Panel examines the foreclosure industry for UPL
Panel examines the foreclosure industry for UPL
Mark D. Killian
The Bar’s Standing Committee on UPL has voted to issue an advisory opinion on what it considers the unlicenced practice of law by mortgage foreclosure assistance companies.
The committee voted to make its stand after taking testimony at a January 15 public hearing in Miami to consider whether work by mortgage foreclosure assistance companies crossed the line into UPL.
The committee determined that the following actions constitute UPL when performed by a nonlawyer on behalf of a party to a mortgage foreclosure action pending before a Florida court:
1) Negotiating with the lender or lender’s attorney to modify, reinstate, or restructure the mortgage loan which forms the basis of the foreclosure action;
2) Drafting documents which memorialize the negotiations as the representative of a party to the foreclosure action;
3) Reviewing and explaining to the party to the mortgage foreclosure action documents drafted by the lender or lender’s attorney which memorialize the negotiations;
4) Inducing the party to the mortgage foreclosure action to rely on the nonlawyer to handle all aspects of the foreclosure action for the party; and/or
5) Preparing pleadings and other documents to be filed in the court in connection with the mortgage foreclosure action.
The UPL panel voted to decline to include in its opinion whether a nonlawyer who negotiates the modification, reinstatement, or restructure of a mortgage loan outside of the foreclosure context engages in the unlicenced practice of law, but noted that the “decision not to issue an opinion on this question should not be interpreted as an endorsement or approval of that activity.”
The committee has directed the Bar’s UPL Department staff to draft the opinion for review at its next meeting, at which time it will take a final vote on whether to file the opinion with the Florida Supreme Court, which has final say on the matter.
“The current action of the committee does not guarantee that an opinion will be issued or the substance of the opinion,” said Bar UPL Counsel Lori Holcomb.
Holcomb said the Bar decided to look into the matter after seeing an expansion of the mortgage foreclosure assistance industry and the public harm it is creating.
Janet Morgan, Bar staff counsel in the Ft. Lauderdale office who has investigated several complaints, said the foreclosure assistance companies get the names of homeowners sued in foreclosure from public records. They then direct mail advertise or contact the homeowners in some other way to pitch their services.
“Generally, they tell these people in some fashion they can help them save their house or get their house out of foreclosure and they need to sign up with them right away,” Morgan said.
How it Works
What happens next can vary. Morgan said some companies do very little. In some cases, they try to negotiate with the lender or the lender’s lawyer. Or they give the homeowner advice on how to respond to the suit. Some companies have even drafted customer’s answers and motions, with or without lawyers, or have taken other actions in the foreclosure suit, she said. (Even if a company had a lawyer draft a motion, it’s against Bar rules and case law to pass that through to a client for whom the lawyer does not directly work.)
What help did homeowners get for their money?
“They either ended up losing their houses anyway, or they handled it themselves after the company did nothing,” Morgan said, “and they were out the company’s fee, which they could ill afford to lose.
“The Bar’s position is that the foreclosure companies are essentially negotiating the settlement of a lawsuit, which is the unlicenced practice of law,” Morgan said.
Seventeenth Circuit Judge J. Leonard Fleet agreed and told the committee all the questions asked constitute UPL. Judge Fleet said these companies are proliferating in Broward County and often prepare legal documents which are then signed pro se by those appearing before him in foreclosure matters. He held up one document that he said was “drafted by someone who has knowledge of the lexicon of law,” but was signed by a litigant “unable to communicate successfully in English.”
Judge Fleet said those appearing before him say they pay these companies between $500 and $2,000, and they target “what may be perceived as economically depressed neighborhoods.”
“This committee, I believe, must take a stand that these practices are not permitted to be engaged in by someone who is not well schooled in the field of real estate law,” Fleet said.
While she is not sure negotiating directly with a lender should be considered UPL, Retired 11th Circuit Judge Eleanor Schockett said it has been her experience that there is “fraud at all levels” of the mortgage foreclosure assistance industry, “but the saddest were people giving their hard earned money to somebody they had read in the paper would help them save their home and the money was never to be seen again.”
Judge Schockett said during her years on the bench, she referred many people engaged in foreclose assistance to UPL committees only to have them received notices to stop their UPL activity. But, she said, they often opened up shop again somewhere else under a different name.
“I’m sure there are some good guys in this field, but it was only the bad guys we saw on the bench,” Schockett said. “There are a whole bunch of people out there that are out-right frauds. They had no intention of providing the service. . . and those are the guys we should go after.”
Schockett said nothing will solve this problem until people are criminally prosecuted and sent to jail.
“Now this is not going to happen as long as the state attorney offices don’t find these cases very sexy and waste their time on these simple little drug cases where they can run up their stats,” Judge Schockett said. “And that what’s happening — they are not prosecuting white collar crime and the primary victims of this kind of crime are the working poor.”
Michelle Ku, representing Community Legal Service for Mid-Florida, also told the committee that each of the questions constitute UPL and many of the companies involved in mortgage foreclose assistance are engage in “equity skimming.”
“The basic objective of many of these entities that profess to assist people in saving their homes from foreclosure is to try to take the equity from those persons’ homes by switching the title to that business or that individual’s own name,” Ku said. “There are real life situations where the homeowner becomes a renter in the home that they once owned.”
Charles Elsesser, Jr., of Florida Legal Services said these companies often prey on homeowners who have owned their homes for a long time, during a time a rapid real estate inflation, yet they are still very low income themselves.
“At the same time we have had a retraction of the economy and many of these people are losing their jobs or making less income,” putting them in a position where foreclose actions are initiated, Elsesser said. “What we see as the goal of many of these mortgage assistance firms is to simple separate these people from their equity.”
In the Business
While acknowledging “there are a lot of scams around and investors looking to take advantage of people,” Carol Hudson, owner of New Millennium Corp., a foreclose assistance company, said her business does not engage in UPL.
Hudson said New Millennium only deals with the financial aspects of foreclosure.
“We assist our clients by negotiating the reinstatement of their mortgages directly with the lenders or the mortgage servicing companies,” Hudson said. “We guide our clients through the financial aspects of getting reinstated with their mortgage companies by advising them what they need to do during the foreclosure process.”
Hudson said her company does not give legal advice or get involved in the legal process. She also said too many attorneys are too fast to recommend bankruptcy to forestall a foreclosure.
“How many attorneys are really aware of the criteria for a loan modification where the montage company will capitalize all of the arrears back into the loan, basically giving the clients a fresh start?” Hudson asked. “How many attorneys are aware of the requirements for an FHA partial claim, which is essentially a HUD loan, or the requirements for a VA refinancing program? This is a specialized field that does not require the knowledge of an attorney.”
Hudson maintained that negotiating with a lender is not UPL, a position shared by the Real Property Probate and Trust Law Section.
William McCaughan, co-chair of the RPPTL Mortgage Law Committee, said while the first five questions are “unquestionably” UPL, a nonlawyer who negotiates the modification, reinstatement, or restructure of a mortgage loan outside of the foreclosure context is not engaging in UPL.
“It is tempting to go after these assistance companies because they do a bad job… . but it is respectfully outside the purview of this group. . . to take control of what some companies do that is good and what some companies do is bad. The scope of your area is UPL.”
Real Estate Professionals
Marcia Tabak, deputy legal counsel for the Florida Association of Realtors, said at first blush, she thought the questions were only aimed at mortgage foreclose assistance companies, “but when we closely examined it, we become a little bit concerned about several of the items.”
Tabak said her organization takes no position on what constitutes UPL, but said licensed real estate professionals sometimes engage in the activities described by questions 1, 2, and 6, and are authorized to do so by F.S. §475.
“There are occasions where real estate licensees, in fulfilling their responsibilities, from time-to-time are working with sellers who are either pre-foreclosure or in foreclosure,” Tabak said. “Sometime the real estate licensees are aware of those facts and sometimes they are not.
“Those folks that I represent are assisting others buying or selling real estate; they are not involved in helping people negotiate and being involved in foreclose actions,” Tabak said. “I’m not looking at if it is UPL. I am looking at authorized activity under the statute.”
Kenneth Walton, president of the Wilkie D. Ferguson, Jr., Bar, said a majority of these foreclosure assistance companies are engaging in UPL and even the ones that are good are not as meticulous as attornies.