The FTC Needs a More Reasoned Approach to Stop Loan Mod Scams

The Federal Trade Commission is in final weeks of its process to create a rule intended to regulate how law firms and other licensed professionals must operate as related to helping homeowners obtain loan modifications.

Now, I’ve explained to the FTC attorneys involved in this process, and to several hundred banking lawyers at the American Bar Association’s Consumer Financial Services Conference, at which I was a speaker in January, along side Tom Pahl of the FTC, that the answer is not to reduce the number of legitimate options homeowners have to get help getting their loans modified.

I’ve also explained that the whole “everyone’s a scammer” thing is wearing pretty thin for me.  And I’ve asked very nicely and on numerous occasions, whether someone would kindly produce something that resembles actual data on this claim.  Consider the following:

1. The crisis is now in its third year, and we’ve lost roughly seven million homes to foreclosure to-date.

2. That means there have been a whole heck of a lot of homeowners in this country that have tried to get their loans modified; I’d think it safe to say “millions,” or certainly “hundreds of thousands”.

3. There have also been hundreds, if not thousands of lawyers and other mortgage professionals that have offered to help homeowners negotiate with their lenders and servicers in order to help them get their loans modified, and I think it’s safe to say “thousands,” or at least, “many hundreds”.

So… how many “scammed” homeowners and how many “scammers” have been identified by state or federal authorities thus far? And how many of the scammers have been lawyers, as opposed to mortgage brokers or other professionals?  Anyone?  Anyone?

Please understand that it’s not that I care about what the exact number is, frankly I would readily agree that one scammed homeowner is one too many.  But, what I’m trying to point out that the number in either category, scammed or scammer, should certainly be a big number… certainly high three or perhaps four digits in the case of scammers, and five or six digits when it comes to the scammed.

In other words, if it is true that “everyone who charges a fee to help a homeowner get his or her loan modified is a scammer,” then with millions trying to get their loans modified, and thousands out there offering to help them for a fee… well, then with state and federal governments out in force to stop the supposed abomination, there have to be many hundreds or thousands of scammers and tens, if not hundreds of thousands scammed.

But there just aren’t those kinds of numbers being reported anywhere.  And in the case of lawyers as scammers, I don’t think you could point to a number over 100 even if you were to scour the Bar Associations in all 50 states.  Certainly the number of disciplinary actions taken against attorneys and related to loan modification fraud would not hit that number.

Here’s a January 2010 quote from a California newspaper writing about the prevalence of lawyers scamming homeowners at risk of foreclosure:

As of mid-January, the State Bar had resignations from 13 lawyers, and three trials were pending at the State Bar Court, Layton said. Settlements have been reached with lawyers in five cases to accept discipline, he said.

Now, not only does California have roughly 206,000 lawyers and 35 million residents, but as states go, you’d have to think California is one of those hardest hit by the foreclosure crisis.  Why aren’t the numbers bigger?  And the thing is, no one, including the FTC can produce any larger numbers either.

Here’s paragraph one from the FTC’s own Press Release, which was published on September 9, 2009:

The Federal Trade Commission today announced two new law enforcement actions in a continuing crackdown on mortgage foreclosure rescue and loan modification scams, bringing to 22 the number of these cases the Commission has filed since the housing crisis began.

Twenty-two, huh?  On a national basis… 22.

I remember hearing Illinois Attorney General Lisa Madigan at the podium just over one year ago, last April 6, 2009 as a matter of fact, saying that she had shut down TWO fraudulent loan modification operations so far that year.  And I remember thinking: Two?  In the State of Illinois?  Is she talking about the “Illinois” with Chicago in it?  And she’s boasting of two loan mod scams having been shut down so far that year?  Correct me if I’m wrong, but aren’t there more than two ex-Illinois governors in prison in Illinois?  Maybe not… it’s hard to keep track anymore.

I don’t mean to be funny, my point is the same.  The numbers have to be bigger.  I mean, we are talking about the FTC adopting a national rule that will, as I’ll show in a moment, essentially eliminate legitimate attorneys and law firms from being in the business of helping homeowners obtain loan modifications.  If that’s what we’re considering, shouldn’t we be looking at numbers that say: “6,500 attorneys across the country charged with loan modification fraud.”  Along with, perhaps: “US Attorney General estimates that there have been 1.5 million homeowners scammed by unscrupulous con artists offering help with loan modifications.”

Certainly not… 22… 13… 11… 71… or even 245 or 500… none of those types of numbers justify making it impossible for the 14 million homeowners that are forecasted to be at risk of foreclosure over the next three years to hire for a fee, a legitimate and ethical lawyer to help persuade their lender or servicer to modify their loan.  It would be akin to closing the beaches along the entire eastern seaboard because, over the course of a year, three people reported being attacked by sharks.

Here’s why I say this: There have been quite a few physicians accused of wrong doing over the years in this country.  Yes, it’s true.  From fraud to just about everything else you can think of, doctors are not all exemplary members of their profession.  I thought it might be interesting to look up exactly how many doctors commit crimes or lesser offenses in this country, and sure enough we do keep track of that sort of thing.

The following two paragraphs were excerpted from the Public Citizen’s Health Resource Group Website:

In 1989, Public Citizen’s Health Research Group began requesting information on all disciplinary actions that state medical boards and federal agencies (the U.S. Department of Health and Human Services, the Drug Enforcement Administration, and the Food and Drug Administration) had taken against both doctors of medicine (MDs) and osteopathy (DOs).

The database includes only final disciplinary orders and does not include information on charges brought against physicians that do not result in disciplinary orders. However, the database does include any modifications (including reversals) received by May 31, 2000.

The database included 31,110 disciplinary entries against 20,125 physicians taken between January 1, 1990 and December 31, 1999.

Holy Hippocratic Oath, Batman!  Does that say 20,125 doctors?  Why, yes it does.  That seems like a pretty big number, even if it does cover a ten-year period.  How come I can’t recall the government ever considering a federal rule or law preventing physicians from being paid unless their patients recover?

Oh, is that an inappropriate analogy?  Okay, fine… it isn’t an appropriate analogy… we’re talking about lawyers and loan modifications, not doctors and a patient’s health.  Duh.  But, the problem is… it’s not that inappropriate an analogy, now is it?  It’s far from perfect, but it’s not night and day, right?

So, I’ve dedicated my time to this issue for a year.  I’ve walked through the point that lawyers can’t wait to be paid at the end of a loan modification as a result of them not being able to sue their clients in order to get paid when their clients don’t pay, and I’ve reminded everyone on more than one occasion that it’s the banks that are failing to modify loans, not the lawyers.  I’ve pointed out that, were it up to the law firm involved, loan modifications would be done in 72 hours every single time, because they’re almost always paid a flat fee, and so that’s how they’d make the most money.

Yes, I’ve walked through this steaming pile of freshness so many times and in so many ways, that I’ve come to consider the idea that there’s something in the water that’s causing otherwise intelligent people to lose their capacity for critical thinking.  It’s like, regardless of how logical or sensible I try to be in the statements I make, all I continue to hear in response is:

“Oh yeah… well scam scam, scam scam scam, scam, scam, scammer scam.”

And after making a statement almost that nonsensical, they walk away thinking to themselves, “Well, I sure showed him.”

It’s like having a debate with a severely autistic four year-old, and I most sincerely apologize to all severely autistic four year-olds everywhere; Lord knows I mean them no disrespect.

With all of the tens of thousands of words I’ve written on this topic, and with all the great minds supposedly focused on this problem, the best idea… and moreover, the ONLY idea… that the top thought leaders in this country have been able to come up with is… there’s no drum roll, so just make that sound with your tongue…

“No one can be paid for helping a homeowner obtain a loan modification until the lender or mortgage servicer has modified the loan.”

Why it’s positively brilliant!  Now there’s an idea that is clearly the product of some very in-depth analysis, would you agree?  How do they come up with these gems, and how long do you suppose it took for this idea to come to the table?  An hour?  No, probably not an entire hour, truth be told.

It’s like a damn broken record.  Listen, if there’s a banking industry lobbyist out there that’s reading this, laughing hysterically because he or she knows that regardless of what I say or do, I’m to be squashed like a bug at the end of all this… then good God, have the decency to kill me now, would you please, because this is up-over-the-hill-insane.  I’m thinking about taking a band saw to my toes, just to make the world make sense again.

Okay, so lawyers can’t get paid until a bank or servicer agrees to modify the loan… hmmm… well, it sounds both illogical and unprecedented on the surface, which is just about par for this course.  Let’s take a look-see if we can’t come up with ten reasons lickity-split why that’s not only a stupid idea, in terms of its absolute lack of potential for effectiveness, but why it’s also certain to increase the numbers of homeowners who get scammed in the future.  This is likely my last time at bat on this issue, so here goes… I’m going to swing for the fences:

1. Let’s begin at the beginning: People need help getting their loans modified.

I know that throughout 2009, everyone in government, from President Obama to the local dogcatcher, has taken the position that homeowners who need to get their loans modified need only call their lenders or servicers directly; they do not need an attorney.

In truth, it should be abundantly clear to anyone with more than a cursory knowledge of what applying for a loan modification is like in the real world, that the question of whether you need to hire anyone to help with your loan modification is not worth asking… or answering.

The simple and unassailable fact is that many people, for a myriad of reasons and after attempting to get their loan modified on their own, do in fact decide that that they do need to hire a lawyer to help them get their loan modified.  Were this not the case, we wouldn’t now be discussing the issue of stopping the ubiquitous scammers preying on homeowners at risk of foreclosure from sea to shining sea.  So, whether they need one or not, really isn’t the point.

Obviously, many thousands think they do, and I don’t think the federal government, or anyone else for that matter, should be deciding for me whether I need to hire an attorney to assist in whatever my cause.

Moreover, it is a homeowner’s right to decide whether he or she wants to hire an attorney to represent them when attempting to get their loan modified, or for any other reason for that matter.  The point, it’s worth remembering, is not whether the GOVERNMENT thinks the homeowner needs a lawyer… the point is whether the HOMEOWNER thinks the homeowner needs a lawyer.  If and when homeowners do think they need one, they should not be prevented from hiring one.

By the way, historically the States have always regulated the practice of law in this country.  Precisely when did Washington bureaucrats obtain the legislative or regulatory power that would allow them to decide whether a homeowner in this country can hire a lawyer with his or her own money to help negotiate with his or her bank over the modification of a legally binding contract that could save the family home from foreclosure?

I know… I know, the bureaucrats say that, in adopting a rule that prevents an attorney from being paid until a loan is modified by the lender or servicer, they are not preventing a homeowner from hiring a lawyer.  But, truth be told, that’s precisely what will be doing by adopting the proposed rule as written.  They’re just accomplishing that end result, making it impossible to hire a lawyer, by creating an environment in which there won’t be any lawyers willing to do the job under such onerous terms.

So, I suppose that in order to save the village it became necessary to destroy it?  Where have I heard that line before?

Look, it’s 2010 and the facts about attempting to obtain a loan modification are now well documented.  It’s not easy, and there are legal ramifications at every turn, the potential for tax consequences, liability for deficiency judgments, questions revolving around the issue of bankruptcy… and pros and cons associated with every option a homeowner has when at risk of foreclosure.  It’s clear that few Americans were capable of understanding the terms of their mortgages initially, why now would we assume that these same individuals possess the knowledge and skills to negotiate the modifications of such legally binding loan contracts?

2. What is more central to American values than a stable family home?

When the family home is threatened the anxiety and stress that surrounds the potential for losing that home is inestimable.  In such a state of financial duress and emotional upheaval, homeowners commonly report that they have trouble sleeping, eating, they find themselves unable to think clearly, and are more irritable.

It is precisely at times such as these that a lawyer can offer the most assistance: hiring a lawyer has always meant finding refuge from the storm. Yet, the effect of the FTC’s proposed rule as it stands, would be to deprive American families from the guidance and comfort that being represented by legal counsel provides.

To deny millions of American homeowners the assistance they so desperately need, and in this time of such enormous stress, solely based on the perception that some percentage of lawyers have acted improperly, is lunacy… and the impact of such a rule’s adoption would most assuredly be tragic.

3. No statistical basis for the Rule… and by now, why not?

There is no statistical basis for the new rule, no hard data on how many lawyers are “scammers,” and even less on the relative efficacy of being represented by legal counsel as opposed to handling it alone.

In this country, we measure the growth or erosion of the polar ice caps in centimeters, but as to anything having to do with hiring an attorney to help obtain a loan modification and it’s… I’m sorry, no… we couldn’t possibly… we’re far too busy measuring every single other thing that moves on this planet, and we simply cannot be expected to measure one more thing.

How’s this for a pivotal question:

What is the relative efficacy of being represented by an attorney when applying for a loan modification… as in… are you better off with a lawyer representing you when attempting to get your loan modified?

There’s no need to guess at this question, because it should be an easy one to answer.  When an attorney, or any third party, represents a homeowner applying for a loan modification, the lender or servicer must receive a signed authorization that allows the financial institution to discuss matters with that attorney.  So, the lenders and servicers know precisely how many and specifically which homeowners hired lawyers and/or other third parties to help them, and which didn’t.

So, why is it that no one seems to know how many homeowners hired lawyers to help them with their loan modifications in 2008 or 2009?  It would seem that before the FTC steps in to make a rule that could have the (perhaps) unintended consequence of removing private practice attorneys from the loan modification landscape, shouldn’t we all want to know how many are helping homeowners now?

And, I think even more importantly, the central question of how effective is it to hire a lawyer, relative to not hiring one, is a question whose answer could save American taxpayers tens of billions of dollars, if not more?

Here’s why…

The latest data published by Treasury as of March 31, 2010, in the HAMP Report, shows that 50% of loan modifications re-default after one year, BUT that same report also said in the footnote to the statistics on re-default that when modifications result in homeowners saving 20% or more per month, THE PERCENTAGE OF RE-DEFAULTS DROPS IN HALF.

Making Home Affordable was slated to be roughly a $380 billion federal program.  And if 50% of loan modifications re-default in a year, we are clearly spending a great deal of money unnecessarily, but not if the modified payment terms result in a monthly savings to the homeowner in excess of 20%.

So, the obvious question is… does hiring a lawyer to help you get your loan modified lead to a homeowner receiving a modification that saves him or her at least 20% a month, more often than not putting a lawyer on the job.  Not only could the answer to this question easily save taxpayers tens of billions in failed loan modifications, but by virtue of a re-default rate reduced by half, the savings to our society in terms of foreclosures prevented would be perhaps incalculable, but unquestionably astronomical.

Luckily, this should not be a difficult question to answer in the least, in fact the Treasury department must have much of the data we need already, otherwise how would they know that the re-default rate cuts in half when monthly savings are 20% or more?  All we have to do is tell the banks that we need to know the following:

Of homeowners granted loan modifications with monthly savings of 20% or more, how many or what percentage were represented by attorneys, or other third parties?
If the government is right in their position that homeowners don’t need to hire attorneys to obtain loan modifications, then the data will show it.  If I’m right, however, and having a lawyer represent you does in fact significantly increase your chances of getting your loan modified, such that you save 20% or more each month, then the data will establish that too, right?

Why can’t we know the answer to this one simple question, when the answer has the potential to save untold billions in taxpayer dollars?  Because I will state here and now… and unequivocally… that after communicating on this very topic with many, many thousands of homeowners personally over the last 18 months, I will put forth a forecast based on that and other research:

Of homeowners who have received modifications that saved them 20% a month or more, the percentage that hired an attorney or other third party, will be shown to be above 80%… and I wouldn’t hesitate to put it above 90%.  And one thing I’d bet my good looks on… the percentage that hired help is not going to come in anywhere near 50/50, let me assure you of that.

Banks know the answer to this pivotal question; they know who is represented by a lawyer or other third party because they are meticulous in demanding that they receive a signed authorization to speak with someone other than the homeowner.  And Treasury must know how many loan modifications resulted in monthly savings of 20% or more, or how could they know that reaching that threshold of monthly savings results in a re-default rate reduced by half?  This couldn’t possibly even be hard.   Well, all right… happy days are right around the corner…
Or, would anyone care to wager on how this is going to go?  How about if we all write letters to our elected representatives demanding to know the answer to this question, because the answer has the very definite potential to save billions in unnecessary taxpayer funded expenditures, associated with the saving of homes one year, only to have created next year’s foreclosures?

I can’t be the only person in America to have considered this question, can I?  Wouldn’t the answer either way be quite important, and settle the issue once and for all?  Then why hasn’t it been asked and answered, three years into the crisis?

I’m afraid I may know the answer.  If I’m right in saying that I’m not the first to think of looking at such data related to the amount of monthly savings, bumped up against whether a homeowner is represented by an attorney, then I’m also right in my forecast that a very high percentage of those who’ve saved 20%+ were in fact represented by attorneys.

Do you see why that would have to be the case?  Because if Treasury looked at this issue before and found the opposite to be true, or even if they found it to be 50/50 and therefore saw no impact either way, then they’d have rushed to use such a finding to reinforce their intended message to homeowners, which continues to be: “Don’t hire a lawyer and besides they’re all scammers if the charge a fee.”

Oh, wait a second here… I know why we can’t ask the banks to tell us this information toot sweet.  Actually… check that… no I don’t.

4. Lawyers can’t operate without pay for 8-12 months, with no assurance of ever being paid.

Let’s get one thing straight: If a lawyer waits until the loan gets modified to collect his or her fee… he or she won’t get paid… a whole lot of the time… most of the time even.  Law firms who currently extend some portion of their billing until after the modification, report that if a final payment exceeds $500, it is essentially never received.

The process of obtaining a loan modification is never any fun.  You may ultimately get your loan modified, but there will be no celebrating regardless.  And, by definition the person who has received a loan modification is someone who has endured a financial hardship.  Their credit score is lower than the morals rating of a Goldman bond trader, and with their loan already modified, it’s not like they are overwhelmed with incentive to pay a bill for something they’ve already received.

Take the homeowner to Small Claims Court?  No, no, no, and no.  As a real estate broker… perhaps.  But as a lawyer, not so much.

First of all, it’s common knowledge and accepted fact lawyers who sue clients are on a bullet train to a Bar complaint.  And not only can it cost $5,000 and up to defend a Bar complaint, which places an attorney at risk of losing his or her license, but when you fill out your E&O (“Errors & Omissions”) insurance coverage form next year and  are asked: “How many times have you filed suit against one of your clients,” well, that number better be almost never, or you’re going to find yourself practicing law without a net.

Some still say they believe that there will be some attorneys willing to work for an indeterminable number of months without any compensation and the risk of nonpayment once the loan modification has been successfully obtained.  Assuming there are some, however, the number is certain to be relatively small, and in addition, at the very least, the new rule would lead to lawyers turning down the more difficult cases, as it would create an obvious incentive to take on only the homeowners whose case appears an easy win.

5. Lawyers don’t modify loans, only lenders modify loans, and only at their sole discretion.

This one’s just too stupid for me to spend any more time on.  Have you seen the data on banks and servicers and their obvious dedication to loan modifications?  You might as well tell the attorney that he or she can send his or her bill right after Congress addresses campaign finance reform.

What possible justification could there be for an attorney to wait for the BANK to decide to do something in order to get paid for all the hours he or she is working over an indeterminable number of months?  Try that with your tax attorney.  I’m sorry, but the law says that I don’t have to pay you until the IRS agrees that my refund should have been higher.  Keep working on it though… I’m sure you’ll get it done eventually.  I’ve got all the confidence in the world in you.  Chin up…

6. A Rule that provides an incentive not to try it yourself…

By the way, even if we assume that there will be some number of attorneys that will be willing to wait as long as a year before being paid, keeping in mind that according to all of the attorneys that I have spoken with find it inconceivable that any would offer such services… the interesting question might be: What else can I drop off at my lawyer’s office under those same terms?

Why would ANYONE ever attempt to modify a mortgage on his or her own, when the option to drop off the responsibility at an attorney’s office means paying nothing until… and only if… the loan gets modified?  Were the FTC’s proposed rule adopted as is, rare would be the homeowner who followed the government’s advice that he or she should call the bank directly when seeking a loan modification.

7. A Rule that will increase the likelihood that more people get scammed.

Think I’m exaggerating?  Think again, because I’m not in the least, and this is my most important point, in my mind, because this is what will affect homeowners in the most negative of ways.

Here’s the situation: Rules and laws only really apply to legitimate attorneys that are actually trying to help homeowners every day.  The scammers are already breaking all the rules and laws… hence the appropriateness of the moniker, “scammers”.

Announcing a new rule isn’t likely to persuade a single scammer to stop his or her scamming.  What it will do, however, is persuade thousands of legitimate lawyers to stop offering to help homeowners with loan modifications.

Laws are enacted in this country to punish criminal behavior, not to stop such behavior.  We have laws, but we also still have crime.  If this new rule preventing law firms from being compensated until a lender or servicer grants a loan modification is adopted by the FTC, all we will accomplish is the removal of the legitimate and ethical attorneys from the marketplace.

To understand why, you first have to understand the demand side of the equation.  Homeowners, no matter what the government says, are going try just about everything to save their homes before giving up and losing them to foreclosure, and that includes writing someone a check who says they can help.  With this rule in place, however, homeowners will be choosing only from the scammers that remained after the rule went into effect, because they’ve found some way to skirt the rule’s intent and get paid anyway.

The legitimate attorneys, however, the ones that don’t want to risk being out of compliance with the new rule’s restrictions, don’t have to, and more importantly simply can’t work without compensation will have, as they say, left the building.

Lastly, and just to make sure we all understand, the legal fees involved helping a client with a loan modification, are generally low relative to those charged to handle other legal matters… generally they fall somewhere between $2500 and $5,000, while it’s not uncommon that getting a given loan modified take between six months to a year.

The point is that, while lawyers do take contingency cases, where they agree to not only wait to receive a substantial percentage of the court’s decision, but also agree to front the costs of the suit, this situation bears no resemblance to such a case.  There are no deep pockets on this side of the fence, only a homeowner struggling to get through the worst economic years since the 1930s.

A More Reasoned Approach to the Problem

Let’s look at how we might craft a solution that balances the competing demands of the involved parties, as those in strategic planning would probably say.  Perhaps I can provide some input points that will become the building blocks of a more reasoned solution to the real and perceived problems.

A. I would think that it should go without saying that the FTC should consider deferring the conclusion of the rulemaking process until it can obtain the data from the banks about the efficacy of third party representation, particularly representation by law firms. This data should be relatively easy to collect within some reasonable period of time, and could certainly be pivotal to the program’s ultimate success or failure.

B. Under this broad strokes proposal, the FTC would require a lawyer wanting to represent clients seeking loan modification to first “register,” either with the FTC directly, or with State Bars in the states in which they are licensed to practice law. They would do so by completing a questionnaire to be signed by the firm’s managing partners under penalty of perjury.  The questionnaire would establish that the “registered” lawyers and/or firms, as sword to by the responsible parties, are in fact operating as they should be operating an ethical law practice.

These lawyers and law firms would then be listed on the State Bar Website under a designation indicating they are “Registered Law Firms/Loan Modifications”.  The message would be clear that no government agency is endorsing any firm, or offering any type of performance guarantee.  It is to say that certain homeowners may decide to hire an attorney, and those listed as registered have signed under penalty of perjury as to their operating practices, and fee structures.

In the event that there was a complaint filed with the State Bar related to a Registered attorney, the Bar could audit, inspect, check the trust account, and enforce based on the firm’s practices as outlined in the registration agreement.  The FTC would know who the legitimate lawyers that are trying to help homeowners are, where they are, and that they have signed a legal document stating that they are operating in a specific and compliant fashion.

C. The exemption that covers attorneys handling clients in litigation or bankruptcy, found in the proposed new rule, needs to be changed or removed in its entirety. This type of limited exemption will only invite the unscrupulous lawyers to file spurious lawsuits in order to get paid for helping with a loan modification.

Disciplining an attorney under such an exemption will be that much more difficult, because investigators would have to determine whether work on a loan modification that was conducted inside a bankruptcy or supposed litigation was inappropriate, and the subjective nature of such an investigation will make disciplinary action that much harder assign.

Of course, the legitimate, ethical and more highly skilled lawyers who won’t file spurious lawsuits will simply and quickly be driven away from helping loan modification clients.

D. Lawyers who represent clients seeking loan modifications are in reality trying to guide a client through a mine field in order to make a bad situation the best it can be, and application for a loan modification is but a single component of that overall picture. What is one day, a loan modification, may the next day become a short sale, bankruptcy, or litigation of one kind or another.

Registered attorneys should be allowed to accept their entire fee or a portion of their fee at their discretion and into their attorney-client trust account, where funds are withdrawn per with the terms of the fee agreement as various milestones have been reached.  This way the client will not risk losing the fee paid up front, as it will be secure until the specific work contracted for has been completed, yet at the same time, the lawyer can be paid as his or her work progresses.  If the client wants to terminate his contract with the lawyer halfway through, he can do so and receive the unused portion of his money back.

Registered attorneys will be able to complete the work required on behalf of their clients, secure in the knowledge that when progress is made, they will be paid.  This is far from a radical or even a particularly creative proposal, but rather is consistent with over one hundred years of the practice of law.

Lawyers have always accepted retainers and billed against them.  The State Bar Associations are all familiar with the body of law and established rules that govern trust account accounting.  Lawyers who abuse or otherwise ignore such rules do so at their own peril.  Trust accounting is relatively to audit, misuse can result in being disbarred or even imprisoned.

E. Lastly, the contribution being made by the private sector law firms should be measured, monitored, and reported upon just as is the case when discussing every other factor related to the Making Home Affordable and HAMP loan modification program.

As a result, Registered attorneys who are helping homeowners obtain loan modifications can become an important source of data upon which to assess the results of others, or build future program rules.  Perhaps the FTC would establish a quarterly reporting requirement for the Registered firms, that would be rolled up into Treasury’s overall performance numbers.


Okay, so I’m not a policy wonk, but I do know this: Making a rule that says that a legitimate, ethical and highly skilled attorney cannot accept any fee or compensation until a third party, in this case a bank, actually grants a loan modification will not work, not even a little bit.

The legitimate firms will drop out of the field almost immediately and the others will simply move to operating by slithering through one loophole after another.  Enforcement actions will continue to slog along at too slow a pace, mistakes will be made, and consumers will become angrier and angrier until enough pressure is placed on the states to start bringing proposals for 12-month foreclosure moratorium to the legislatures.

The banks will turn to the federal courts in an attempt to override such moratoriums, just as happened during the first several years of the recession that gripped the 1930s, and the people will fight back, just as they did then, but it’s not always such a clear cut situation, when economic policy and politics collide.

Ergo bibamus… my friends… ergo bibamus.

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