Why is CA State Bar Making its Job Protecting Consumers HARDER?



If you’ve been following my outrage over the California State Bar Association’s so-called “interpretation” of our state law known as SB 94, then you know the issue.  In case you don’t, I’ll recap it very briefly in the box just below. (If you want to read more, you can link to a past article on the subject HERE, and a podcast interview I did with a former State Bar prosecutor on the topic HERE.)

In a nutshell, the California State Bar, supposedly in an effort to “protect homeowners,” last September started “interpreting” the state law known as SB 94, as prohibiting lawyers who agree to help homeowners get their loans modified,  from being paid until the very end of the process.  

When is “the end of the process?”   I have no idea, and just the fact that the State Bar used the phrase, “end of the process,” shows that they don’t understand what they’re talking about either.

Is it “the end of the process,” when the bank denies the homeowner’s application for a modification the first time?  Because that would seem to me to be when you would need your lawyer the most.  How about after the second denial?  Is that the end?

Or, could they mean “the end” is when the homeowner is approved for a trial modification.  Okay, but what about after the trial when the bank schedules a trustee sale date anyway and sells the house even though the homeowner had been approved for the modification?

How about once the homeowner is approved for a permanent modification?  Fine, but what happens if the reason the homeowner doesn’t get approved for the permanent modification because the homeowner fails to make the trial payments because of a job loss or illness… and now has to reapply for a loan modification using the new income levels?

I guess the lawyer just has to start all over and wait for the next “end of the process” to come around.  But what if the homeowner has to file bankruptcy at that point to stop a trustee’s sale?

Well, if that happens, which it does all the time, then the lawyer doesn’t get paid for the loan modification work that’s been going on for the last 18 months, because his or her bill just got included in the bankruptcy.

And then after the bankruptcy is discharged several months later, I suppose the lawyer is expected to represent the homeowner as he or she reapplies for the loan modification.  So, in other words… the State Bar expects lawyers to work for two years hoping to get paid someday.

Whether you realize it or not, this “interpretation” of SB 94 by the State Bar is not protecting consumers… IT’S PROTECTING BANKERS.  It is also CAUSING HOMEOWNERS TO BE SCAMMED, while it helps to bankrupt the State of California, and absolutely ensures that the state’s housing markets have no chance whatsoever to recover for a decade or longer.

The State Bar’s politically motivated, destructive nonsense is, as a result, costing everyone a lot of money and harming my daughter’s future.  And yet, California homeowners to-date are doing nothing about this issue, and therefore will deserve everything they get as a result.

Many more homes will be lost to foreclosure faster.  I estimate that at least five more homeowners per year in California will take their own lives as a direct result.

The bill, SB 94, was passed in 2009.  Since then, only 18 lawyers have been either disbarred or agreed to voluntary suspension, having to do with foreclosure avoidance including providing loan modification services.

Most were disciplined as a result of something they did in 2009 and 2010… AND NONE BECAUSE OF SB 94 VIOLATIONS.  

I don’t want or need this type of Nanny State protection nonsense.  What right does the California State Bar have to interfere with my desire to hire a lawyer to help me get my loan modified in order to save my home from foreclosure?

And let’s get something straight here… I’ve followed and had a front row seat for more homeowners going through the loan modification process than ANYONE in the damn country.  So, please… don’t tell me what “might” happen.  I know damn well what can and often does happen from every perspective involved.

Think you can debate this issue with me and come out ahead?  Awesome.  Contact me at mandelman@mac.com and I’ll have you as my guest on a Mandelman Matters Podcast immediately.  I’m quite serious about this… let’s do it.

There are THREE simple and compelling reasons why I shouldn’t have to continue explaining any of this. 


1. If the State Bar gets its way on this issue, no homeowners in California will be able to find lawyers willing to help them get their loans modified.  That’s neither a guess nor an opinion… I’ve personally spoken with hundreds of lawyers in California who have helped homeowners in the past and it’s unanimous… not a chance.


According to an article in The New York Times last year, written by David Streitfeld…


“The problem for lawyers is that even a simple modification, in which the loan is restructured so the borrower can afford the monthly payments, is a marathon, putting off their payday for months if not years. If the bank refuses to come to terms, the client may file for bankruptcy. Then the lawyer will never be paid.”


The State Bar, it’s worth noting, disagrees with me on this point.  They apparently know quite a few lawyers willing to do as much volunteer work as their clients require.  I looked one of them up and you can find him on Tuesdays through Sundays sleeping under the overpass where the 710 North merges into the Golden State Freeway.



2. Even more insidious, as reasons go, is that the SB 94 language that the State Bar is supposedly interpreting… simply DOES NOT SAY that lawyers offering loan modification services can’t be paid until the end of the process.  Here’s what it does say…


2944.7.  (a) Notwithstanding any other provision of law, it shall be unlawful for any person who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower, to do any of the following:


(1) Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform.


To my way of thinking… a way of thinking shared by hundreds of lawyers all over the state and in fact across the country by the way… the State Bar isn’t really “interpreting” anything.  What they’re doing is much better termed,“Scribens Ficta,” which is Latin for, “Creating Fiction.”  Or, to use the vernacular they’re just “making stuff up.”


You see, a couple of years ago when the State Bar started getting hundreds of complaints each month from homeowners having to do with loan modifications, the Bar’s president at the time, Howard Miller, told the press that there were “hundreds if not thousands” of lawyers scamming people.


But, according to the State Bar’s most recent numbers… in California, 153 lawyers have been charged with ethical violations since SB 94 was passed in ’09.  Only 69 have received discipline, and 18 of those were either disbarred or voluntary suspended.


So, we now know that Howard Miller was wrong… or lying… or, that the State Bar is totally incompetent when it comes to disciplining lawyers.  It has to be one of those three, right?


3. But, forget about all that.  In a moment I think you’ll agree that none of it matters. I was doing some research on the State Bar’s Website and have found the clearest and most elegant solution to this issue imaginable.


The article containing the solution to this conundrum is titled, “Consumer alert or lawyer alert?”  Its written by Diane Karpman, the attorney and legal ethics expert that writes the monthly column, “Ethics Byte” for the “California Bar Journal.”


According to Diane’s article, published in the California Bar Journal in the April 2011 issue…


The easiest way for California lawyers to lose their licenses is to have a banking irregularity in their trust accounts.


Sounds interesting… tell us more, Diane…


Recently, there has been an increased emphasis by the State Bar on the prosecution of trust account misconduct. The Office of the Chief Trial Counsel (OCTC) has set up a special task force dedicated to dealing with major trust account defalcation.


So, that’s perfect… we’ve already got a special task force set up for this… fabulous.  We sure don’t need any extra spending this year, or maybe for the next decade or two.  But, then she makes it even better…


It’s important to know that cases involving misappropriation or a violation of Rule 4-100 are a snap to prove. The prosecutor need only present the bank records and a conviction is almost automatic.

Either money being held for another is in the trust account or it’s not. For prosecutors, money cases are economical and do not require elaborate theories, with contradicting witness testimony. “Money counts” are black and white.


Right!  That’s EXACTLY what we need here.  Something that’s “a snap to prove”… a conviction that’s “almost automatic”… no elaborate theories… black and white law… and it’s economical too?  It sounds ideal.


The fundamental fiduciary duties imposed by Rule 4-100 create (almost) a strict liability type of duty for lawyers holding client or third-party funds. Inadvertent or unintentional thefts sometimes occur because lawyers are often numerically challenged. However, close monitoring of the trust account is a primary duty of an attorney.


“A strict liability type of duty for lawyers holding client or third-party funds?”  I like the sound of that.  And “close monitoring of the trust account is a primary duty of an attorney.”  Good, then lawyers would all know what was expected of them were we to apply this to providing loan modification services.


Assuming the State Bar is being forthright when it claims that it is not trying to prevent homeowners from obtaining legal representation when at risk of foreclosure, then they should love this idea too.


So, problem solved.  If you want to hire a lawyer to help you get your loan modified… and whether you do or not is totally up to you… then you can write your lawyer a check for whatever you and he or she agree to… and that money will be required to go directly into the lawyer’s trust account.  The lawyer will only be allowed to withdraw it as compensation as it is earned… meaning as the services have been completed and delivered to the client to the client’s satisfaction.


And if that doesn’t happen?  Well, you read what Diane Karpman wrote in her column:


The easiest way for California lawyers to lose their licenses is to have a banking irregularity in their trust accounts.


Why are we bothering to have a debate in which the State Bar has to resort to claiming some sort of interpretation that requires the making up of words that aren’t even found in a plain reading of the statute?


Why do we need any ELABORATE THOERIES when we’ve already got BLACK & WHITE LAW that’s such a SNAP TO PROVE that the outcome of a CONVICTION is considered ALMOST AUTOMATIC?


Why in the world, with a foreclosure crisis continuing to ravage our state’s economy, and for which there is no end in sight… and let’s face it, any number of homeowners ripped off by lawyers is TOO MANY… why in the world would we want to make getting rid of those lawyers any more difficult than it needs to be?


What… is the State Bar at the point that it just wants challenges?


If that’s the case, then fine… I’d like to suggest the Bar lend out a few of those prosecutors that long for more challenging work to the California AG’s office where they can take their best shot or two at putting a MORTGAGE BANKER in JAIL for doing a Wall Street imitation of “The Rape of the Sabine Woman,” on several million citizens of this great state.  Think that will ever happen?  Not hardly.


Are you ready for the Pièce de Résistance?


Talk about coincidence… want to know one more reason that this is such a perfect answer for this particular problem?  I mean, it’s so unbelievably perfect it’s like the moon being the seventh house and Jupiter aligning with MARS.


(Did you see what I did there?  Was that not both the Pun of the Year AND the Segue of the Decade?  How do I do stuff like that?  Don’t even say luck… no one is that lucky.  That’s talent, baby… this paunchy and pasty white Jew-boy can write his ass off at times, Holmes.  Fo rizzle… my bizzle.)


It’s CALLED THE MARS FINAL RULE… it’s essentially the EXACT SAME FEDERAL LAW that is the governing law in ALL OF THE OTHER 49 STATES as related to lawyers and Department of Real Estate licensees that offer loan modification services to homeowners at risk of foreclosure.  MARS is so jam-up-and-jelly-tight that its already got its own MARS Compliance Guide in the can, so we can all just chillax about that too.


Now, I’m sure the State Bar was planning to put together a Compliance Guide for SB 94 too… eventually, right?  Wrong.  In fact, almost THREE YEARS since SB 94 became law in California, and the State Bar doesn’t even have a single written policy that supports what they now call their “interpretation” of the law. Nothing in writing… nothing that has been adopted by the State Bar’s Board of Governors.  I guess it’s an oral tradition sort of thing… passed down through story telling, generation to generation.


And the FTC enforces the MARS Rule, so our State Bar should be appreciating the extra prosecutorial muscle that will come along with this answer as well.  In a state of 37 million people, 235,000 lawyers… and with nothing but budget cuts in our foreseeable future, I’d say we should be taking all the extra law enforcement assistance from the Feds we can get.


So, do we have any sort of meeting of the minds here?  Could this be the dawning of the Age of Acquiescence?  Why would or wouldn’t that be the case?


See… want to know the dirty little secret about SB 94?  Do you?  I’ll tell you… and you’re welcome to check it out yourself as well, as is the case with ANYTHING I ever say in an article.

The State Bar threatens lawyers with violations of SB 94 all the time… and some get scared and take the deal… some minor discipline thing like attending an ethics class, others a temporary suspension. The State Bar to-date has never brought its interpretation into a courtroom.

NOT ONE SB 94 conviction resulting from a trial… because the State Bar hasn’t been willing to SB 94 in front of a judge in almost three years.  Why not?  Only one possible reason, as I see it… they don’t think their “interpretation” that requires a sentence or two to be entirely imagined will win the day.


Don’t worry though… I know of at least two lawyers that say they are committed to following through all the way with the lawsuits they’ve either filed or are about to file against the State Bar specifically related to SB 94.

You know what’s so sad about all this?  It’s sad because I have all the respect in the world for State Bar President, Jon Streeter.  Jon and I spoke… he’s a very reasonable person.  CEO Joe Dunn and I met briefly, I told him that Bob Fellmeth had told me to say hello, and he stopped in his tracks and was very warm and attentive.  I even met OCTC Kim when I came up to testify at the annual disciplinary hearing… she came over to make sure she got my contact information.


And yet… everyone was just patting me on the head as they went about their daily corruption, which besides being just so wrong in so many ways, forces me to go to sleep at night thinking of all the people whose lives will be even more damaged in large part because they won’t be able to hire a legitimate lawyer after all of them have been scared away by the Bar’s ongoing, purely self-interested and very un-state-bar-like actions of which you should be only ashamed.


Some things unique to the noble practice of law just can’t survive equivocation.


And I know as well as anyone alive that while easily dismissed as not being the same thing… the acts of the California State Bar related to SB 94 are also gateway drug acts that exist on the same side of the road as lawyers who came before and justified complicity as their souls were slowly destroyed.



One was named, Helmuth James von Moltke, a German lawyer with the OKW… who, on October 21, 1941, wrote the following in his journal…


Certainly more than a thousand people are murdered every day and another thousand German men are habituated to murder.  May I know this and yet sit at my table in my heated flat and have tea? Don’t I thereby become guilty too? What shall I say when I am asked: And what did you do during that time?


Since Saturday, the Berlin Jews are being rounded up. They are picked up at 9.15 in the evening and locked into the synagogue overnight. Then they are sent off with what they can carry, to Litzmannstadt and Smolensk, so we are spared the sight of them being simply left to perish in hunger and cold. A women Kiep knows saw a Jew collapse in the street; when she wanted to help him up, a policeman stepped in, stopped her, and kicked the body to the ground so that it rolled into the gutter; then he turned to the lady with a vestige of shame and said: “These are our orders?”


How can anyone know these things and still walk around free? With what right? Is it not inevitable that his turn will come too one day, and that he too will be rolled into the gutter?  If only I could get rid of the terrible feeling that I have let myself be corrupted, that I do not react keenly enough to such things, that they torment me without producing a spontaneous reaction. I have mistrained myself, for in such thing, too, I react with my head. I think about a possible reaction instead of acting.


I don’t know why things like this surprise me anymore. They certainly shouldn’t.


Well, I’ve really got to run… a few errands to run to before I start packing my suits, ties and lace up Alden’s that I didn’t want to be wearing any time soon.  I’ll be spending more and more time in Sacramento now… heading up early next week and there through Friday… I’ll be at the Citizen Hotel a couple blocks from the State Capitol… stop by for a drink if you’re in the neighborhood.


But, don’t worry, if I miss you this trip, I’ll be back up in a week or so…



What has happened to us, in which year did common sense and compassion die in America?


Mandelman out.

Page Rank