In an unprecedented move that can only be described as stunning ignorance, the California State Bar recently released a legal opinion that will effectively deny legal representation to millions of homeowners faced with foreclosure. The controversy is around SB 94, a law put into effect in 2009 that was meant to protect homeowners from predatory loan modification companies.

As with any crisis, when people are in trouble or desperate, other people jump into action to take what little money those desperate people have left. While SB 94 was little more than an imperfect knee-jerk reaction to systemic fraud, it was supposed to protect homeowners from scammers who promised to get loans modified, took hefty upfront fees, and were never heard from again. These scumbags were generally former mortgage brokers, also known as Department of Real Estate Licensees (DRE), looking to make up some of the losses from the meltdown by recycling the suckers they had sold homes to during the drunken housing orgy.

Here’s where it gets a little confusing, so stick with me:

SB-94 amended California Business & Professions Code (B&P Code) 10026 for DRE licensees and created Civil Code #2944.7 which applies to attorneys. In both cases the language prohibits the charging of advance fees and says, “fully perform each and every service the licensee contracted to perform or represented they would perform” prior to collecting fees.

The legislation also took it up a notch in respect to DRE licensees by prohibiting them from breaking up the services and charging for those. It is explicit:

The term “advance fee” as used in this part is a fee, regardless of the form, claimed, demanded, charged, received, or collected by a licensee from a principal before fully completing each and every service the licensee contracted to perform, or represented would be performed.

This next part only appears in the B&P Code:

Neither an advance fee nor the services to be performed shall be separated or divided into components for the purpose of avoiding the application of this section.

It is not in Civil Code 2944.7 that applies to attorneys. In fact there’s nothing even close and for over two and half years the California State Bar had no issue with attorneys breaking up services and charging accordingly. In fact according to a lawsuit filed against the Bar in Superior Court in Orange County Ca., in September 2012, a State Bar investigator closed at least three investigations where “phased” payments were used by an attorney, and had no apparent problem with that.

This system protects the consumer and assures the work be done before paying for it. It also allows attorneys to offer these services to struggling homeowners and be compensated, while not charging consumers for unnecessary services. Before anyone goes crazy commenting about scumbag attorneys, for the purposes of this argument, I’m referring to trusted and ethical attorneys and I can prove that they exist.

According to several attorneys I’ve spoken with on this matter, since 2009 the CA State Bar has inexplicably taken two fundamentally opposing positions regarding fees for pre-negotiation services which are so necessary for a successful loan modification. On one hand, the Bar has successfully argued in court that only the negotiation with the lender is covered by SB-94. Now, they are prosecuting attorney’s for accepting fees after providing contracted evaluation services, in a manner they previously found acceptable. One might go so far as to postulate that the Bar is playing a little fast and loose with the facts.

The controversy is so ripe, that attorney Robert Scurrah of CDA Law Center filed a Declaratory Relief lawsuit in Orange County Superior Court this past September asking a judge to determine what the law really says. A Temporary Restraining Order and Order to Show Cause, filed by Bostwick and Jassy LLP and the Law Office of Mark Zanides on Tuesday, points to a case back in March 2010, in which a homeowner, Christopher Duenas, filed suit in U.S. District Court against the Governor of California, the Attorney General, and the State Bar seeking to enjoin enforcement of 2944.7(a) on the grounds that it violated the First Amendment, due process and the equal protection clause of the Constitution because the statute, as applied and in practice, effectively prohibited a homeowner from obtaining legal advice regarding mortgages, since no lawyers would undertake representation if they couldn’t get paid.

At that time, when they were being accused, the Bar vehemently denied that they were in any way making things difficult for homeowners to get help. According to the document, the Bar asserted:

The plain language of Section 2944.7(a) does not prevent Plaintiff or any homeowner from consulting with an attorney with regard to mortgage issues; rather, the statute merely limits the timing of payments for negotiating, arranging or performing a loan modification or other loan forbearance … the statute does not prohibit consulting with an attorney.

Pretty clear, right? Apparently they didn’t even think so, because later in the same motion they write:

Again, a plain reading of section 2944.7(a) does not bar an attorney from consulting with a homeowner about anything, including whether the homeowner should breach his mortgage with his lender. It merely limits the timing of compensation for certain services; namely, negotiating, arranging or performing a loan modification.

The Attorney General and a Superior Court Judge agreed with this interpretation.

And that’s precisely how CDA and other ethical attorneys run their business. They break up the lengthy process and individual services into manageable chunks and then charge for them when they’re completed, allowing the attorney to get paid and more importantly, the homeowner to bow out of the process at any time for any reason.

In what has been described as a breathtakingly hypocritical stance, last month the state bar’s Review Board published a ruling that blatantly contradicts the position that both the Bar and the AG took in 2010. In fact, it’s a complete reversal of their position. They now claim that attorneys cannot break up the services and fees and can only charge clients once all the services in the process have been rendered — a process, as many know, that can drag on for months or even years.

The loan modification process is not for the faint of heart and as Moss Sidell, an attorney in Newton, Mass. and a member of HPN’s trusted attorney network points out in “Proposed Limits on Legal Representation for Borrowers Facing Foreclosure”.

The mortgage modification quagmire that has been created by the banks is extremely discouraging to the average consumer. Banks require that stacks of paperwork be faxed to them which include pay stubs, bank statements, tax returns, utility bills and various other documents. After all of this is sent to the banks, more often than not, the banks claim they never received the documents, or have lost them. Then the cycle begins all over again… Then to add further insult to injury, the banks require constant updating of these documents, which they frequently lose or misplace again. Meanwhile, all of this is being played out while the homeowner is very often under the tremendous financial and emotional strain of potentially losing the roof over their heads. As it can easily be seen, the consumer is at an incredible disadvantage in dealing with banks that are mega institutions with thousands of employees which among them include an army of lawyers, both in-house and outside counsel.

In a nutshell, it’s not easy. It’s not something any homeowner would willingly venture into and would, in most cases, be better off with the help of an attorney who knows their way around the maze.

As Martin Andelman points out in his post:

I can’t speak for anyone else, but all of that sounds to me like I could very definitely benefit from being represented by a lawyer when trying to get my loan modified in order to save my home from foreclosure. Getting a loan modified is not a simple or intuitive process. The formulas and financial analyses involved are far beyond the capabilities of most homeowners, and because of the necessity to be precise or risk a denial by the servicer, many recognize that without a lawyer experienced in the loan modification process handling the submission of their application and negotiations with their servicer, their chances of approval are greatly diminished.

The rules governing loan modifications vary depending on the program and on the investor who owns the loan, and in the case of government and programs developed internally by servicers, the rules change. There is no chance that the average homeowner can know what’s involved, and certainly not at the level that an attorney specializing in the area would.

But the California State Bar in a complete 180 degree head spin straight out of The Omen now seems to think that the language in SB 94 prohibits lawyers from breaking up services related to a loan modification into component parts, despite there being no language prohibiting lawyers from doing so.

You would think that the Bar would welcome a clear interpretation of the law by a Judge, but instead they’ve fought CDA at every turn. It’s important to note that CDA has successfully assisted more than four thousand homeowners in obtaining loan modifications form their lender or servicer — in other words $1.5 billion in home loans for homeowners who are now current on their payments and able to keep their home.

California AG Kamala Harris fought hard for the $25 Billion National Mortgage Settlement this year. She went a step further in her efforts to protect California’s struggling homeowners. Harris also championed the new Homeowner Bill of Rights, which encourages loan mods. Why the California State Bar would attempt to deny homeowners legal representation in light of the well documented lender abuses is unclear.

The California Bar maintains that consumers are free to hire an attorney to assist them with their foreclosure, but attorneys who can’t get paid don’t have much incentive to take on a foreclosure case. Basically, and this is isn’t a reach, if a homeowner were to approach an attorney needing help with a foreclosure and at any point in the research, conversation, and process a loan modification looked like a viable solution, according to the Bar’s new interpretation all business would have to stop and any fees collected up to that point would be considered illegal. Kind of like asking for a mullet when you’re half way through getting your head shaved and refusing to pay the hairdresser.

The rest of the country is fine with attorneys representing homeowners. In fact, under the Mortgage Assistance Relief Services (“MARS”) Final Rule, which is enforced by the FTC, they’re even allowed to collect a retainer in advance providing they place those funds in a trust account.

Up the road from me in New Hampshire homeowners pressured the legislature to pass a law allowing them to hire and, get this: pay an attorney to help them with loan modifications.

“For any entity to prohibit an individual’s access to competent legal counsel for any reason is, among other things, asinine. It will definitely be interesting to see to what, if any, length the CA Bar Association’s actions are deemed Constitutional violations, said Mike Dillon of Stellionata Consulting, LLC in New Hampshire.

The problem is, and this is where the complete ignorance of the Bar comes in, is that now the door is once again open for scumbags to take advantage of homeowners. Ethical attorneys won’t risk disbarment by helping homeowners and the unethical ones will swoop in.

Again, from the filing:

The State Bar is far from protecting financially distressed homeowners. It will prevent them from obtaining desperately needed help, since its tortured construction of 2944.7(a) would prevent most ethical lawyers from providing loan modification representation.

As one attorney I spoke with put it, “when loan mods are outlawed, only outlaws do loan mods.”

Now She Endorses The Shady Practices Of A CRA Operator

After reading another one of Susan Webber aka Yves Smith at Naked Capitalism Monday articles, I have to wonder if she really is inhaling something toxic because it is even crazier than her gushing endorsement of Lisa Epstein of Foreclosure Hamlet fame who ran unsuccessfully for Palm Beach County Clerk. In that piece, she ignores that Epstein appears to be operating Hamlet as an unlicensed charity and has financial ties to confessed mortgage fraudster, Carol Asbury.

In one of her posts from this week, she lavishes gushing praise on Bruce Marks from NACA fame, a self described, “Financial Terrorist” This endorsement shows that she either doesn’t do any research or her judgment is impaired. Now, I have no idea if Smith drinks, does drugs or sniffs glue. As far as I know, she’s as alcohol, stimulant and drug free as Mitt Romney or as a Muslim in Riyadh but something is a amiss at the offices of Naked Capitalism.

For those of you who don’t know, Bruce Marks runs a Community Redevelopment Act (CRA) Housing Agency out of Boston called Neighborhood Assistance Corporation of America (NACA). This NACA should not be confused with another NACA, the National Association of Consumer Advocates which has consumer attorneys and real consumer advocates as members Naturally, these two NACA groups are locked in mortal combat because the National Association of Consumer Advocates feels Bruce Marks hijacked their Acronym. Think of it like the NAMBLAs from South Park. The Good NAMBLA, National Association of Marlon Brando Look Alikes and the bad NAMBLA, National Association of Man/Boy Love Association.

Before I get to how Bruce Marks and NACA operate and make their money, I should explain what a CRA is. The Community Redevelopment Act was passed by US Congress in 1977 to encourage banks help low- and moderate-income neighborhoods become homeowners. Through FDIC mandates, banks can offer low interest mortgages with the local municipality donating the land or leasing the land to the homeowner. Banks like CRA clients because it helps them get FDIC approval when they want to expand their business, merge with another bank or want create a branch network in certain parts of the country.

NACA may be a designated CRA Housing Non-Profit but when you dig deeper you see that it is really nothing more than a for-profit enterprise disguised as a housing non-profit. What Bruce Marks isn’t telling people is on top his grant money he gets from the federal government, he is also getting paid by lenders for the homeowners he helps them refinances.

“Quantity has a quality all its own.” -Joseph Stalin

There is a reason why Bruce Marks likes doing his “Financial Terrorist” shtick and it’s not because he wants to make the banks afraid of him. It’s for what is known in marketing as “Sideways Marketing”. Marks uses the media to give NACA not only exposure and free advertising but he uses it to give him and NACA credibility especially when he brags about tormenting the young children of banking executives by driving to their school and yelling to them that their daddy is a monster. All of that notoriety, helps him create a Robin Hood persona. It then helps him when he announces he’s bringing his foreclosure rescue version of “Brother Love’s Traveling Salvation Show” to a local community. He also uses his status as a CRA Housing Non-Profit as a way for local television stations to give him free advertising time. He doesn’t pay for the convention center space.

The reason Marks wants thousands of people to show up to NACA events is because if 2,500 people show up then it becomes a media event. The media shows people standing out front of the convention hall and because people have herd mentality more people rush to the event.

NACA isn’t the nightmare for banks that Bruce Marks likes to portray. They’re just the opposite. His events are to the CRA world what Russian romance tours are to lonely middle aged American men because like Russian romance tour operators, NACA helps connects potential CRA mortgage clients with banks.

What Marks doesn’t tell people is he uses the event to screen people for Community Redevelopment loans which account for 5% of the people who come through the door. Because he is legally a “housing non-profit” he can get a discounted interest rates from the bank and NACA gets fat check from the bank. Marks and NACA pocket nearly 4% oof the loan. If the loan closes, NACA gets a loan origination fee of 2% and an SRP of 2% on the back end of the loan from the lender.

An SRP is the payment NACA receives from the lending institution, they get when they sell a closed mortgage loan to the secondary mortgage market to Fannie Mae, Freddie Mac, or Ginnie Mae.

Marks along with the banks are playing a numbers game. If he has 10,000 people show up to an event and he closes 500 files with an average loan amount of $150,000 he made $3,000,000 from the event. Banks will enthusiastically pay for the convention space for a NACA event because they can write $75,000,000 in mortgages that will be sold to the federal government that they will have the servicing rights for. So the more people that show up to an event, the more money both NACA and banks can potentially make.

There is another way NACA helps banks make money and it’s from of the other 95% of homeowners that NACA can’t help. The banks have Bruce Marks and NACA to thank for the billions of dollars they make off foreclosed homes. Not only are banks writing an estimated $75 million in loans at each NACA events but they’re also pocketing billions of dollars in profits when Marks and his staff giving false hope to tens of thousands of homeowners who eventually lose their homes.

NACA signs up the majority of these homeowners knowing full well they can’t help them. They give these homeowners false hope by making them believe that NACA is helping them and is working on their file when in reality, nothing is being done. Naturally, because they believe NACA is working on the file and like typical homeowners who working with a third party to negotiating a loan modification, they stop making their mortgage payments. This is usually because the group helping them negotiate the modification or the lender told the modification company to tell the homeowner to quit making the payment because the lender won’t help the homeowner if they are not 90 day behind on their mortgage.

I’ve written quite a few times about how mortgage servicers make money from mortgages in default and how when a MBS Trust cashes in it’s insurance policy that the mortgage servicer is the first to swoop in and buy the outstanding loans in the mortgage trust for pennies on the dollar. This means if the servicer buys a mortgage from the MBS for $2000 that has a face value of $200,000, the servicer who is now the owner can foreclose and sell the property for $80,000 is still make a profit of 40x what they paid for it.

Like I wrote last week either Yves Smith’s judgment is impaired or she is attempting to broaden her audience by attempting to appeal by taking a more populous approach to her writing. I’m hoping that’s her plan. If she is, she needs to do more research before embracing people advertising themselves to be “advocates”.

Attorney General Kamela Harris has taken action and shut down three law firms and fourteen other defendants, selling fraudulent Mass Joinder Lawsuits yesterday. The accused are being sued for fraudulently taking millions of dollars from homeowners, who were led to believe the lawsuit would provide relief on their mortgages through deceptive marketing efforts.

“The defendents in this case fraudulently promised to win prompt mortgage relief for millions of vulnerable homeowners across the country” said Attorney General Kamela Harris. “Innocent people, already battered by the housing crisis, were targeted for fraud in their moment of distress.”

“Mass Joinder” Lawsuits are lawsuits with hundreds or even thousands of defendents with individually named causes of action. This is the first consumer action taken by the AG’s new Mortgage Fraud Strike Force.

Kramer’s and the other defendents were placed into Receivership on Monday August 15, 2011. This action was taken by the AG, to shut down a scheme operated by attorneys and their marketing partners, in which the defendents utlized false and misleading representations to induce thousands of borrowers into joining the lawsuit against their mortgage lender, often with promises of a “free house”. Defendents assets were also seized and their operations have been shut down.

In addition to the nineteen Department of Justice agents who participated in the raid, over 42 other law enforcement personnel took part from the California BAR, and HUD’s Office of the Inspector General. Additionally, over 16 bank accounts were seized by the Office of the Receiver.

It is believed that at least 2 million pieces of mail were sent out by mail to victims in at least 17 states. Defendents revenue is estimated to be in the millions of dollars. Consumers who paid to join the Mass Joinder lawsuits were frequently unable to receive answers to simple questions, such as whether they had been actually added to the lawsuit, or even establish contact with their attorneys who were representing them. Homeowners who have paid to join this suti are advised to call the CA BAR if they believe they are victims of fraud.

The Department of Justice has seized the practices of the following non-attorney defendants:
Attorneys Processing Center, LLC; Data Management, LLC; Gary DiGirolamo; Bill Stephenson; Mitigation Professionals, LLC; Glen Reneau; Pate Marier & Associates, Inc.; James Pate; Ryan Marier; Home Retention Division; Michael Tapia; Lewis Marketing Corp.; Clarence Butt; and Thomas Phanco.

The State Bar has seized the practices and attorney accounts of the attorney defendants:
The Law Offices of Kramer & Kaslow; Philip Kramer, Esq; Mitchell J. Stein & Associates; Mitchell Stein, Esq.; Christopher Van Son, Esq.; Mesa Law Group Corp.; and Paul Petersen, Esq.

Attorney General Harris is challenging the defendants’ alleged misconduct in marketing their mass joinder lawsuits; her office takes no position as to the legal merits of any claims asserted in the mass joinder lawsuits filed by defendants.

Victims in the following states are known to have received these mailers, or signed on to join the case. This is a preliminary list that may be updated:

Alaska, Arizona, California, Colorado, Connecticut, Florida, Hawaii, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Jersey, New York, Ohio, Texas, Washington

The complaint, temporary restraining order, examples of marketing documents and photos of the enforcement action are available with the electronic version of this release at http://oag.ca.gov/news.

In November of 2010, the U.S. Department of Treasury issued an update to HAMP underwriting and borrower assistance requirements for lenders and servicers in response to mandates of the Dodd-Frank Wall Street Reform and Consumer Protection Act. These requirements include more stringent notification and processing requirements for servicers in the way they manage homeowners’ cases and try to create a less horrific gauntlet for homeowners to navigate.

When a homeowner / borrower believes their HAMP application has been wrongly denied they are supposed to be able to escalate a dispute with their own servicer, who must establish an “escalation department”, as well as with the Department of Treasury, Fannie Mae or Freddie Mac. Servicers are also required, when asked, to provide the homeowner every data item that was used in their calculations for HAMP eligibility (e.g., the Net Present Value calculation). These escalation channels were supposed to be available by February 1, 2011. To determine the actual NPV which the Lender or Servicer will not disclose, you can run a REST Report (www.hampreport.com)

What does this mean for you, the homeowner who is delinquent on your mortgage? Below follows guidance for Housing Counselors from the Treasury website (although it applies to individual homeowners too):

First, work through your normal contacts and channels with the servicer. If that does not resolve the issue, elevate your concern to a senior manager within the servicer’s organization. Here are examples of cases that represent valid reasons for escalation:

• Servicer refuses to stop a scheduled foreclosure sale on a borrower’s house while the borrower is being evaluated for HAMP.
• Servicer charges up-front fees for the modification.
• Servicer instructs the borrower to miss a payment.
• Servicer claims that they are waiting for information or guidance from Treasury (i.e. Treasury is causing the delay).
• Servicer advises the borrower to intentionally misrepresent their personal or financial information.
• Servicer says they are not participating in HAMP, but the loan’s investor is a GSE (Fannie and Freddie owned loans are required to participate).
• Servicer says borrower doesn’t qualify, but counselor has reason to believe that the borrower is eligible.

Contact the Appropriate Escalation Team: If escalating to your Servicer’s senior management does not resolve the issue, escalate the issue using the following contacts: 

Fannie Mae Loans: 1-800-7FANNIE, resource_center@fanniemae.com

Freddie Mac Loans: 1-800-freddie, borrower_outreach@freddiemac.com

Non-GSE Loans: (HAMP SOLUTIONS CENTER) 1-866-939-4469, escalations@hmpadmin.com

Most of these clients come to CDA after spending days in line and going through a lot of headaches at a NACA event. Unfortunately, NACA is not able to achieve modifications for many people based upon conversations with clients of CDA Law Center.  One of the most common misconceptions about NACA is that it is free. Consumers put up with the cattle like atmosphere and the lack of understanding their homeowner/counselors have about most modification programs, because they believe it is a free service, and do not read the fine print which you can review here: http://www.naca.com/about_naca/nacaMembership.jsp .   NACA may be a good alternative for many people who cannot afford to hire a legitimate loan modification attorney, as it is a reasonable alternative for those without means.

In order to have NACA submit your documents to your lender, you first must become a “Member”. By becoming a Member, you need to agree to the following:

Membership Overview
NACA Membership gives you access to the Best Mortgage Program in America and helps you become active in the fight for economic justice in our communities. To learn more about NACA you can attend a free NACA Workshop. Remember that while NACA services are free you will need to participate in support of NACA’s mission.

To become a Member:
Read and approve the Membership Agreement.
Read and approve the Authorization.
Pay the annual dues ($20 per household for 2011)

You will need to either fax your signed Membership Agreement and Authorization or bring them together with your annual Membership dues and $10 per credit report to your first counseling sessions at your local office. We prefer check or money order.

Post-purchase assistance
NACA provides you with an unprecedented post-purchase program, which includes continued assistance and counseling from NACA, the opportunity for active involvement in your neighborhood, and the ability to impact national issues.

There are two major components to NACA’s Post Purchase Program. First, the Membership Assistance Program provides comprehensive individual assistance to protect you from foreclosure. NACA provides comprehensive financial counseling, payment agreements, and financial assistance for as long as you have a mortgage through NACA.

Second, the Neighborhood Stabilization Committees (NSCs) helps you keep your neighborhood safe from drugs, violence, predatory lenders and other destabilizing influences, and facilitate the continued involvement of NACA homeowners in their communities and in nationwide activities. NACA is continuing to develop other post-purchase programs for its members to improve their access to equal credit opportunities and economic justice.

The Homeowner Member dues of $50 a month for between five and ten years, depending on the mortgage amount as stated below, provides you with access to NACA’s unprecedented and comprehensive post-purchase program – Membership Assistance Program (MAP). The Homeowner Membership dues funds MAP and once you have completed payments you become a lifetime NACA Member. The Homeowner Membership dues costs much less than mortgage insurance, while providing you substantially more of a benefit. See the chart below for a comparison between Private Mortgage Insurance fees and the Homeowner Membership fees (which are included in the monthly mortgage payment).

Mortgage

Mortgage Amount              Mortgage Insurance                                     Membership Dues
                                                 Fee                    Term            Cost Fee                  Fee                     Term       Cost
$99,999 or less                 $75/month     12 years       $10,800               $50/month    5  yrs     $3,000
$100,000 – $199,999    $150/month  12 years       $21,600               $50/month     7.5 yrs  $4,500
$200,000+                        $227/month  12 years       $32,700               $50/month    10 yrs    $6,000

(1) based on a $100,000, $200,000 and $300,000 no down payment mortgage for buyers with very good credit. (2)The MI cost is .91% of the loan amount per year (if MI was required on the NACA product, it would be greater than 1.00% per year). MI must be paid until the mortgage balance is reduced to 78% of the original loan amount, which typically takes approximately 12 years.

Many clients ask CDA how NACA is different from hiring an attorney? At CDA, they have helped and attained modifications for many former NACA clients who were denied for a modification using NACA services. The main reason for this is that although NACA has relationships with lenders, they do not “advocate” for consumers in the sense of preparing a financial package to make sure the financials work within program guidelines.  Instead, they submit financials “as is”, even if they do not meet program guidelines, resulting in a denial for people who would otherwise qualify for the modification with a little attention to detail in preparing the financials.  CDA finds that most packages require quite a bit of  preparation to make the numbers “work” within program guidelines.  CDA Law Center’s experienced underwriters and attorneys however, will first do a free evaluation to determine if you meet the financial criteria necessary for a modification. If you meet those guidelines, only then would we be willing to take on your case for modification. CDA law Center can be reached at 877-499-4435 or on the web at www.cdalawcenter.com or www.hampreport.com.

When Los Angeles lawyer Luis Rodriguez responded to a summons-like mailer soliciting him to join other homeowners in a lawsuit against the Bank of America, he was told he qualified to be a plaintiff and had only to “donate” $6,000 to sign up. Rodriguez, a deputy public defender and member of the State Bar Board of Governors, was told the bank had misled consumers, but “high caliber” lawyers would handle the case. Be patient, he was told; these cases take a year or two to resolve. And, he was promised, he would receive some money.

The solicitation came to Rodriguez’ home and although he once had a BofA loan and had refinanced, the bank was no longer involved. But he apparently was a target of the latest marketing effort to attract homeowners who, unlike Rodriguez, are facing foreclosure. (Rodriguez did not join the suit.) The California Department of Real Estate issued a consumer alert last month warning mortgage holders to beware of such solicitations by lawsuit marketers who request upfront fees to file “mass joinder” or class action lawsuits with promises of extraordinary home mortgage relief.

The marketing materials variously claim a class action lawsuit may already have been filed and a homeowner can join as a plaintiff and can stop paying the lender, the lawsuit will help modify a home loan, or filing a lawsuit will stop the homeowner’s payment obligation and foreclosure. One Internet advertisement claims, “. . . at the very least, damages could be awarded that would reduce the principal balance of the note on your home to 80 percent of market value and give you a 2 percent interest rate for the life of the loan.”

The marketing materials “always seem to suggest with hyperbole that the result an individual homeowner can get is everything from a cash settlement to reduction in the loan or what they call an equity strip, which means they get the home free and clear,” said Wayne Bell, DRE chief counsel.

Such claims, he added, are “often overblown and exaggerated. But people are desperate for some kind of hope, and this gives them the hope.”

The “mass joinder” and class action solicitations are the latest in a long list of ways to deal with the housing foreclosure crisis that began in 2009. The Department of Real Estate issued consumer alerts and fraud warnings early on about loan modification scams, in which lawyers took fees upfront but then did none of the promised work to help clients avoid foreclosure. In October 2009, Senate Bill 94 became law in California, prohibiting lawyers from collecting upfront fees in loan modification or mortgage forbearance matters.

Scammers quickly followed up with schemes related to short sale transactions, forensic loan audits, false and misleading claims of special expertise and credentials related to home loan relief services, and other real estate and mortgage relief swindles. In January, the Federal Trade Commission also banned advance fees but carved out an exception for lawyers who meet certain conditions. For the most part, however, SB 94 trumps the FTC ban and prohibits lawyers from collecting advance fees for loan modification work.

The newest claims, usually made via direct mailers and the Internet, offer both legitimate-sounding litigation services and promises of extraordinary remedies, all “with the goal of taking and getting some of your money,” Bell said.

The State Bar, which created a loan modification task force in 2008 to handle a groundswell of client complaints about lawyers who commit misconduct in that area, is starting to receive complaints about lawyers who offer to add clients to a class action lawsuit. Each client generally pays a non-refundable fee, anywhere from $3,000 to $9,000, to be added as a plaintiff. Bar investigator Tom Layton said he believes thousands of people have been solicited and signed up, and he estimated bogus foreclosure litigation operations may have collected between $10 million and $15 million. It is unclear whether lawyers are engaging in marketing, doing legal work or sharing fees with non-lawyers.

An Internet search of terms like “foreclosure defense,” “mortgage litigation” and “mass joinder” produces no shortage of results, including an invitation to join a lawsuit against the Bank of America that claims 1,200 plaintiffs. Bell provided a flyer from an operation claiming to represent a “nationwide group of attorneys” that explained that distressed homeowners have three options when considering whether to hire a lawyer – start making payments on your home, move out and either pay rent or a new mortgage or hire a lawyer.

“By hiring an attorney,” the flyer says, “you not only get the immediate protection and assistance you need to prevent you (sic) lender from taking your home but you also have a chance of getting a much lower payment, lower principal balance and in some cases elimination of the mortgage altogether.”

Another site advises simply, “Sue Your Mortgage Lender.” It talks about “[a] secret conspiracy that transpired among a vast network of blood-thirsty financiers. . .” and asserts that “[b]ankers along with loan officers were utilizing bribery and kickback strategies to sway real estate appraisers. . .”

The site includes a 16-page retainer agreement with a fee based on the value of the consumer’s property value. The smallest retainer fee is $4,000.

A solicitation circulating in the Hispanic community in Los Angeles offers “for $10,000 we can get you your home for free.”

Bell urges consumers to be skeptical about marketing pitches and to carefully vet lawyers and examine claims that lawsuits can protect homeowners from foreclosure. He explains that litigation can be expensive and protracted and there are no guarantees with respect to the outcome.

“Mortgage rescue frauds are extremely good at selling false hope to consumers with regard to home loans,” Bell warns. “The scammers continue to adapt and to modify their schemes as soon as their last ones became ineffective.”

FRAUD WARNING REGARDING LAWSUIT MARKETERS REQUESTING UPFRONT FEES FOR SO-CALLED “MASS JOINDER” OR CLASS LITIGATION PROMISING EXTRAORDINARY HOME MORTGAGE RELIEF

By Wayne S. Bell, Chief Counsel, California Department of Real Estate

I. HOME MORTGAGE RELIEF THROUGH LITIGATION (and “Too Good to Be True” Claims Regarding Its Use to Avoid and/or Stop Foreclosure, Obtain Loan Principal Reduction, and to Let You Have Your Home “Free and Clear” of Any Mortgage).

This alert is written to warn consumers about marketing companies, unlicensed entities, lawyers, and so-called attorney-backed, attorney-affiliated, and lawyer referral entities that offer and sell false hope and request the payment of upfront fees for so-called “mass joinder” or class litigation  that will supposedly result  in extraordinary home mortgage relief.

The California Department of Real Estate (“DRE” or “Department”) previously issued a consumer alert and fraud warning on loan modification and foreclosure rescue scams in California.  That alert was followed by warnings and alerts regarding forensic loan audit fraud, scams in connection with short sale transactions, false and misleading designations and claims of special expertise, certifications and credentials in connection with home loan relief services, and other real estate and home loan relief scams.

The Department continues to administratively prosecute those who engage in such fraud and to work in collaboration with the California State Bar, the Federal Trade Commission, and federal, State and local criminal law enforcement authorities to bring such frauds to justice.

On October 11, 2009, Senate Bill 94 was signed into law in California, and it became effective that day.  It prohibited any person, including real estate licensees and attorneys, from charging, claiming, demanding, collecting or receiving an upfront fee from a homeowner borrower in connection with a promise to modify the borrower’s residential loan or some other form of mortgage loan forbearance.

Senate Bill 94’s prohibitions seem to have significantly impacted the rampant fraud that was occurring and escalating with respect  to the payment of upfront fees for loan modification work.

Also, forensic loan auditors must now register with the California Department of Justice and cannot accept payments in advance for their services under California law once a Notice of Default has been recorded.  There are certain exceptions for lawyers and real estate brokers.

On January 31, 2011, an important and broad advance fee ban issued by the Federal Trade Commission became effective and outlaws providers of mortgage assistance relief services from requesting or collecting advance fees from a homeowner.

Discussions about Senate Bill 94, the Federal advance  fee ban, and the Consumer Alerts of the DRE, are available on the DRE’s website at www.dre.ca.gov.

Lawyer Exemption from the Federal Advance Fee Ban —

The advance fee ban issued by the Federal Trade Commission includes a narrow and conditional carve out for attorneys.

If lawyers meet the following four conditions, they are generally exempt from the rule:

1. They are engaged in the practice of law, and mortgage assistance relief is part of their practice.
2. They are licensed in the State where the consumer or the dwelling is located.
3. They are complying with State laws and regulations governing the “same type of conduct the [FTC] rule requires”.
4. They place any advance fees they collect in a client trust account and comply with State laws and regulations covering such accounts. This requires that client funds be kept separate from the lawyers’ personal and/or business funds until such time as the funds have been earned.

It is important to note that the exemption for lawyers discussed above does  not allow lawyers to collect money upfront for loan modifications or loan forbearance services, which advance fees are banned by the more restrictive California Senate Bill 94. (See the CDA Compliance Tab for more detailed information. editor )

But those who continue to prey on and victimize vulnerable homeowners have not given up. They just change their  tactics and modify their sales pitches to keep taking advantage of those who are desperate to save their homes.  And some of the frauds seeking to rip off desperate homeowners are trying to use the lawyer exemption above to collect advance fees for mortgage assistance relief litigation.

This alert and warning is issued to call to your attention the often overblown and exaggerated “sales pitch(es)” regarding the supposed value of questionable “Mass Joinder” or Class Action Litigation.

Whether they call themselves Foreclosure Defense Experts, Mortgage Loan Litigators, Living Free and Clear experts, or some other official, important or impressive sounding title(s), individuals and companies are marketing their services in the State of California and on the Internet.  They are making a wide variety of claims and sales pitches, and offering impressive sounding legal  and litigation services, with quite extraordinary remedies promised, with the goal of taking and getting some of your money.

While there are lawyers and law firms which  are legitimate and qualified to handle complex class action or joinder litigation, you must be cautious and BEWARE.  And certainly check out the lawyers on the State Bar website and via other means, as discussed below in Section III. II.

QUESTIONABLE AND/OR FALSE CLAIMS OF THE SO-CALLED MORTGAGE LOAN DEFENSE OR “MASS JOINDER” AND CLASS LITIGATORS.

A.  What are the Claims/Sales Pitches?    They are many and varied, and include:

1. You can join in a mass joinder or class action lawsuit already filed against your lender and stay in your home.  You can stop paying your lender.
2. The mortgage loans can be stripped entirely from your home.
3. Your payment obligation and foreclosure against your home can be stopped when the lawsuit is filed.
4. The litigation will take the power away from your lender.
5. A jury will side with you and against your lender.
6. The lawsuit will give you the leverage you need to stay in your home.
7. The lawsuit may give you the right to  rescind your home loan, or to reduce your principal.
8. The lawsuit will help you modify your home loan.  It will give you a step up in the loan modification process.
9. The litigation will be performed through “powerful” litigation attorney representation.
10. Litigation attorneys are “turning the tables on lenders and getting cash settlements for homeowners”. In one Internet advertisement, the marketing materials say, “the damages sought in your behalf are nothing less than a full lien strip or in otherwords [sic] a free and clear house if the bank can’t produce the documents they own the note on your home.  Or at the very least, damages could be awarded that would reduce the principal balance of the note on your home to 80% of market value, and give  you a 2% interest rate for the life of the loan”.

B.  Discussion.

Please don’t be fooled by slick come-ons by scammers who just want your money. Some of the claims above might be true in a particular case, based on the facts and evidence presented before a Court or a jury, or have a ring or hint of truth, but you must carefully examine and analyze each and every one of them to determine if filing a lawsuit against your lender or joining a class or mass joinder lawsuit will have any value for you and your situation.  Be particularly skeptical of all  such claims, since agreeing to participate in 4 such litigation may require you to pay for legal or other services, often before any legal work is performed (e.g., a significant upfront retainer fee is required).

The reality is that litigation is time-consuming (with formal discovery such as depositions, interrogatories, requests  for documents, requests for admissions, motions, and the like), expensive, and usually vigorously defended.  There can be no guarantees or assurances with respect to the outcome of a lawsuit.

Even if a lender or loan owner defendant were to lose at trial, it can appeal, and the entire process can take years.  Also, there is no statistical or other competent data that supports the claims that a mass  joinder and class action lawsuit, even if performed by a licensed, legitimate and trained lawyer(s), will provide the remedies that the marketers promise.

There are two other important points to be made here:

First, even assuming that the lawyers can  identify fraud or other legal violations performed by your lender in the loan origination process, your loan may be owned by an investor – that is, someone other than your lender.  The investor will most assuredly argue that your claims against your originating lender do not apply against the investor (the purchaser of your loan). And even if your lender still owns the loan, they are not legally required, absent a court judgment or order, to modify your loan or to halt the foreclosure process if you are behind in your payments.  If they happen to lose the lawsuit, they can appeal, as noted above. Also, the violations discovered may be minor or inconsequential, which will not provide for any helpful remedies.

Second, and very importantly, loan modifications and other types of foreclosure relief are simply not possible for every homeowner, and the “success rate” is currently very low in California.  This is where the lawsuit marketing scammers come in and try to convince you that they offer you “a leg up”.  They falsely claim or suggest that they can guarantee to stop a foreclosure in its tracks, leave you with a home “free and clear” of any mortgage loan(s), make lofty sounding but  hollow promises, exaggerate or make bold statements regarding their litigation successes, charge you for a retainer, and leave you with less money.

III.  THE KEY HERE IS FOR YOU TO BE ON GUARD AND CHECK THE LAWYERS OUT (Know Who You Are or May Be Dealing With) – Do Your Own Homework (Avoid The Traps Set by the Litigation Marketing Frauds).

Before entering into an attorney-client relationship, or paying for “legal” or litigation services, ascertain the name of the lawyer or lawyers who will be providing the services.  Then check them out on the State Bar’s website, at www.calbar.ca.gov. Make certain that they are licensed by the State Bar of California.  If they are licensed, see if they have been disciplined.

Check them out through the Better Business Bureau to see if the Bureau has received any complaints about the lawyer, law firm or marketing firm offering the services (and remember that only lawyers can provide legal services). And please understand that this is just another resource for you to check, as the litigation services provider might be so new that the Better Business Bureau may have little or nothing on them (or something positive because of insufficient public input).

CDA Law Center staff attends O. Max Gardner III’s three day securitization litigiation training and extended education in Las Vegas Nevada: Learning from panelists who were some of the nation’s recognized experts in their field, we had the opportunity to be trained on a variety of relevant Causes of Action, legal strategies, and evidence gathering techniques We had a former bank VP who actually securtized the very first pool of loans when it became legal to do so, at one minute after midnight when the law went into effect in the 1980′s. We heard from securtization auditors, bank executives, and other leading attorneys leading the fight against the banks.

Topics dicsussed included some very unusual topics in the context of referring to our nation’s largest financial institutions. For example, there was the four hour training on how to identify forged documents, forged signatures, material composition, identify copies faked to look like originals, and identify Robo-signers, all of these are used to foreclose on people’s homes and in many cases submitted to the courts in judicial foreclosure states. It’s sad to think our biggest criminals are our biggest banks.

Now we know from Max how to identify the chain of title and determine if an allonge was properly endorsed and whether the chain of title is broken or complete, and a million other uselful ideas, precedents, opinions and raw experience about how to fight these banks who are taking people’s homes. Every lawyer in attendance was very passionate about bringing the fight to the banks.

O. Max Gardner III’s father was Governor of North Carolina, and his son O. Max Gardner III is perhaps the best known consumer bankruptcy attorney in the United States. He hails from the University of North Carolina at Chapel Hill, where he graduated in 1969 with high honors from the UNC School of Law. Legend has it he is the man the banks fear most, and never expect to beat, but rather they know they will take a beating. Max is 102 wins, 2 losses in jury cases to a final verdict. You can visit max’s website at www.maxgardner.com

FTC Announces Final Rule effecting MARS (foreclosure prevention) providers nationwide. You now must be a licensed attorney in the state in which the property or borrower resides to collect fees for this work.

Effective now: If you live in Califonia or the property resides in California, per the FTC Final MARS rule effective January 31, 2011, only a licensed California loan modification attorney can collect fees for foreclosure prevention work. Beware of out of state “Scammers” who try and sell you loan modification services, but who are not licensed to practice law in California. Report these companies to the Federal Trade Commission (FTC), as they are in violation of Federal law. See the compliance tab for more info on both state and federal compliance issues for foreclosure prevention law firms like CDA Law Center.

If you are seeking a California loan modification attorney, be sure to do you diligence on any firm you are considering hiring. There are many loan modification attorney’s who do not actively particpate in your case or you cannot meet or speak to them about your case. At CDA Law Center ( www.cdalawcenter.com ), one of our three fine and experienced California loan modification attorney’s will prepare every letter that goes to your lender, will review all of your documents and hardship letter, and will be happy to meet or arrange a call with you at any time before or during your case at your request.

We believe reputation and an ethical code of conduct for a California loan modifcation attorney is paramount. After spending three years and saving over several thousand homes, CDA Law Center maintains an “A” rating and a “5 of 5 stars” review rating with the Better Business Bureau. We will work diligently on your case and provide consistent communication with you throughout the loan modification process until your case is resolved. If you are looking for a fully compliant California loan modification attorney, be sure to call 949-379-8001 for a free consultation to determine if your financial situation qualifies your for a loan modification.  There is no obligation, and if we don’t believe you have a viable case for loan modification, we will tell you so and tell you why, and we will not take you on as a client.  We will onlt take those select clients that we believe have a strong cased based upon a financial interview and an  understanding of your hardship.

CDA Law Center is a highly reputable law center where you can get the best legal advice regarding loan modification. CDA Law Center is a company with qualified and experienced people who know the most effective methods of getting around the lender’s barriers in order to get you positive results – they will also push the lender to get you the very best terms. If you are looking for a foreclosure prevention specialist that will take your case seriously, then you should contact CDA Law Center. It is not uncommon to find clients confusing loan modification with forbearance agreement – these two are totally different agreements. Loan modifications are a long term permanent solution for any borrower who has shown an inability to repay his or her existing loan. A Forbearance agreement is a short term solution to any property owner who is presently going through a temporary financial hardship. You must understand that CDA Law center is a legal center where highly experienced paralegals, case managers, former underwriters, attorneys and analysts put together all your information and conduct a detailed financial analysis in order to determine if you qualify for a loan modification – not everyone is eligible for loan modifications.

There are a lot of reasons why a loan modification will work for you. If any of the following applies to your present situation, then you are definitely an eligible candidate for this option: ” If you are unable to refinance due to loss of equity, when you owe more than the property itself is worth. ” If you are unable to refinance, caused by lack of positive credit or late payment of mortgage. ” If the rate is currently adjusting or is in the process of adjusting. ” If you are facing foreclosure. ” If you have suffered financial hardship: – Pay cut – Job loss – Medical bills – Divorce or separation – Rising bills – Death of spouse or family member ” If you have a Minimum Payment Interest or “Pick-A-Pay” only loan

Yes, you can attempt to get a loan modification all by yourself, but be warned, it is a very tasking process and many people often fail and lose their home. You really cannot afford to tighten the purse strings if your situation can lead to a foreclosure on your home. A reputable company like CDA Law Center can effectively navigate through all the protocols and meet with the decision maker with utmost efficiency and alacrity. Remember, when time is not on your side, leave it to the professionals.