It looks like the regulators are finally catching up to the loan modification industry. Within the last year or so, many different loan modification companies have sprung up with or without effective regulation. Apparently, this has not gone un-noticed. The Obama administration is going to lead the charge to crack down on loan modification companies and foreclosure prevention programs that are scams.
In addition to the national focus on cracking down on loan modification companies, various states are taking action as well. Recently, the state of California Bar, has issued an Ethics Alert regarding the topic of California Loan Modifications.
California Loan Modification Ethics Alert Highlights
A few of the highlights in the California Ethics Alert include:
The purpose of this Ethics Alert is to remind California lawyers of several ethics rules that may apply in the event a foreclosure consultant or another non-lawyer requests assistance from a lawyer and/or refers potential distressed homeowner clients to the lawyer.
- A California lawyer may not pay a referral or marketing fee to a foreclosure consultant or other person for referring distressed homeowners to the lawyer.
- California lawyer may not directly or indirectly split any attorney’s fees that the lawyer earns from a distressed homeowner client with the foreclosure consultant or any other non-lawyer.
- A California lawyer may not aid a foreclosure consultant or anyone else in the unauthorized practice of law. A lawyer may not form a partnership or joint venture
with a foreclosure consultant or other non-lawyer if any of the activities of the business would involve providing legal services. A lawyer may not, under the guise
of serving as in-house counsel for a foreclosure consultancy business, perform legal services for a distressed homeowner.
- A California lawyer may not contact in person or by telephone a distressed homeowner referred to the lawyer by a foreclosure consultant or someone else
unless the lawyer has a family or prior professional relationship with the homeowner. Nor may a lawyer direct another to do so on the lawyer’s behalf. A
lawyer, however, may write to a distressed homeowner who is a prospective client.
- A California lawyer may not without good cause file a lawsuit or motions in a lawsuit that are simply intended to delay or impede a foreclosure sale.
- A lawyer may not intentionally or recklessly fail to perform legal services with competence.
- A lawyer should be wary of accepting fees for little or no work.
I suspect that at some point in the relatively near future, there will be something similar issued here in Arizona as the government gets actively involved in weeding out some of the bad actors.