Did Attorneys “TURN BAD” in 2009? What… Is There Something in the Water?

According to the August issue of the California Bar Journal, as of late July 2009, the California Bar Association is officially investigating 391 complaints related to loan modifications against 140 attorneys, versus just nine investigations related to loan modifications in 2008. A shocking increase to those at the Bar, certainly, and unquestionably cause for concern, if not alarm.

The obvious question is: What’s going on here? Are lawyers en masse, faced with difficult economic times, increasingly shunning legal ethics and turning to lives of crime? It would seem unlikely, although perhaps to some, not inconceivable.

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What’s interesting is that both the California Department of Real Estate and Consumer Affairs Division of the Attorney General’s Office have also reported dramatic increases in the number of complaints related to loan modifications received in 2009 as compared with prior years.

The casual observer would likely say that it’s simply proof that loan modification scams have proliferated and now have to be stopped. But in California, foreclosures have been commonplace since 2007, and many loan modification and foreclosure avoidance companies have been operating for that long. And up until October 2008, with the exception of attorneys, they’ve done so in an entirely unregulated environment. Surely there were more scams operating before regulators took notice in the latter part of 2008 than after, right?

So, why would there be such a dramatic jump in the numbers of consumers complaining in 2009? If these businesses are all scams, then they were scamming in’07 and ’08, so why didn’t large numbers of people complain to anyone in either of those years? Why did they all wait until 2009 to let the various regulatory agencies know that they’ve been victimized?

The California Bar doesn’t know. What it does know is that it has received thousands of written complaints from consumers, between 900 – 1100 a month, since the beginning of this year, but most of these letters have yet to be read.

The complaint department at the California Bar is in Los Angeles really might be better described as a desk. Unlike at other regulatory oversight entities, when a complaint comes in to the California Bar, it must be read by an actual attorney who is charged with determining whether the complaint is against an individual lawyer or a firm (the Bar only acts on complaints lodged against individual attorneys, not law firms), whether there is an ethical violation involved, ita in, ita in, ita in.

It’s hard to imagine a circumstance in which reading a letter would take more time, and when you stop to consider that in 2008 there were a total of just 9 complaints received by the Bar, it’s understandable that the Bar’s complaint desk is far from being staffed to read 900 complaints, let alone 900 every month. When you factor in the tendency of distressed homeowners to take some time telling their story before getting to the point, it would seem possible that at 48 years old, I may not live to see the last of the 2009 complaint letters get read by lawyers at the California Bar Association.

Still, the California Bar must be feeling the political pressure to do something about the situation, even if it can’t be sure exactly what that situation truly is. So, in addition to asking more lawyers to volunteer for letter reading duty, the Bar has also thrown its considerable support behind the two bills proposed in the California legislature, SB 94 and AB 764, both of which would prohibit attorneys… any and all attorneys… from charging a retainer when agreeing to represent a client seeking a loan modification. And further, today’s attorneys are “supposed” to give clients refunds when they are unable to obtain a loan modification, as if the lender’s or servicer’s refusal to grant a modification represents a failure of the given attorney’s abilities.

It’s a strange sort of logic, in my view. If the outcome is certain, why would you hire an attorney in the first place? I don’t know about everyone else, but I never hire a lawyer when the outcome is a certainty. I only pay legal fees when the outcome in UNCERTAIN. If it’s a sure thing, I’ll handle it myself and save the dough.

Regardless, the message is abundantly clear: Large numbers of attorneys are apparently scamming distressed homeowners out of their last three grand… so the State of California has to pass a law that puts a stop to it. Or, in shorter terms: Lawyers as a whole can’t be trusted, so the state legislature had to step in to protect consumers from their despicable instincts and behavior. Yikes! Bands of scary and evil lawyers marauding about the state, seeking out those about to endure the horrors of losing a home to foreclosure; conning them out of $3,000 and delivering nothing in return. Like I said… yikes!

It’s hard to imagine that if a bill was going to send a message that physicians could not be trusted, that the AMA (American Medical Association) would support it under any circumstances, but we’re talking loan modifications here, and few things in our society have been more maligned by the media, misrepresented by our government, and utterly mangled by our financial institutions.

So, the question remains: What’s happening with the legal profession? Is it possible that in 2009, many of our nation’s lawyers turned to the dark side? The skeptic might respond by saying that lawyers have always been “crooks,” or something along those lines, but we’re not here to tell crooked lawyer jokes, and it would seem unquestionable that the vast majority of attorneys in this country are not out to flagrantly commit crimes and be disbarred as a result.

To understand what’s happening here, you really have to take a step back and examine a much larger issue. Ask yourself the question: What is it that changed late in 2008 and into 2009?

Well, millions of Americans started losing their homes, and not just the people that bought something they perhaps shouldn’t have bought, but people… regular people whose only crime was to have bought a home at the wrong moment in time under the assumption that, although home prices might not always go up, they surely couldn’t be cut in half in the next 18 months. In addition, millions of Americans watched while their 401(k) retirement nest eggs, which took decades to grow, have been decimated inside of a single year. And today, with roughly 39% of foreclosures now the result of unemployment, millions of Americans are struggling to earn any living at all.

In 2009, not only did all of that happen… and more, but more importantly, in 2009 we all started to realize that our way of life… the one we’ve come to know over the last thirty years, would not be coming back anytime soon. It’s a thought that terrifies us to this day, if we allow ourselves to give it sufficient thought.

Give some consideration to what that’s been like for people… millions of people. People in their 50s and 60s… people who have lived by the rules all of their lives and done just fine, thank you very much. But all of a sudden, not only have they fallen on hard times, but at the same time, they’ve been effectively ostracized by our society… branded as people who have brought their pain upon themselves. “Irresponsible homeowners.” The phrase itself should sound foreign to your ears. I don’t remember my parents telling me of “irresponsible homeowners” as they were teaching me about the world. Being a homeowner was synonymous being responsible, was it not?

Not in 2009 it wasn’t. So, as if losing one’s home wasn’t enough of a private shame all by itself, millions of Americans have had to suffer the additional shame of being perceived as being deserving of their fates. And so they’ve suffered alone and in silence.

It’s a horrific way to suffer such a traumatic and life changing event. .. alone, and in silence. People suffered through recessions from the Great Depression to the dot-com crash, but they did so together. This time has been, and continues to be different. It’s as if the music stopped and millions of Americans were denied chairs. It sucks to be the one who can’t find a chair when the music stops.

I pray each day that this aspect of our economic collapse will end soon for it must be at the fringe of unbearable for so many people… and causes untold harm to so many children. Just consider that as human beings we can endure almost anything together. Alone… in solitary confinement, the bravest among us go mad.

Then in 2009 we elected a President who promised change and told us we could… no, we should have hope.

Barack Obama was not just a presidential candidate who won an election. He was a “Washington outsider” who would do things differently… who could be trusted to place the interests of the American people ahead of all else. He was someone who would be transparent in whatever he did. He would be honest to a fault; at least to the extent that such a thing is possible for the President of the United States.

Barack Obama’s victory over John McCain wasn’t just one candidate besting another by eight or nine percentage points… it was a global victory of the common man, youth coming in to show age how things would be from now on… evidence that all things were possible… a promise of a new and better future. The night of the election people celebrated in 70 countries around the world.

Of course, Barack Obama is just a man. And, as Peter Senge, Director of the Center for Organizational Learning at MIT observed almost two decades ago, “structure influences behavior”. So, whatever your politics, whether you believed in Barack Obama or not, can any man really hope to have influence over a bureaucracy the size of the United States government? When structure meets even the best of intentions, it’s structure, far more often than not, wins out.

Barack Obama’s much anticipated housing rescue plan, announced during a speech the new president delivered with characteristic aplomb on February 20th of this year, told Americans that all would soon be okay once again. He had made sure of that. But he hadn’t.

Need a loan modification? Not a problem. Just pick up the phone, call a toll-free number and you’ll be on your way to a better tomorrow. And people believed what he said. Because he had said it. They didn’t tell anyone that night, but millions went to bed that night relieved for the first time in a long time. Relief that was to be short lived.

And still, as few received the promised relief, few were heard complaining. After all, to whom could they complain without the risk of humiliation or worse, condemnation by peers for supposed irresponsible behavior?

So, they continued to suffer in silence and hold onto hope. Until they felt that they had to try something… anything, before giving up. Some hired a firm, or called their lenders directly… and they got their loan modified and are living in their homes today. Many others tried to deal with their bank directly and they got lied to and lost their homes to foreclosure. And some others hired private sector firms that promised help, but got nothing but a foreclosure notice in the mail for their troubles.

So, who was at fault? Who screwed whom? What went wrong? Did the private sector firm cheat someone, or did a servicer fail to perform under their agreement with the United States government to modify loans? We now know that the Obama plan has failed thus far. There’s no question about that at this point, and the Obama administration is none to happy about it.

On an unrelated note… workplace suicides are up by almost 30% this year over last, but I’m sure it has nothing to do with anything else… probably just a fluke.

Under the TARP agreement, the lenders and servicers are required to use a “net present value” formula to compare the cost of a loan modification to the cost of not modifying the loan and presumably foreclosing on the property. If the cost of modification is less, the servicer is supposed to modify the loan.

According to the TARP agreement, that “net present value” formula, referred to as the “NPV,” is to be “transparent and disclosed”. It never is. Never. The banks say it’s “proprietary”. And yet Treasury has done nothing to enforce the requirement, which I’m told is a “violation” of administrative law”. Why not? Why not indeed.

I received the above information from a Washington D.C. lobbying group that told me that they didn’t want to raise the issue because they didn’t want to anger the U.S. Treasury Department, but that I could raise the issue if I felt it worthy of being raised.

They didn’t want to anger the U.S. Treasury Department by asking them why they weren’t enforcing the law, as established by the Executive Branch of the United States Government… the President of the United States. They didn’t want to anger the U.S. Treasury Department by asking them why they weren’t enforcing the law, as established by the Executive Branch of the United States Government… the President of the United States.

And that’s all I’m going to say about that.

Some at the California Bar Association and in state and federal government say that law firms took money from homeowners and failed to even try to obtain a loan modification for their clients.

These same people claim that homeowners don’t need help to get a loan modification, so therefore private sector firms are unnecessary. “It’s easy,” I’ve been told, but admittedly only by those that haven’t tried it. But let’s just say for the moment that “they” are right. It’s easy… you just send the paperwork in and wait to see whether you qualify for the loan modification or not.

If that’s the case, why wouldn’t a law firm not take the easy step of trying to get a client a loan modification after accepting a fee of several thousand dollars? Why wouldn’t they just fill out the paperwork and send it in? I mean, like right away. Because they want to have their clients calling in every week to inquire about the status of the loan modification? Because they like answering the phone and making up excuses? When all they’d have to do to stop the problem is fill out some forms and mail them in?

So… let me just make sure I understand what’s being said here:

1. An attorney who is looking to scam homeowners out of the most money possible, opened shop, spent money on personnel, advertising, furniture, phone systems and more…

2. They brought in clients, accepted upfront fees, and then chose not to simply mail in paperwork to the lenders and servicers, knowing that the result would be unhappy clients calling for updates…

3. Even though the longer they’re able to engage in this scam the more money they would make… and the more clients that receive modifications the less client service

4. These lawyers, if what is being alleged is anywhere close to true… if they are in fact “scammers”… they’re the most irrational and idiotic group of morons ever to have walked the face of this planet.

If “we” can’t all see by this point what’s going on here, if we can’t see that this sh#t makes no sense whatsoever, then “we” have lost our ability for cognitive thought. And it’s not funny. It’s f#@king ridiculous, is what it is. And I’m Goddamn tired of it. And don’t write me letters about my language; I’m in no mood.

If I’m at risk of losing my home, I want to pay someone to help me. Period. Why? None of your Goddamn business. I want a lawyer and I want a mortgage expert… and anyone else who might lend a hand, for that matter. And I want to pay them… up front. Because I know that by doing so they’re more likely to help more than if I don’t pay them.

As of the latest reports, published by First American Core Logic, in California alone, there is $2.4 TRILLION in mortgage debt, and 42% of that is now underwater. The #1 factor in foreclosures is negative equity.
 The #2 factor is money in the home, like 0% down isn’t a positive thing. Real unemployment is over 16%. Equity evaporating faster than lighter fluid on a linoleum floor. Don’t think it’s going to affect you? Well, get ready to lift your feet because the water level is rising and rising fast.

Oh yeah, we’re on the way back, baby. Things are really looking up.

A perfect time to demonize and/or otherwise reduce the number of legitimate options through which homeowners can turn to for help obtaining a loan modification or otherwise avoiding foreclosure, wouldn’t you say?

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Yep, I thought so too.

(Go ahead, click that last link…)


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