No let-up in loan modification complaints

By Nancy McCarthy
Staff Writer

James Towery reflects on his first six months as Chief Trial Counsel                                                  Photo, Darryl Bush

Despite extensive efforts over the past two years to rein in improper loan modification activities by some lawyers, including legislation and aggressive prosecution by the State Bar and the attorney general, complaints from clients continue unabated. Chief Trial Counsel James Towery, who took over as the bar’s head prosecutor in August, said one-third of his office workload is devoted to loan modification complaints; 1,500 investigations of 400 attorneys currently are active. Twenty have either resigned or been disbarred.

“We’ve made tremendous strides but we haven’t stemmed the tide,” Towery said. “The foreclosure crisis is so significant in California, and regrettably it has been an opportunity for a small number of attorneys to take advantage of people and try to get rich quick.”

The foreclosure complaints are largely responsible for a 50 percent or more increase in the discipline unit’s work between 2008-2010, he said. Historically the office handles about 1,500 investigations at a time. That number rose to 2,500 in 2009, to 3,500 last year and currently stands at 3,200. “It’s been challenging for everyone,” Towery said. “It’s like being in a district attorney’s office in the midst of a crime wave.”

Despite the larger number of complaints and a steady number of calls — 6,500 per month — to the department’s intake number, Towery said the discipline unit has made impressive inroads to its backlog numbers. The investigative backlog — cases older than six months — dropped from 911 in July 2010 to the current 390. The number of cases in which the investigation is complete but notices have not been drafted declined from 1,400 a year ago to 1,163 last month. And between 2007 and 2010, the number of cases resolved through warning letters, stipulations, closure or filing of charges doubled from 902 to 1987.

In other words, Towery said, his office’s productivity increased by 75 percent between 2009 and 2010.

Towery took the top disciplinary job after 33 years in private practice, where he specialized in civil litigation with a focus on professional liability. He served as State Bar president in 1995-96 after a year as chair of the board of governors discipline committee, overseeing implementation of recommendations to improve the efficiency of the discipline system. His long interest in legal ethics issues led to the new job, which he described as the “best discipline job” in the country.

The large number of lawyers committing misconduct while handling foreclosure matters led to passage in October 2009 of SB 94, which prohibits attorneys from taking advance fees for work on loan modifications. Although the statute was expected to curb abuses, many lawyers have either ignored the new law or tried to find ways to get around it, Towery said. “There is an irresistible impulse for a small group to take advantage of the plight of people in crisis,” he said. Most of the misconduct involves charging clients small sums, offering promises of loan modifications and then doing little or no work. Some California lawyers also operate in other states where they are not licensed.

The discipline office is now receiving complaints from homeowners who may have hired a lawyer prior to the passage of SB 94 but are just now losing their homes. The investigations are complex, often involving multiple clients, many of them non-English speaking, and often involving subpoenas of bank records. “Twenty is not going to be the final number” who lose their law license, Towery said.

The discipline office also is receiving complaints about a somewhat newer scam: debt consolidation. Clients facing large debt pay their lawyer a certain amount of money every month believing the lawyer will pay down the debt. In fact, however, the lawyer simply takes the money.

In addition to the ongoing loan modification complaints, Towery said the discipline office is focusing on three other areas: major misappropriation by lawyers of client funds; responding to the report of the Northern California Innocence Project (NCIP) that found what it said was widespread failure to pursue prosecutorial misconduct; and creating initiatives to divert low-level misconduct.

• The bar is trying to identify lawyers who take client funds early and fast-track their cases. Towery estimated between 30 and 40 lawyers meet the initial criteria of stealing at least $25,000 from clients, and his office also will investigate lawyers who take less but have a prior history of misappropriation. Small teams of lawyers and investigators are working on major misappropriation cases in both Los Angeles and San Francisco and will act quickly to go to court to restrict a lawyer’s license if he or she poses a “substantial threat of harm” to the public.

Towery described major misappropriation matters as a “classic case” of a small number of lawyers causing a disproportionate number of problems. While the vast majority of lawyers are fundamentally honest, he said, “a tiny percentage has crossed that boundary line” and dipped into their client trust accounts. Towery said 42 percent of the claims paid by the Client Security Fund to victims of lawyer dishonesty are the result of major misappropriation and ratcheting up prosecution of these offenders will enhance public protection.

• Towery’s office is analyzing approximately 130 cases the innocence project said were reversed because of prosecutorial misconduct. The office will not look at the matters identified by the report as harmless (not resulting in a reversal) because of the bar’s “clear and convincing” burden of proof. Towery suspects that bar prosecutors did not know about many of the reversals, either because the case was not reported, as required, or did not meet the criteria for notifying the bar. To improve the requisite reporting, his office sent 1,900 letters to judges and is stepping up contacts with district attorneys’ offices to educate them about reporting requirements.

Towery said the bar is not looking at misconduct that occurred more than 10 years ago. Some of the more recent cases involved prosecutors who have died or were not licensed in California, some are now judges and others are misidentified. None of those can be prosecuted. A small number will meet the bar’s criteria for prosecution, he said. “Our approach is very simple — we treat prosecutors in an even-handed fashion.”

• Towery is creating an alternative diversion program for low-level misconduct matters, such as first-time DUIs. Lawyers with no previous record but minor complaints may receive a warning letter or have charges dismissed. “We hope it’ll be a learning experience for them,” Towery said.

The Alternative Discipline Program, created for lawyers with mental health or substance abuse problems, “is problematic and we continue to closely examine it,” Towery said. His office will adhere to an informal three-strikes rule, and lawyers who return to the discipline system “will no longer get the benefit of the doubt. The folks with prior records are going to be our focus.”