Calif. State Bar Gets Serious About Loan Modification Scams; Forms 10-Person Task Force To Work With Law Enforcement In Statewide Eradication Effort

The August 2009 issue of the California Bar Journal reports:

• The State Bar has taken action to lift the law licenses of three California attorneys(1) allegedly engaged in loan modification fraud and is investigating nearly 140 more. One of the three resigned with charges pending, another faces involuntary inactive status and the third has been formally charged with seven counts of professional misconduct.

• A 10-person task force, consisting of four lawyers and six investigators, also is working with federal, state and local law enforcement as part of a statewide crackdown on foreclosure fraud. Attorney General Edmund G. (Jerry) Brown Jr. sued four more lawyers, as well as 14 companies and their executives, last month for bilking homeowners seeking mortgage relief. The lawsuits were part of “Operation Loan Lies,” a nationwide sweep of sham loan modification consultants.

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• Suzan Anderson, who oversees the State Bar task force, said her office receives between 15 and 40 new complaints each week. As of late July, it was investigating 391 complaints against 140 attorneys, compared to a total of nine investigations relating to loan modifications 2008. [...] The State Bar issued an ethics alert in February, offering guidance to lawyers thinking of signing on with a foreclosure consultant. It can be found at calbar.ca.gov/calbar/pdfs/ethics/Ethics-Alert-Foreclosure.pdf. The alert warns of seven violations in particular that can land a lawyer in hot water, including splitting fees and partnering with non-lawyers, aiding someone in the unauthorized practice of law and accepting fees but doing little or no work. “We’ve got lots and lots and lots of (ethical violations),” Anderson said.

For more, see Foreclosure attorneys face discipline charges.

(1) According to the story, the bar obtained the resignation of Mitchell Roth in May, after shutting down his Sherman Oaks, Riverside and San Diego offices in February.

Also, the bar reportedly moved to place Irvine lawyer Nabile Anz on involuntary inactive status last month after receiving 39 complaints. Anz has a hearing before the State Bar Court Aug. 18. The Bar's Suzan Anderson said that in late 2008 Anz set up the Federal Loan Modification Law Center (FLM), operating out of several offices, complete with telemarketers, and signed up 8,300 clients in six months. The bar accuses Anz of more than a half-dozen ethical violations. According to bar prosecutors:

• FLM was set up to preclude the involvement of lawyers in determining whether to accept a client,
• Case evaluators were trained to accept virtually every client,
• There was no legal analysis of clients’ cases,
• Anz’s system of paying case evaluators guaranteed they would lie to potential clients in order to receive their commissions.

In the case of the third attorney, the bar charged Irvine attorney Sean Rutledge with seven counts of misconduct in handling a loan modification for Michael Robinson, who paid an advance $3,500 fee. Rutledge never took any action to negotiate with Robinson’s mortgage lender, the bar charges. Robinson eventually fired Rutledge, who agreed to refund his fee only if Robinson signed a release of professional liability. Rutledge did not refund the fee for several months. The bar is seeking Rutledge’s disbarment; he has a hearing before the State Bar Court Aug. 11. UnauthPractOfLawTheta