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MCLE Self-Assessment Test

Another warning about loan modification
scams issued

By Nancy McCarthy
Staff Writer

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.”