The following is general legal information only and not intended to serve as legal advice or a substitute for legal advice. In addition, case law may further define or clarify the following, which may not necessarily be accurate or current. For specific questions, please contact an attorney.
Steven C. Vondran, Esq. is practicing real estate law, loan modifications and foreclosure prevention law and can be reached at steve@vondranlaw.com or (877) 276-5084 He is licensed to practice law in Arizona and California. Please note that the emails sent to my office or posted on my Blog are not confidential and create no attorney-client relationship. Therefore, please do not send personal or confidential information.
INTRODUCTION:
My office has been inundated with calls lately from homeowners who have been lied to, cheated, deceived, scammed and otherwise abused by loan modification companies (many of whom are do not possess a real estate license). These companies often hold themselves out as "loan modification specialists" or "loan modification experts" (although it is usually unclear how such entities and individuals became specialists or experts). In addition, the latest flavor seems to be the "attorney-backed" or "attorney-based" loan modification scam where a company will hold itself out as having an in-house attorney or outside counsel, when in fact there either (a) is no such attorney at all or (b) there is an outside attorney who does nothing more than collect money from California homeowners who have received a notice of default (this activity basically results in a lawyer or law firm essentially aiding and abetting a cmpany, which is often times not compliant with DRE rules and regulations, skirt around the California Foreclosure Consultant law (which prevents non-lawyers, and other exempt entities, from collecting an advance fee from a California property owner who has received a notice of default).
My office has been working hard to obtain loan modification refunds and money damages where applicable for California homeowners who have been victimized, deceived, misled, or otherwise taken advantage of by a loan modification company or "attorney-backed" scam.
In some instances we find ourselves citing the following applicable statutes in an attempt to educate the would be defendant as to the legal requirements that they blatantly refuse to comply with. Often times the non-broker or non-adavnce fee agreement company will be in complete denial or is ignorant of legal requirements.
The following are a few California state laws that brokers wishing to perform loan modifications should be aware of. If you are a California broker seeking to legally and ethically set up a loan modification company, contact me to discuss your advance fee agreement and other requirements. You can get more information about a California advance fee agreement at www.AdvanceFeeContract.com or call me at (877) 276-5084.
CALIFORNIA LAW IMPACTING LOAN MODIFICATION COMPANIES
A. Loan modification marketing, soliciting, and negotiation services in California is a licensed activity requiring a real estate broker's license pursuant to Cal. Bus. & Prof. Code § 10131.
A real estate broker is any person who solicits borrowers for the purpose of negotiating a loan that is secured by real property. Cal. Bus. & Prof. Code § 10131(d). The California Department of Real Estate recently stated that "unless otherwise exempt, a real estate license is required to solicit, market, or provide loan modification, short sale and other loss mitigation services." See California Dept. of Real Estate "Mortgage Loan Bulletin" Fall 2008. See also Cal. Bus. & Prof. Code §§ 10131 & 10015.
Many companies that we send legal demand letters to refuse to recognize that loan modifications is considered to be "negotiating a loan" (as set forth in state stautes) and thus a broker license and broker supervision is required.
B. Brokers who accept advance fees must have an advance fee agreement (and verified accounting format) that has received a "Letter of Non-Objection" from the California Department of Real Estate pursuant to Cal. Admin. Code Title 10 § 2970.
An "advanced fee" is defined as "a fee claimed, demanded, charged, received, collected or contracted from a principal...to negotiate loans." See Cal. Bus. & Prof. Code § 10026. A person or corporation "who proposes to collect an advance fee as defined in Section 10026 shall submit to the Commissioner...all materials to be used in advertising, promoting, soliciting and negotiating an agreement calling for the payment of an advance fee." See Cal. Admin. Code Title 10 § 2970. Advanced fees are required to be deposited in to a client trust account and are subject to strict accounting and recording procedures. See Cal. Admin. Code Title 10 § 2972.
Many of these unlicensed companies that we are dealing with seem to believe that collecting money in advance of services, while offering a 100% money-back guarantee, allows them to avoid the advance fee agreement requirements. This is simply not the case. What's more, even so, we find that these companies fail to return any money as the agreed to do in their contracts and on their websites, out of cavalier defiance of the rights of the Client. The above referenced statutes are clear. When will companies wise up and start complying. The DRE has even created a FREE advance fee agreement that in most cases they will expedite approval of for the Broker that wishes to legally engage in the loan modification business in a manner that complies with law and is fair to the consumer. Why not just comply?
C. All advertising and marketing materials must have been pre-approved for use by the Commissioner of the California Department of Real Estate.
In addition, "any person using, disseminating, or publishing any matter which the commissioner has ordered, pursuant to this section, not to be used, published, or disseminated shall be guilty of a misdemeanor punishable by a fine not exceeding one thousand dollars ($1,000) or by imprisonment in the county jail not exceeding six months, or both, for each such use, dissemination, or publication. See Cal. Bus. & Prof. Code § 10085.
Typically, this violation will accompany all of the others. The non-compliant company generally refuses to look up the rules or follow the rules.
Where these companies defraud or deceive my Clients, we use the California law to compel them into settlement, or else seek to file an injunction to enjoin them from any future improper and illegal loan modification business and seek a full refund and any money damages that may be applicable.
ATTORNEY-BASED / ATTORNEY-BACKED
Here is a previous blog I have written about this topic.
Here are a couple of issues I think are worth exploring. The following is general legal information only and just the opinion of the author, Steve Vondran Attorney.
I. First of all, what exactly does ATTORNEY BACKED OR ATTORNEY BASED mean?
HAS THERE EVER BEEN A COMPANY (PRIOR TO THIS FINANCIAL CRISIS) THAT HELD THEMSLEVES OUT AS BEING ATTORNEY BACKED OR ATTORNEY BASED? Does this term suggest that there is an in-house attorney working on every loan modification file? What I have been hearing is that it really means that the loan modification company either passes through its files to an attorney who does the work and then pays the loan modification company for the "lead." Another answer I have heard is that the loan modification may send one or two files every now and then to an attorney to conduct a forensic loan audit, but that the attorney does not work for the loan mod company, nor does it work on every file. If true, it would seem the loan modification company is using false and misleading advertising to get clients. The Clients believe that an attorney is working on the file when in fact that is largely not the case.
II. Is the loan modification company actually a law firm?
As mentioned above, the loan modification company that holds itself out as being ATTORNEY BACKED OR ATTORNEY BASED is not really a law-firm. Rather, it appears that they want you to believe that your loan modification is in the hands of an attorney which may or may not be the case.
III. Is a loan modification that holds itself out as ATTORNEY BACKED or ATTORNEY BASED company practicing law? (i.e. engaged in the unauthorized practice of law)?
It does not appear that act of performing loan modifications on behalf of borrowers and homeowners is being construed as the practice of law. In California, the California Department of Real Estate allows real estate brokers to engage in loan modifications. If the broker wants to accept an advance fee from the homeowner, the broker must have an advance fee agreement that has received a letter of non objection and use a verified accounting format. We off these for sale and have roughly 30 approved companies as of this writing. For more information see www.AdvanceFeeContract.com
In Phoenix and in other cities in Arizona, (as well as California) it appears loan modifications nay also be performed by non-attorneys. So, even though the non-attorney is negotiating a contract and advising a Client in regards to its legal rights and options in regard to the homeowners foreclosure situation, it appears no one has challenged this as being the unauthorized practice of law. This is not to say that it isn't though.
The problem is compounded when the homeowner hears the phrase ATTORNEY BACKED OR ATTORNEY BASED and thinks that the loan modification company will be able to advise the homeowner in regard to filing a lawsuit for predatory lending, or advising on a deed-in-lieu of foreclosure or perhaps even filing a bankruptcy.
The question has to be asked, if there is no attorney working on every file, is the consumer mislead as to the services the loan modification company is actually able to provide? If so, does this create legal risk for the company that touts itself in this manner?
IV. What would a Client think Attorney Based or Attorney Backed Means?
Again, as referenced above, the average consumer would probably believe that this type of loan mod company actually has an attorney in house that works on every file. If the attorney is in fact in house, why does this have to be advertised? Lots of companies have in-house attorneys, but they don't say "we are an attorney based bakery" or "we are an attorney backed auto supply store" etc.
The attorney phrase seems to be thrown in there to induce Clients into believe you are hiring an attorney and thus, there is no need to go to a law firm. Should a Phoenix Arizona or California loan modification company be able to divert homeowners in crisis to its loan modification company (that may or may not have an attorney in house) by using the words ATTORNEY BACKED OR ATTORNEY BASED? That is a question to ponder.
V. Is a Lawyer Permitted to Have a Loan Modification Company Tout its Legal Services?
If there is in fact an attorney or lawyer "behind" the loan modification company, is such a lawyer permitted to receive business handed to it by a loan modification company that touted the phrase ATTORNEY BACKED OR ATTORNEY BASED in order to divert Clients to the loan modification only to be passed through or handed off to the Attorney or Law Firm? Does this create a "runner" or "capper" situation that may raise ethical issues for the attorney or law firm? Another question to ponder.
VI. Is there are Actually a Lawyer or Attorney Behind the "Attorney Based" or "Attorney backed" Scheme?
If there is no attorney "behind" or "backing" the loan modification company, then this would appear to be fraud in the inducement seeking to lure homeowners into using the loan modification company bythe enticement that you are in the safe hand of an attorney or lawyer who will handle your loan modification. This would be fraud and false advertising and unfair competition in California.
If you are a homeowner who believe you have hired a ATTORNEY BACKED OR ATTORNEY BASED loan modification company, but you are not sure whether or not there is actually an attorney working on your case, call us to discuss. We have been representing more and more homeowners who feel they have been a a victim of a loan modification scam due to these types of companies that either do not have an attorney, or do not use an attorney on their file.
For more information about foreclosure scams and rip-offs check out our site at www.LoanModScams.net
VII. Is this an unlawful partnership between an attorney and non-attorney?
In the ATTORNEY BACKED OR ATTORNEY BASED model, it would seem the attorney or law firm is relying on the loan modification company for business and (if there is an attorney) the loan modification company would be relying on the attorney or law firm for their success. The general ethical rule for attorneys is that an attorney may not partner with a non-attorney where any of the services can be construed as the practice lf law (this rule may very by jurisdiction).
As discussed above, there is a question as to whether or not loan modifications should be construed as the practice of law. Certainly it would seem that the Client who responds to an ATTORNEY BACKED OR ATTORNEY BASED advertisement would certainly believe they were hiring a lawyer to aid them so in the consumers mind the fee is being paid for a legal service provided by an attorney (does this mean the fee being paid is a legal fee??).
Does this arrangement result in an impermissible partnership? I welcome your comments on this issue.
VIII. Does an Attorney Based or Attorney Backed Firm Split Legal Fees with non-attorneys?
Again, as discussed above, this question is not clear. If the fee pai by the homeowner is deemed by the Client to be a legal fee....does this make it so? This is a question for the ethics attorneys to chime in on. I have contacted several ethics Attorneys in California and Arizona and the answer to this does not seem to be clear. If it is a legal fee, the fee should not be split by the lawyer with the ATTORNEY BACKED OR ATTORNEY BASED loan modification company.
IX. Does an Attorney Based or Attorney Backed Loan Modification Company Serve as a runner or capper for an attorney?
This issue was raised above as well. If the loan modification company is doing nothing more than touting ATTORNEY BACKED OR ATTORNEY BASED and then passing files through to the attorney or law firm (channeling cases) then this would raise an issue of capper or runner where the loan modification company is being compensated for this channeling of loan files for modification. Again, the question is not exactly clear. I welcome any input on this issue.
X. Does the Attorney help the loan modification company get around the foreclosure consultant law?
In California, a loan modification company and other persons and entities may nor accept and advance fee from a homeowner who has received a notice of default (NOD). This is so due to the foreclosure consultant law. If an attorney accepts a file from a California loan modification broker and then pays the agent or entity to process the loan or pays a "marketing fee" etc., does this act by the attorney or lawyer (of helping the foreclosure consultant get around the foreclosure consultant law - and get paid for a NOD) raise any ethical or legal issues? Again, I would welcome input on this topic, but my opinion is that it is an act by the attorney that "aids and abets" a foreclosure consultant in getting around the law.
If you are a foreclosure consultant looking for more information about how to legally provide loan modification services to Clients that have received a NOD please visit www.ForeclosureContract.com
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CONCLUSION
The regulatory authorities have made it very clear, loan modification activities (marketing, soliciting, and negotiating loan modifications) is a licensed activity and therfore, compliance with state law is required. Where companies illegally engage in this business, and violate false advertising statutes, breach fiduciary duties, violated B&P 17200 (the underlying state law violations can support this claim in most cases) and where outright fraud is concerned, the perpetrators should be held liable and should be enjoined from any future unlawful and/or fraudulent and deceptive conduct.
For more information or to submit your loan modification scam or loan modification fraud case visit www.loanmodificationripoff.net
USE LINKS:
(1) Link to DRE article of Loan Modification Cmpanies (which discusses the need for an advance fee agreement, RESPA violations, foreclosure consultant law, and attorney-backed issues http://www.dre.ca.gov/pdf_docs/mlb_fall08.pdf
(2) State bar Article of Foreclosure Scams and Attorney-Backed being "fraught with ethical issues" http://209.85.173.132/search?q=cache:gxyb8JsPHYoJ:www.calbar.ca.gov/calbar/pdfs/ethics/Ethics-Alert-Foreclosure.pdf+state+bar+ethics+alert+foreclosure&cd=2&hl=en&ct=clnk&gl=us
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Other Services we Provide: Advance Fee Agreements; Loan Audits, Incorporation Services, LLC's, Partnership & Branch Office Agreements, Business and Real Estate Litigation/Arbitration, Greater Phoenix Real Estate Zoning, Greater Phoenix Eminent Domain, Broker Audits, DRE licensing and discipline hearings, Contracts, Internet and eBusiness Issues.
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This is an advertisement and communication pursuant to State Bar Rules. All Legal Services Offered to California and Arizona Residents Only.
The Law Offices of Steven C. Vondran is helping loan modification clients identify predatory brokers and foreclosure consultants who are violating the California Foreclosure Consultant Law and otherwise ripping off, cheating, scamming and deceiving California and Arizona homeowners facing foreclosure.
CONTACT US FOR A FREE CONSULTATION AND DISCUSSION ABOUT TAKING YOUR CASE ON CONTINGENCY
(877) 276-5084
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We are licensed to Practice Law in California and Arizona
| California Clients
Address: 620 Newport Center Drive, Suite 1100, Newport Beach, Ca. 92660
Phone: (877) 276-5084
Fax: (949) 209-0358
Email: steve@vondranlaw.com
Arizona Clients
Address: 2415 E. Camelback Road, Suite 700, Phoenix, Arizona 85016
Phone: (877) 276-5084
Fax: (602) 358-8013
Email: steve@vondranlaw.com
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Copyright 2009 Law Offices of Steven C. Vondran, P.C. All Rights Reserved. This is an advertisement and communication pursuant to state bar rules. Privacy Policy
Notice/Disclaimer /Contact Information: The preceeding information is general information only and not intended to serve as legal advice or a substitute for legal advice. For specific legal questions please contact a qualified attorney licensed in your state to assist you. There are no warranites or representations made that the following information is accurate, complete or up to date. In addition, any emails sent to us are not confidential and do not create an attorney client relationship. Please use your discretion before sending confidential information. The Law Offices of Steven C. Vondran is operated by Attorney Steve Vondran. Mr. Vondran is licensed to practice law in the States of Arizona and California and only seeks to solicit and serve Clients in these states. This is an advertisement and communication pursuant to state bar rules. There are no guarantees a loan audit will reveal any legal errors of compliance violations. There are likewise no guarantees any lender or loan servicer will modifiy any loan. Each loan, property, borrower, investor and servicer are different. In addition, there are no representations made that Mr. Vondran will accept any litigation case following a loan audit and/or a demand letter to the lender.
For more information about Mr. Vondran's law firm please visit www.VondranLaw.com the Attorney Loan Audit program can be reviewed at www.AttorneyMods.com If you are a California Real Estate Broker looking for a DRE Approved Advance Fee Agreeement please visit www.AdvanceFeeContract.com We have over 20 approved DRE companies as of this writing and have several advance fee agreement options available including an advance fee agreement that allows for outsourced Attorney Loan Audits and/or a letter to the Lender. We also have spanish advance fee agreements available.
If you are a homeowner and are looking for an attorney or law firm to handle your loan modification request, please visit www.loanmodsolutions,net Fill out the form and a representative of our firm will contact you promptly to discuss your situation. We also have loan modification information available at www.AttorneyLoanAudit.com
For Brokers interested in loan modification seminars, please visit www.loanmodseminar.com . The next seminar is scheduled for March 20th, 2009 in Long Beach, California. There is also another event scheduled in San Jose, California for March 27th, 2009.
Homeowners who believe they may have been a victim of loan modification fraud should visit www.ModScams.com or www.LoanModificationScams.net to learn more about what you can do to fight foreclosure rescue scams.
Our Offices: California: 620 Newport Center Drive, Suite 1100, Newport Beach, CA 92660
Arizona: 2415 E. Camelback Road, Suite 700, Phoenix, AZ 85016
Phone: (877) 276-5084 Email: Steve@VondranLaw.com
This is an advertisement and communication pursuant to state bar rules.
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