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MCLE Self-Assessment Test

Loan modification charges could draw online alert

By Diane Curtis
Staff Writer

State Bar Chief Trial Counsel James Towery is following up a proposal for a consumer alert against lawyers accused of stealing from clients with a similar proposal for lawyers accused of significant loan modification misconduct.

At its May 12 meeting, the State Bar Board of Governors is slated to vote on a request to post a very visible alert – large, bold lettering at the top of an attorney’s State Bar profile page – when disciplinary charges are filed or a petition for involuntary inactive enrollment is granted against an attorney for misappropriating more than $25,000 in client funds. Currently, disciplinary charges are public and are posted towards the bottom of the profile page. Petitions filed under Business & Professions Code section 6007(c) — applications from State Bar prosecutors for involuntary inactive enrollment when there is “a substantial threat of harm to the member’s clients or to the public” — are not posted at all although they are public.

Now the prosecutor’s office is seeking a 45-day public comment period for a proposal to trigger a consumer alert for “significant” loan modification misconduct. The alert would be posted if 15 or more cases are filed in a notice of disciplinary charges or if a petition for involuntary inactive enrollment, based on the member’s threat of harm to the public, relies on any loan modification misconduct.

“One particularly challenging aspect of ensuring public protection against mass loan modification misconduct by attorneys is minimizing the risk of continuing harm when a lawyer remains on active status pending the resolution of filed disciplinary charges,” Towery said. A consumer alert, along with a disclaimer that attorneys are presumed to be innocent until charges are proven, is warranted “to protect current or prospective clients from additional harm.”

Since 2008, when the economy collapsed and the number of foreclosures skyrocketed because homeowners weren’t able to maintain payments on easy-to-get mortgages, the State Bar has received about 4,800 complaints about lawyers engaging in loan modification misconduct. Those engaging in misconduct typically obtained an advance fee (now banned by statute) from clients, promising to obtain a change in the loan terms, but they never made good on their promises. Claims to the bar’s Client Security Fund quadrupled – from 825 to 3,028 – between 2008 and 2009, and 2010 saw almost 4,000 claims, largely related to loan modification complaints.

Towery says loan modification misconduct represents “a relatively small number of unscrupulous attorneys,” but they affect a great many clients because of the business-mill aspect of the operations. Attaching their names to a lawyer, loan modification companies employ mass mailings and call centers to solicit clients, who all then claim that lawyer as their advocate.

The proposal to post a consumer alert in major misappropriation cases drew 34 comments, mostly in opposition. But Towery said the opposition was based on the misconception that a client complaint alone could result in the consumer alert. In fact, such an alert would be posted only after charges are filed or a petition is granted, and those circumstances occur only after in-depth investigations that include bank records review, witness interviews and an opportunity for the lawyer under investigation to reply. Such safeguards “amply satisfy the due process concerns raised during public comment,” Towery said. In addition, he noted, more than 97 percent of filed misappropriation charges in the past six years resulted in State Bar Court discipline or resignation. Other comments were concerned that complaints short of adjudicatory findings would be unfair to innocent lawyers.

Jerome Fishkin, president of the Association of Discipline Defense Counsel, says his group is not opposed to the consumer alert proposals because they involve so few lawyers. The group’s objections on public postings come to the fore when there is no petition or no charges filed.

Fishkin will be at the May meeting to promote a resolution approved by his organization that seeks to expunge private reprovals issued by the State Bar. A draft Rule of Court states that private reprovals shall be removed from the State Bar website when the member has complied with the conditions of the reproval and expunged totally after five years if all conditions have been met. Fishkin said the private reproval amounts to the smallest form of discipline for such actions as failing to communicate properly with a client. Ten years later, such a reproval is still on the lawyer’s website. “We’re talking really low-grade behavior,” Fishkin said. “We’re just saying, ‘Look, this kind of stuff should not be up (on the website) forever.’”

The OCTC, however, opposes the proposed rule, saying that private reprovals can be important considerations in a later discipline case. Not all private reprovals are insignificant, said Deputy Chief Trial Counsel Russell Weiner, but if they are, the attorney can make the argument that they should be given little or no weight if there is a later discipline case.