Kendall Coffey, a name partner with Coffey Burlington in Miami, a former U.S. attorney and author of the legal textbook “Foreclosures in Florida,” said the homeowners are hoping for government relief, but the programs rolled out to date may be a selling point for fraudsters because the federal efforts are poorly understood.

“A lot of times folks get hurt because some of these alleged workout specialists take some money up front, and the homeowner never hears from them again,” he said. “Homeowners who are already struggling financially are being induced to part with moneys they can ill afford to lose. The alleged rescue is a sham.”

Web Extra:
Ethics Alert: Providing legal services to distressed homeowners

Foreclosures - Strict rules for lawyers

By: Billy Shields, March 25, 2009

With the proliferation of companies hawking foreclosure relief and offering an elixir for what ails hundreds of thousands of homeowners across the country, it’s impossible to tell from slick advertising if their services are legal in Florida or if they comply with Florida Bar rules. But the Bar wants to ensure that Florida attorneys know their limits on foreclosure assistance.

The Bar issued an ethics alert this month warning that attorneys may not pay a referral fee to nonlawyers, be paid by a nonlawyer for providing distressed homeowner services or provide distressed homeowner services as in-house counsel to a foreclosure defense company.

The Florida Foreclosure Rescue Fraud Prevention Act, which took effect last October, severely restricted what nonlawyers may do in the loan modification process. Since then, the Bar has noticed financial management advisers, mortgage brokers and others who offered foreclosure-related services before the law took effect have begun streaming into law offices across the state.

Some say nonlawyers offering foreclosure help skirt the law by inserting lawyers into their business.

“They are trying to find a lawyer so that they will have some legitimization of their business,” said Elizabeth Tarbert, Bar ethics counsel in Tallahassee. She has received queries about nonlawyer foreclosure rescue companies trying to hire lawyers as in-house counsel to work on individual cases, nonlawyers referring clients to attorneys in exchange for money and nonlawyers bringing in lawyers to work on foreclosure cases that nonlawyers had started working on.

“They say, ‘we’ll do everything. You really don’t have to do much work. We’ll make a lot of money out of it,’ ” she said. “Well, you know what they say about something being too good to be true.”

Some critics of the workout companies, like ex-convict Michael Sichenzia, say it’s like getting attorneys to bless activity that verges on a scam. Sichenzia is president of Dynamic Consulting Enterprises, a loan modification firm and the investigative arm of the Glinn Gomera & Silva law firm in Deerfield Beach. “Now, everybody goes in and tries to partner with a lawyer,” he said. “It’s like being blessed by the pope, and it’s a crock, because the lawyer is basically doing nothing but get a fee.”

Sichenzia, who spent four years in a New York prison for mortgage fraud and now consults in fraud detection, said Dynamic adopted the Legislature’s anti-fraud draft as a policy a year before the bill became law.

He said he’s seeing many of the same people who were writing mortgages two years ago in the loan modification business now. And the services they offer are frequently not conceived as ways to get homeowners back on their feet but as ways to collect fees while stalling foreclosures that are inevitable, he said.

They “did nothing to earn fees as mortgage brokers; now [they] want to do nothing to earn fees as loan mod guys,” he said.

Howard Kaye, president of the Fort Lauderdale-based mortgage broker Nationwide Capital, who doesn’t do loan modifications, voiced misgivings about loan modifiers. He considers the service negligible.

“I’m not sure that the banks shouldn’t be doing their own loan modification,” he said. “I always think they could call the bank directly themselves and have them modify the loan.”

Signed by Gov. Charlie Crist, the foreclosure anti-fraud law requires loan modification consultants to provide a written contract and obtain a client’s signature before doing any work. The contract must include a disclaimer noting the client can attempt to renegotiate with the lender free of charge.

Enforcement already has gained traction. Last month, Attorney Debt Services, which did business in Tampa as HomeKeeper USA, was shut down after the state attorney general’s office noted manager James T. Pappas wasn’t licensed to practice law in Florida. The attorney general’s office said it has reviewed the files of more than 200 companies by calling them or checking their records with the state Division of Corporations and has more than 40 civil investigations open statewide.

The law excludes attorneys from being classified as foreclosure rescue consultants. The Bar speculates the exception could be the reason lawyers are being targeted by others for joint ventures.

Richard Burton, an Aventura lawyer who has launched the pro bono Foreclosure Project to recruit attorneys to volunteer on foreclosure defense work, has his doubts about foreclosure relief companies generally.

“They seem more concerned with the fee than the outcome,” he said. “Often, they sound like the same people who were hawking mortgages.”

Kendall Coffey, a name partner with Coffey Burlington in Miami, a former U.S. attorney and author of the legal textbook “Foreclosures in Florida,” said the homeowners are hoping for government relief, but the programs rolled out to date may be a selling point for fraudsters because the federal efforts are poorly understood.

“A lot of times folks get hurt because some of these alleged workout specialists take some money up front, and the homeowner never hears from them again,” he said. “Homeowners who are already struggling financially are being induced to part with moneys they can ill afford to lose. The alleged rescue is a sham.”

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Florida Bar Ethics Alert

The alert reminds lawyers of the ethics rules for partnerships with nonlawyers after a surge in complaints against foreclosure rescue groups. Attorneys cannot:

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