:
• Unsubstantiated guarantees or representations regarding success rates, the likelihood of obtaining a loan modification, or the time it will take to obtain a
loan modification.
• False 100% money-back guarantees.
• Fabricated consumer testimonials.
• Advertisements and solicitations designed to give consumers the false impression that a company is affiliated with the government or a government-sponsored program.
Such conduct violates New York State General Business Law §§ 349 and 350 and will subject violators to additional penalties and remedies.
The Attorney General is committed to aggressively enforcing the law against “mortgage rescue” companies that engage in illegal conduct and attempt to take unfair advantage of homeowners facing possible foreclosure. Recently, the New York Supreme Court issued a favorable decision in one case filed by this Office, finding that one of the largest foreclosure rescue companies and its president had violated Section 265-b as well as General Business Law §§ 349 and 350. Specifically, the Court found that the company violated Section 265-b by charging illegal, upfront fees for its loan modification services, failing to provide contracts in the language of its customers, especially Spanish, and failing to provide homeowners with the legally required notice of their right to cancel within five business days. The Court also ruled that the company made numerous false claims in its advertisements, including misrepresenting the number of homes it had saved, falsely claiming to have a 90% to 100% success rate, falsely claiming to be “licensed†by a government agency, and falsely claiming that it was affiliated with “legal experts.†The decision holds the company’s president personally liable for engaging in fraudulent and illegal acts, and permanently prohibits the respondents from engaging in the illegal, fraudulent and deceptive business practices and false advertising described in OAG’s lawsuit.
I encourage you to review your company’s practices and, where applicable, to cease and desist engaging in any unlawful, fraudulent, or deceptive practices. If you have any questions, please do not hesitate to contact our office at 212-416-8300 or 212-416-8250.
Very truly yours,
Joy Feigenbaum a
Bureau Chief
Bureau of Consumer Frauds & Protection