If Governor Signs AB 764, Homeowners Won’t Be Able to Hire Attorneys When Losing Homes
Assembly Bill 764 and Senate Bill 94 are two bills that passed through the legislature this past year and are now on the governor’s desk awaiting signature. The one that is signed last is the one that will become law. Both were supposedly drafted to protect consumers from fraudulent loan modification “scams,” by limiting when an attorney or real estate licensee can charge for services related to a loan modification.
In a nutshell…
Assembly Bill 764 says that neither an attorney nor a real estate broker can be paid until a loan modification has been successfully obtained from the homeowner’s lender or servicer. If the bank says no, in other words, the lawyer or real estate broker doesn’t get paid for their work.
Now, if you’ve ever tried to get a loan modification, known anyone who tried to get a loan modification, or if you’ve been following what’s been happening related to loan modifications in the press then you know how long and difficult a process it is. The banks and servicers simply aren’t modifying mortgages as they said they would. In fact, if you saw the “report cards” published by the Obama Administration in early August, then you know that Bank of America, for example, had only modified 4% of its eligible loans.
So, the reality is that under AB 764, an attorney would have to work on a client’s case for six, seven, eight, nine, or even ten or more months, and then if the bank says no to the loan modification… that attorney wouldn’t be able to get paid a nickel.
There are three things I want to make clear about this:
1. When you hire a lawyer, you’re hiring an expert to represent your interests in the negotiations with your lender or servicer. You only hire a lawyer when the outcome is uncertain. If the outcome is certain… in other words, if you know the outcome is going to be the same whether you hire an attorney or not… then you don’t need to hire an attorney. Right? Why would you pay an attorney if that attorney’s work or expertise won’t affect the outcome? The answer is you wouldn’t.
2. If an attorney has to work for over six months on something, no matter what that something is, and then can’t get paid because someone else, like a bank, didn’t do something they were supposed to do… well, very soon that attorney would be hiring someone to help save his or her own house. Just ask yourself… could you do it? Could you work for over half a year on something, and then not be paid due to no fault of your own? Didn’t think so.
3. The fact is that there isn’t an attorney in the State of California that can or will practice law in the area of loan modifications if the governor signs AB 764 into law.
Just imagine what that would be like as a homeowner. You find yourself in financial trouble, maybe you get laid off, or your business suffers as a result of the economic meltdown, and your bank isn’t cooperating. You call around and no one seems to have any answers. You start to feel panic coming on… you call an attorney.
The attorney, however, says that he can’t represent you because a state law prohibits you from paying him for his services unless the bank grants a modification… and since he can’t be sure what the bank will do or how long it will take for them to do it, he simply can’t take such cases.
How would you feel at that moment? You needed a lawyer, weren’t allowed to pay one, and so you’re facing your bank alone.
Senator Ron S. Calderon, who chairs the Senate Banking Committee and whose committee was responsible for the much more rational SB 94, which is also on the governor’s desk awaiting signature, recently published an article in the Sacramento Bee, in which he explained why he didn’t choose to take the approach contained in AB 764. In that article he said:
“I considered the approach in AB 764 when drafting SB 94, but ultimately rejected it for three reasons. First, preventing fee-for-service providers from charging their clients, unless they obtain a modification, will almost certainly increase the fees that fee-for-service providers charge their clients. If fee-for-service providers can only charge certain clients, they will need to increase the fees they charge those clients, to make up for their inability to charge other clients.
Second, the approach in AB 764 is likely to cause fee-for-service providers to cherry-pick their clients. If a provider knows he or she can only get paid if a modification is offered to a borrower, that provider is unlikely to take on the difficult cases, leaving borrowers most in need of help with fewer options for assistance.
Third, AB 764 is likely to force many fee-for-service providers out of business, which is likely to reduce the options for troubled borrowers even further.”
Actually, there’s a lot more that’s wrong with AB 764 than what Senator Calderon highlights. AB 764 would also provide an incentive for the third party assisting a homeowner with a loan modification to advise the homeowner to accept a modification offer sooner, rather than negotiating with the lender or servicer for a better offer because it would take more time to do so.
And perhaps most importantly, even if a few lawyers tried to help homeowners under AB 764, the law would give the banks the power to apply pressure or even put those lawyers out of business simply by stringing things out.
Bad Facts Make Bad Law.
There is an old adage often uttered around our country’s law schools that goes like this: Bad facts make bad law. And AB 764 is one of the best examples of this adage come to life one could imagine.
First of all, make no mistake about it, the banks, lenders and servicers don’t want homeowners to have lawyers help them obtain loan modifications. They’d much prefer homeowners show up to request a loan modification alone… scared… emotional… and unknowledgeable.
How many times have you heard the banks and most of our government officials say:
“You don’t need to hire a third party… just call your bank directly.”
I know… they want you to believe that they’re saying that to protect you from the millions of scammers that are marauding about the country scamming homeowners out of their last $3,000 just for fun and profit. According to our government there are no legitimate private sector firms out there to help you… only your bank or some non-profit housing counselors are there to help you… everyone else is a scam.
First of all, does that makes sense to anyone? Does it sound right or even possible? We’re going to finish this year with right around 4 million foreclosures in this country… and there are obviously hundreds of not thousands of law firms and real estate licensed firms all over the country that offer to help homeowners get their loans modified… so if they’re all scams… and you do the math… shouldn’t there be literally millions of people marching in the streets screaming about having been scammed? So, how come every story I’ve ever read about a loan modification scam involves such small numbers?
The State Bar of California and the California Attorney General’s office together have taken action against a handful of lawyers in California as I write this, and their Website claims that they’ve got 800 investigations as a result of “foreclosure complaints”. I’m sure there are a lot of people who complain about their lawyer after being foreclosed on, but I’m not so sure it was the lawyer’s fault the house was lost.
The Federal Trade Commission, another group that loves to make headlines related to protecting the public from loan modification scammers, had this to say last April:
“This brings to 11 the number of loan modification and mortgage foreclosure rescue scams brought by the FTC in the last year. The FTC also announced today that it has sent warning letters to 71 companies who may be deceptively marketing mortgage loan modification or foreclosure rescue services.”
Oooooh… 11 in the past year… Ooooooh…. That’s almost a dozen… Ooooooh. Scary stuff.
And here’s what the FTC said on July 15th:
“The FTC announced four lawsuits, bringing to 14 the number of mortgage foreclosure rescue and loan modification scam cases the Commission has brought since April.”
Oooooh… 14 since last April… Ooooooh…. That’s more than a dozen… Ooooooh. Very scary, very scary.
Of course, keep in mind that according to the FBI’s Website, there were about 6.7 million cases of “larceny-theft” reported in the US in 2008 alone. Why aren’t those cases making national news?
I’ll jump in with an answer to that one: Because the banking lobby isn’t interested in promoting those… they’re only interested in promoting stuff about loan modifications because they don’t want homeowners to have professionals helping them when attempting to obtain a loan modification.
Attorneys involved in representing homeowners in conjunction with loan modifications report that banks and mortgage serivcers often ignore letters of representation that state that a homeowner is represented by legal council. “They call clients of mine directly all the time… it’s almost the rule, as opposed to the exception. In the beginning I was shocked by it, but not anymore. It’s done all the time. They’ll even call my clients and tell them they don’t have to pay me. It’s unbelievable,” said Nathan Francen, of Corona, California, an attorney that has helped hundreds of homeowners avoid foreclosure and remain in their homes.
Dozens of attorneys I’ve interviewed readily agree. Tim McFarlin, a bankruptcy attorney whose offices are in Irvine, California, says he’s never seen or heard of anything like it in any other area of legal practice. “There’s no question that the banks want lawyers out of the picture, when it comes to homeowners at risk of foreclosure. I’ve called banks on behalf of my clients and been told they won’t work with attorneys unless the borrower is on the call. And many times, when a client speaks with the bank directly, the bank will say that they haven’t heard from my office, when the record shows clearly otherwise. It’s happened so often that I think of it as standard operating procedure for lenders these days.”
A Product of Their Environment
Both AB 764 and SB 94 are products of legislative committees on banking and finance, which is not much of a surprise to anyone involved in helping distressed homeowners. But SB 94 is the much more rational of the two. It requires attorneys to be paid after services are rendered, but it doesn’t force an attorney to wait until the end of the modification process to be paid for those services.
Under SB 94, an attorney can contract for a certain set of services and then be paid as they are completed, and then contract for another set of services and be paid when those are completed. That way lawyers can be paid along the way, instead of waiting more than half a year, and SB 94 doesn’t impose the totally irrational restriction of an attorney only being paid if and when a modification is granted by a lender or servicer. The bill does however, prohibit real estate licensees from breaking up the services related to a loan modification into component parts.
SB 94 seems to make sense. It seeks to make sure that no one pays for services they haven’t received. Of course, SB 94 isn’t likely to stop the scammers that are out there. Scammers, we should all remember, don’t obey the laws, which is what makes them scammers in the first place.
AB 764 is simply BAD LAW, based on BAD FACTS. And although few think it likely, it’s possible that the governor could sign it into law and not SB 94. If that happens hundreds of thousands of California’s homeowners will have no way to obtain legal representation when at risk of foreclosure… thousands more will lose their homes… foreclosures will rise, or even spike. And everyone’s property values will continue their free fall race to the bottom.
The banks will be happy though. And after all, that’s really what matters, right? You would have thought the trillions of taxpayer dollars would have made them happy enough, wouldn’t you?
Apparently not.
If you don’t want the governor to sign AB 764, you can contact him by clicking on this link:
You’ll be asked for your name and email address. You’ll also see a pull-down menu that says Please Choose Your Subject… select “Governor”. Click Submit… and then your comment screen will come up and you can type in your comment. Please don’t wait a single day… help stop AB 764 because once it’s signed, if you need a lawyer to represent you against your bank, I’m afraid you’ll be out of luck.