Report: Loan Modification Firm Used Craigslist To Round Up "Lawyer Renting" Prospects; "Rents" Ranged Between $125-$300 Per File

A recent lawsuit was filed jointly by the Federal Trade Commission and the Attorneys General for the states of California and Missouri against a group accused of clipping homeowners for upfront fees while purportedly peddling loan modifications through the use of an alleged boiler room operation, and the use of a relationship with a pair of attorneys to create the impression that lawyers were intimately involved in the loan modification process. As part of the lawsuit, a preliminary report was issued by the temporary receiver appointed by the court to take over the business and determine whether it can be operated lawfully as a going concern.

According to the temporary receiver, the loan modification firm's "relationship with two different lawyers was nominal at best and served primarily as a cover to dignify the business and invoke the attorney exception to advance fee prohibitions." (see Preliminary Report Of Temporary Receiver, page 2 - line28 thru page 3 - line 2).

In the following excerpt from the report, the temporary receiver describes how the loan modification operation allegedly went about activities that can be described as "lawyer renting"(1) in conducting its business (see Preliminary Report Of Temporary Receiver, pages 7-8):

• The current structure of the business evolved from previous businesses of Defendant George Escalante. After contact from the Orange County District Attorney in October, 2008, Escalante began the process of dissolving USFR [U.S. Foreclosure Relief Corp.] (and its various dbas). Shortly afterwards, however, he placed an advertisement on Craigslist for an attorney. That search led to Defendant Adrian Pomery, a relatively recent law school graduate, who formed Pomery & Associates as the nominal law firm linked to the business. The servicing arm adopted a new dba - HE Servicing Company. Consumers paid their $2,500 fee to Pomery who remitted $2,375 to HE and kept $125. Pomery did visit the HE office - twice a day in general - and was involved in communication with at least some consumers. But, he had no employees involved in the business.

• In April, 2009, Escalante set out to find a new attorney when Pomery expressed a desire to withdraw from the business as he saw it as high risk.(2) Escalante ran another Craigslist ad and this time found Brandon Moreno, Stanford Law class of 2004, and they together came up with a new name - Homeowners Legal Assistance ("HOLA," a dba of Cresidis Legal, Moreno's Professional Corporation) and Escalante formed a new service entity - H.E. Servicing, Inc. Moreno cut a better deal than Pomery - under his arrangement, he retained $250 for each file. As with Pomery, all payments were made to HOLA and placed in the Cresidis Trust Account; Moreno then disbursed $2,250 to HE. Credit card payments were processed through Escalante's merchant account and from there disbursed to the lawyer's trust accounts. At the time of my appointment, Moreno and Escalante had agreed to increase the consumer fee to $2,950, prohibit any further refunds, and increase the Moreno/HOLA share to $300 per client. As best we can tell, Moreno was an infrequent visitor to the office. Moreno had no employees on site at the Katella operation. The Negotiations Manager - Suki Arcebido - reported to us that she had only seen Moreno once. To a person, the other seven negotiators working with us this week have reported that they have had no contact with Mr. Moreno, and some cannot recall actually ever having seen him. Despite Defendants' limited efforts to create the illusion, this was not a law firm owned or operated by Pomery or Moreno/HOLA. It was Escalante's business. He paid the rent, hired the employees, outfitted the offices, ran the finances, and ultimately controlled the operations.

Source: Preliminary Report Of Temporary Receiver.

For the lawsuit, see FTC, et al. v. U.S. Foreclosure Relief Corp., et al. (other defendants: George Escalante, Cesar Lopez, trading and doing business as H.E. Service Company, and Adrian Pomery, Esq., trading and doing business as Pomery & Associates).

(1) A loan modification firm's use of an attorney or law firm as a "front" for its activities where the attorney does little or no work, and has little or no contact with the financially distressed client desiring a loan modification, typically used to avoid prohibitions against clipping homeowners for upfront fees.
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(2) Pomery's sudden "cold feet" may have been attributable to the "hot water" he possibly realized he might be facing after the issuance of a February, 2009 advisory by a committee of The State Bar of California informing its members what arrangements between attorneys and loan modification firms could violate the Bar's rules of professional responsibility and conduct. See ETHICS ALERT: Legal Services to Distressed Homeowners and Foreclosure Consultants on Loan Modifications. UnauthPractOfLawTheta