Gov. Schwarzenegger Move Will Deprive Homeowners of Legal Representation When Negotiating Loan Modifications
California Senate Bill 94, originally intended to protect distressed homeowners by preventing non-attorneys from charging upfront fees for helping homeowners obtain loan modifications, has been expanded to prevent attorneys from accepting a retainer in advance when representing a client seeking a loan modification.
According to an informed source inside the California Assembly’s Committee on Banking and Finance, the expansion of the bill to include attorneys was demanded by Governor Schwarzenegger’s administration.
Apparently, the committee was told “the (Governor’s) administration said they would not sign the bill unless it prohibited attorneys from accepting funds in advance, in addition to all others mentioned”.
The Commission on Homeowner Representation, a group of law firms that individually offer to assist homeowners obtain loan modifications opposes the bill and plans to testify at the hearing being held by the California Assembly’s Committee on Banking and Finance in Sacramento on Monday, July 6, 2009.
The language in the bill that affects attorneys charging retainers reads:
5) Prohibits persons including attorneys, until January 1, 2013, who negotiates attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other compensation paid by the borrower to do any of the following:
a) Claim, demand, charge, collect, or receive any compensation until after the licensee has fully performed each and every service the licensee contracted to perform or represented that he/she would perform.
According to the Commission’s attorney members, this provision would mean that law firms would no longer be able to offer to represent homeowners who are at risk of losing their homes to foreclosure in loan modification negotiations with banks and mortgage servicers. “California’s homeowners are the ones losing here,” says Martin Andelman, the Commission’s organizer, who is an outspoken advocate for homeowners. “There’s no precedent for this. This is just the banking lobby influencing our government once again. The banks are required by law to negotiate in their own best interest. Who represents the homeowner’s best interests?”
Advocates of the bill say that homeowners don’t need to hire an attorney to obtain a loan modification from their lender, but those familiar with the realities of negotiating with a bank over the terms of a loan modification say that’s an absurd argument. “There are lots of things I may or may not be capable of doing on my own. That has nothing to do with it. If I choose to be represented by counsel, I have that right, and this bill would deprive me of that right by making it impossible for attorneys to offer the service,” states Andelman.
Shah Peerally, an attorney practicing in the Bay Area, says he finds the bill offensive on many levels.
“As attorneys, we are already regulated. We are officers of the court. We are held to a higher standard. If an attorneys that violate the law can lose their license to practice law. I understand that there have been “scammers” out there taking advantage of distressed homeowners, and that has to be addressed, but the way to address that problem is not to leave homeowners with no legitimate source of legal assistance. The banks will take advantage of them like they did when the put people into these loans in the first place.”
Jeff Miller, an attorney with offices in Pasadena had this to say about the proposed bill:
“Every day we see people who tell us that they can’t do it on their own. They don’t have the skills or the time or the energy or the know-how. Their lenders have told them that no relief is available or their lenders lose their submittals or simply wear them down over time. The lenders’ interests in a loan modification are opposed to that of the borrower. There is absolutely a place in the loan modification, loss mitigation and foreclosure arenas for competent legal counsel.”
Jeffrey Hoffman, a bankruptcy attorney practicing in Oakland had this to say:
“Restricting payments for loan modification services is problematic per se and is an incorrect reaction to the scams and ripoffs that people are suffering from incompetent or dishonest people purporting to offer loan modifications. A far better approach would be to regulate the loan modification industry. This legislation will greatly harm the general public by removing a strong tool available to people for negotiating a good loan modification for them, because attorneys will not be assured of being paid for this service and will thus no longer be able to offer it.”
Here’s a small part of what Penny K. Jariabka, a Loss Mitigation manager who works for attorney Jeffrey Miller, had to say:
“Every lender has different unpublished guidelines which are constantly changing with new programs. How can the consumer keep up with the guidelines? We are a Law Firm and we must fight to stay current and this is our job! I recently spoke with a Countrywide representative who admitted that between the merger, new software, new programs and Bank of America changes, they don’t really know what happened to mortgage loan modification packages submitted in January, February and March. These clients need legal representation to make sure that they have rights and are not lost in the shuffle.
I am shocked that the State of California is even considering passing legislation prohibiting its citizens from receiving legal representation, for any reason. I thought it was a right of any citizen, per the Bill of Rights, to seek counsel, to hire an attorney to represent them if they felt they could not adequately represent themselves.”
And, Andelman says…
“This is yet another example of the banking lobby driving legislation that’s in the best interest of the banks, but harms homeowners by depriving them of their right to legal representation. We’ve seen the banking lobby kill bankruptcy reform in Congress, and then we’ve seen them water down the credit card reform bill as well. Now they want homeowners to come alone to the negotiations over a loan modification. The bank has attorneys, mortgage experts, and professional negotiators… but the homeowner who is often scared, emotional, and unknowledegable should come alone. I can’t believe that sounds like a good idea to anyone, and every single California homeowner should be outraged that the legislature would try to deprive them of their right to legal representation.”
We urge everyone to let members of the California legislature know that they must oppose SB 94, because homeowners need to be represented when negotiating with lenders, and it’s not fair to deprive anyone from being able to obtain legal representation if they so desire. While SB 94 doesn’t make it illegal for a homeowner to hire an attorney, it does make it illegal for an attorney to charge a retainer and that means that no attorneys will offer services related to a loan modification.
Obtaining a loan modification from a given lender can take four months and longer. Billing a client once a loan modification has been obtained is not a valid business model as there is no assurance that a homeowner would pay the bill, and no recourse should the bill not be paid. Making it illegal for a lawyer to accept a retainer when handling a loan modification for a client, would stop attorneys from offering the service, and thereby deprive California’s homeowners from their right to hire legal representation if they so desire.
The only group this provision helps is the bankers, and with the hundreds of billions of bailout dollars WE’VE GIVEN THEM, don’t you think they have enough going for them? Homeowners NEED help. Don’t deprive them of their right to counsel! If it’s not you today… how will you feel if it is one day, and there’s not a lawyer you can turn to for help… because the state passed a law saying that lawyers couldn’t charge for this service the way they do for all others?
Make your views known… send emails to the California Assembly Members below TODAY… and please pass it on… ask everyone you know to do the same… Thank you!
California Assembly Committee on Banking and Finance:
Pedro Nava, Chair (D-35) Santa Barbara
Ph. 916-319-2035
Email: assemblymember.nava@assembly.ca.gov
Roger Niello, Vice Chair (R-5) Folsom
Ph. 916-319-2005
Email: assemblymember.niello@assembly.ca.gov
Noreen Evans (D-7) Napa
Ph. 916-319-2007
Email: assemblymember.evans@assembly.ca.gov
Paul Fong (D-22) Cupertino, Santa Clara
916-319-2022
Email: assemblymember.fong@assembly.ca.gov
Felipe Fuentes (D-39) San Fernando
916-319-2039
Email: assemblymember.fuentes@assembly.ca.gov
Ted Gaines (R-4) El Dorado
916-319-2004
Email: assemblymember.gaines@assembly.ca.gov
Tony Mendoza (D-56) Norwalk, Cerritos, Los Angeles
916-319-2056
Email: assemblymember.mendoza@assembly.ca.gov
Ira Ruskin (D-21) Los Gatos, Stanford
916-319-2021
Email: assemblymember.ruskin@assembly.ca.gov
Sandre R. Swanson (D-16) Oakland, Piedmont
916-319-2016
Email: assemblymember.swanson@assembly.ca.gov
Norma J. Torres (D-61) San Bernardino
916-319-2061
Email: assemblymember.torres@assembly.ca.gov
Van Tran (R-68) Fountain Valley, Garden Grove
916-319-2068
Email: assemblymember.tran@assembly.ca.gov
Martin,
The Gov and CA politicians are simply doing a PR ploy again, and have not thought it out. Or maybe they have.
Attorneys have an "out" on this legislation. Attorneys do not do loan mods......they "litigate". The end result is that there will be more and more lawsuits filed.
The Ca government cannot legislate that attorneys cannot file lawsuits on behalf of their without money upfront. That would be a violation of the US Constitution, not allowing a person their day in court, to be confronted by their accusers.
Pat
Maybe, just maybe there is more to this legislation. Perhaps our Governer is looking out for the homeowner's best interest. Or perhaps it is pressure to create this legislation because the lender is putting pressure on the State in order to play nice regarding outstanding loans to the State or because the State may need to borrow money to close in on their budget. It just seems odd that all of a sudden after so many years that any State would do anything in the best interest of the consumer. I mean, if they were then why not look at credit cards and outlaw high interest rate, or how about looking at what banks charge for fees and outlaw those or perhaps put together real legislation that ensures that every homeowner gets a true and fair review by lenders regarding a mortgage modification. It would help if our legislature would clearly explain why they are doing what they are doing to understand it. Don't just slap a label on it touting "protection".
casi,
Where is the protectionism in this bill? It is only protecting the Servicer's and the lender. There is none for the homeowner.
The results of this bill passing would be the end of loan modification firms in the state. The firms currently doing mods do not have deep pockets. They cannot fund operations indefinitely, until the servicers grant the modifications and the homeowner is then required to pay the mod company. Anyway, the servicer will simply stall the negotiations until the mod company has to close its doors. It is simple basic economics.
If the attorneys are prevented from charging up front fees, then they will simply quit taking the homeowner as a client. They cannot afford to do legal services on a contingency basis either.
The bottom line is that this bill only serves one purpose. It is designed to stop the modification industry, and allow servicers to quiicly foreclose on homeowners.
Don't misunderstand me, I completely agree with your statement. I absolutely do not believe that anything is being done to protect the home-owner. I absolutely believe that the Lender is looking at modification default rates and deciding to take the loss (which is funded by us tax payers by the way) and find a better home-owner. The lender wins by going the foreclosure route, they gamble by taking the modification route. Some will pay and some will decide after the emotions are drained that it does not make sense to pay on a house that is upside down. I think the biggest problem is (and I would love to find this out) that none of our folks in our California legislature face financial hardships (I'm pretty sure that Arnold doesn't) so how can any of them relate to joe-six-pack home-owner and what they are going through? Heck, they can't even find a way to budget and these are the financial wizards whose lead we are supposed to follow? Their best thoughts are to close public parks and tax soda to balance a 24billion short-fall. That's a lot of soda tax.
Chalk another one up for the banking lobby. The fact that this bill can even be considered is shameful! WE NEED STICKS!
The does not prevent borrowers from having legal representation. It just prevents them from working with attorneys that want to be paid before they perform any services. What's wrong with that?
I wouldn't want some attorney's girlfriend (the receptionist) defending me in court. Would you? I paid for the attorney. If we agree that non-attorney backed firms are dangerous, then why do we not also look at the screwed up attorney model we have now. I retain your services, yet you take maybe 200-500 apps (per month!!). You never see my file and neither does a paralegal. The real scam is the attorneys making money off this without lifting a finger while the bulk of the work is being done by negotiators (with no legal background) who make about $3000 a month. I was in one office and there was some 22 year old kid "processing" 100 files and on the phone "negotiating" with the bank. It's full of @rap if some attorney tries to tell you otherwise. They couldn't handle the volume. So I for one agree with Arnold on this one--the scam is the attorneys (who btw-some of these guys are the shadiest characters with real nice criminal backgrounds). The attorneys came about as a "shield" to protect the company owners *ss. If someone who works in this business can tell me otherwise, please do. For every one attorney you can tell me that is actually working on each case, there are 50 that are not. We would let no other business anywhere get away with this.
Milkyway5,
If you are need of employment, you may want to check out your local HUD office. I'm sure there is a prominent position that awaits you.
I know some excellent lawyers but none of them are qualified to do a modification on a mortgage note.
Here is the Truth regarding loss mitigation...
Dealing with the servicing companies is the wrong approach and anyone who knows what they are doing knows this... Consumers have little idea of how the banking system works and it appears most others don't either. SB94 is well intentioned but there is a huge gap in the knowledge of the true process it is scarey. Lawyers can be good folks, I know good ones and bad ones just like I know good people in every industry and bad ones... BUT in my opinion and experience indicates that most people know little about loss mitigation practices. Negotiating with the servicing company of a note is as ridiculous a practice as sending a little league pitcher into the majors. Time to get real folks... The industry is full of lies and people who know nothing! If an attorney or anyone else claims to do loan modifications with servicing companies then they have either zero knowledge or they are scammers going after the money. You should deal directly with the investor or guarantor of the note... lender negotiated mods have a very high re-default rate... why? because these types of mods are bull-poop... plus, anyone charging upfront fees are not ethical--sorry but any legitimate real estate transaction is paid for performance, how many of these attorney backed firms actually do a consultation? But that really isn't the point, the point is everyone jumped into the mod biz because of the money and very few infact, there are only several companies in the loss mitigation space that are legitimate...in my opinion...
If you are a consumer, a law maker, anyone in local government you need to learn about the practice of loss mitigation. Sb94 shows the ignorance of the industry even though the intention is good.
Borrowers: Ask TWO important questions when talking with an attorney or loan mod company... Who do you negotiate with? If they say your servicing company like B of A, Chase, etc... RUN!!!!
Do you charge upfront fees? Yes...RUN!!!!!
The truth is most attoney backed and other loan mod companies are unable to fund--most don't truly have a back-end practice which negotiates and if they do they do what you could do yourself and that is get NOWHERE by dealing with your servicing company. Your servicing company has no interest in dealing with you because they get paid regardless if you perform on your note or not! They get paid! And most of them hope the note will cure itself...
The biggest scam is the lack of knowledge by politicians about loss mitigation practices.
Questions? just post them and I will open your eyes!