More On Forensic Loan Audits In Connection With Loan Modifications

A recent story in the San Francisco Chronicle contained the following excerpt describing how one company involved in the loan modification process operates:

• Nasim Pakmanesh, production manager at Help-U-Mod in Walnut Creek, said his company's business model is to provide "forensic loan audits" for $1,500, then to refer clients to affiliated attorneys who charge about $1,000 to pursue a loan modification. He said the audit looks through the original loan documents to discover errors made when the loan was originated.

• With the audit, "the attorney has more ammo to work with to negotiate for their clients," he said. "Instead of going in and saying, 'My clients can't afford the home and have a hardship,' they're saying, 'You guys approved a loan you shouldn't have - so what can you do for my clients?' Our audit will definitely increase the chances" of getting a loan modification.

For the story, see Desperate homeowners easy prey for scammers.

Postscript:

It may be a good idea for The State Bar of California (as well as state bar associations in other states) to issue an advisory that specifically addresses whether the marketing and performing of a forensic loan audit by a non-attorney directly to and for a consumer-homeowner constitutes the unauthorized practice of law.(1)

Currently, the Florida Attorney General has a civil lawsuit pending against a loan modification firm alleging, among other things, that this precise conduct constitutes the unauthorized practice of law under Florida law. See Florida AG lawsuit (paragraphs 27-28).

Likewise, the Tennessee Attorney General filed a civil suit in November against a loan modification firm in which he alleges, among other things, that the firm engaged in the unauthorized practice of law. See Tennessee AG lawsuit (paragraphs 78-81).(2)

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(1) However, The State Bar's professional responsibility committee has recently issued an alert offering guidance to California lawyers thinking about signing up and working with loan modification firms.

(2) Last week, a Nevada couple filed a class action lawsuit against a loan modification firm in which they assert that the firm engaged in the unauthorized practice of law in violation of Section 7.285, Nevada Revised Statutes. See class action lawsuit (paragraph 23).