Attorneys acting as “Foreclosure-Rescue Consultants”
In October 2008, the Legislature enacted Florida Statute 501.1377, most commonly referred to as the “Foreclosure Rescue Statute,” to protect consumers by requiring that foreclosure rescue companies complete their services before charging the consumer a fee. Additionally, the statute provides specific language for the contract that each and every foreclosure rescue company is required to use.
Among other things, the contract protects the consumer by providing valuable information regarding the three-day right to cancel the contract and a recommendation that the homeowner contact his or her lender before signing any agreement with a foreclosure rescue company. The statute also provides for penalties of up to $15,000 per violation.
Lawyers should be wary of businesses that ask them to participate in or facilitate foreclosure-related rescue transactions. In July 2008, the Attorney General granted Florida attorneys an exclusion from the definition of a foreclosure-rescue consultant ‘when such person provides legal representation to a client with respect to a foreclosure.’
Because of numerous questions surrounding an attorney’s ‘exclusion’ from the definition of a foreclosure-rescue consultant, The Florida Bar issued an Ethics Alert: Providing Legal Services to Distressed Homeowners detailing the ethical restrictions imposed upon attorneys as they relate to various proposals from non-lawyers.
Effective July 1, 2009, the statute was amended to clarify the attorney exclusion. Currently, the exclusion applies if the attorney is ‘licensed to practice law in this state’ and if the attorney ‘provides foreclosure related rescue services as an ancillary matter to the attorney’s representation of a homeowner as a client.’ Simply put, an attorney is not exempt if the attorney represents a client homeowner solely for foreclosure-related rescue services; to be excluded from the statutory requirements, the attorney must be providing legal representation to the homeowner directly and any foreclosure-related rescue services provided by the attorney to the homeowner client must be secondary or in addition to the client’s underlying legal matter. For questions regarding whether the attorney exemption applies, review The Florida Bar’s Ethics Alert on “Providing Legal Services to Distressed Homeowners.”
Federal Trade Commission: Authority Enhanced
- Effective March 11, 2009, the Federal Trade Commission (FDT) obtained enhanced authority to obtain penalties and more expeditious rulemaking authority through the 2009 Omnibus Appropriations Act, as cited in testimony before Congress on March 24, 2009. FTC Testifies on Efforts to Protect Consumers of Financial Services; Urges New Tools for Stronger Enforcement Authority news release.
- The FTC will enforce the Federal Reserve Board’s new Truth in Lending Act and Home Ownership and Equity Protection Act rules that prohibit a variety of unfair, deceptive, and abusive home mortgage advertising, lending, appraisal and servicing practices, which generally take effect in October 2009.
- Violation of such rules will be a violation of a trade regulation rule allowing the FTC to obtain civil penalties for violations.
The 2009 Omnibus Appropriations Act directed the FTC to begin rulemaking to prohibit unfair and deceptive acts and practices with respect to mortgage loans. H.R. 1105 was signed by President Obama on March 11, 2009.
The FTC Issues Final Rule to Protect Struggling Homeowners from Mortgage Relief Scams announced Nov. 19, 2010, by the Federal Trade Commission bans mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they decide is acceptable. The rule is in response to bogus operations that falsely claim that, for a fee, they will negotiate with the consumer’s mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure. Many of these operations pretend to be affiliated with the government and government housing assistance programs. The new rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:
- The likelihood of consumers getting the results they seek;
- The company’s affiliation with government or private entities;
- The consumer’s payment and other mortgage obligations;
- The company’s refund and cancellation policies;
- Whether the company has performed the services it promised;
- Whether the company will provide legal representation to consumers;
- The availability or cost of any alternative to for-profit mortgage assistance relief services;
- The amount of money a consumer will save by using their services; or
- The cost of the services.
In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.
Attorneys are generally exempt from the rule if they meet three conditions: they are engaged in the practice of law, they are licensed in the state where the consumer or the dwelling is located, and they are complying with state laws and regulations governing attorney conduct. To be exempt from the advance fee ban, attorneys must meet a fourth requirement – they must place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.
All provisions of the rule except the advance-fee ban will become effective Dec. 29. The advance-fee ban provisions became effective Jan. 31, 2011.
Prepared statement of the Federal Trade Commission on “Consumer Credit and Debt: The Role of the Federal Trade Commission in Protecting the Public” before the House Committee on Energy and Commerce Subcommittee on Commerce, Trade, and Consumer Protection, U.S. House Of Representatives, Washington, D.C., March 24, 2009.
Truth in Lending; Final Rule , 73 Fed. Reg. 44,522. July 30, 2008.