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March 15, 2009

EthicsAlert
Lawyers should be very wary of loan modifiers

By Elizabeth Tarbert
Ethics Counsel

The Florida Bar’s Ethics Hotline recently has received numerous calls from lawyers who have been contacted by nonlawyers seeking to set up an arrangement in which the lawyers are involved in loan modifications, short sales, and other foreclosure-related rescue services on behalf of distressed homeowners.

These nonlawyers include mortgage brokers, financial management advisors, foreclosure “consultants,” and others who engage in foreclosure related rescue services or other similar services. Nonlawyers have proposed a variety of agreements, even offering to hire lawyers as “in-house counsel” to provide services to the nonlawyers’ customers. The Foreclosure Rescue Act, Section 501.1377, Florida Statutes, went into effect October 1, 2008, and imposed restrictions on nonlawyer loan modifiers to protect distressed homeowners. The new statute appears to be the impetus for these inquiries.

Lawyers should be wary of these proposals, as many violate the ethics rules and may subject the lawyer to discipline. Florida Bar members:
• Cannot pay a referral fee or give anything of value to a nonlawyer for referring distressed homeowners to the lawyer. [Rule 4-7.2(c)(14)]

• Cannot be paid by a nonlawyer to provide services to distressed homeowners. [Rule 4-5.4(a)]

• Cannot directly or indirectly divide fees with a nonlawyer. [Rule 4-5.5(a)]

• Cannot assist in the unauthorized practice of law by:

— providing legal services for a distressed homeowner while employed as in-house counsel for a nonlawyer company;

— forming a company with a nonlawyer to perform foreclosure related services if any of the services are the practice of law; or

— assisting a nonlawyer individual or company in providing services that the individual or company is not authorized to provide or are otherwise illegal.
[Rule 4-5.5(a)]

• Cannot assist a nonlawyer in violating the provisions of the Foreclosure Rescue Act, Section 501.1377, Florida Statutes. [Rule 4-8.4(d)]

• Cannot directly contact distressed homeowners to offer representation (including by telephone or facsimile) and cannot allow someone else to directly contact distressed homeowners on the lawyer’s behalf. [Rules 4-7.4(a) and 4-8.4(a)]

• Cannot accept referrals from non-lawyers acting in the guise of a “lawyer referral service” (legitimate lawyer referral services must comply with a rule which requires all advertisements and contact with prospective clients to be in compliance with the attorney advertising rules, in addition to other requirements) [Rule 4-7.10]

• Must have a direct relationship with distressed homeowners who hire the lawyer for representation. [Rules 4-1.1, 4-1.2 and 4-1.4]

• Cannot allow a nonlawyer to choose a lawyer for a distressed homeowner or direct a lawyer’s representation of a distressed homeowner. [Rules 4-1.1, 4-1.2, 4-1.4, and 4-5.5(a)]

Several ethics opinions, Opinions 92-3 and 95-1 in particular, discuss similar proposals and the ethics problems that arise when lawyers enter business arrangements with nonattorneys. These opinions can be accessed on the Florida Bar’s Web site by selecting “ethics opinions” then “list of Florida Ethics Opinions by number.”

This alert does not address every potential problem or concern. Lawyers should not assume that conduct is permissible merely because it is not listed above. If you are a Florida Bar member with specific questions about your own conduct related to this type of situation, you should contact The Florida Bar Ethics Hotline at (800) 235-8619.

This alert also does not address the issue of what conduct by nonlawyers is permissible. Questions regarding whether conduct of nonlawyers constitutes the unlicensed practice of law should be directed to The Florida Bar Unlicensed Practice of Law Department at (850) 561-5840.

[Revised: 04-09-2014]