May 31, 2012 – According to a recent alert, lawyers are increasingly becoming a target for loan modification scammers seeking to recruit them to circumvent state and federal laws.
State and federal law protects homeowners from unfair and deceptive practices relating to loan modifications, including the collection of upfront fees, but lawyers are generally exempt. By recruiting and “partnering” with lawyers, scammers are attempting to circumvent these laws.
The Attorney Registration and Disciplinary Commission (ARDC) of Illinois reported that nearly 40 percent of consumer complaints against purported “loan modification” companies in 2010 had some lawyer involvement, leading to disciplinary action in some cases.
These relationships may violate the Wisconsin Rules of Professional Conduct and could result in lawyer discipline. Wisconsin attorneys, especially solo and small-firm attorneys, are encouraged to be diligent in snuffing out loan modification scams before they occur.
Nerino Petro, the State Bar’s Practice Management Advisor, monitors scams impacting attorneys and the public. He says there have been no reports of such scams in Wisconsin, but that does not mean it’s not happening, and attorneys should be extra diligent.
How to Identify a Scam
According to ARDC of Illinois, here are some “red flags” to help lawyers recognize a loan modification scam, which may involve arrangements that induce lawyers to:
Accept fees for little or no work in exchange for allowing nonlawyers to use the lawyer’s name, retainer agreement, and client trust account;
Engage in a widespread telemarketing operation staffed by nonlawyers;
Allow the lawyer’s or law firm’s name to be used in solicitations to prospective clients without actively providing legal services in connection with mortgage assistance relief services;
Misrepresent any material aspect of a lawyer's or law firm's legal services, including the likelihood of getting a favorable result, the lawyer’s or law firm’s affiliation with a governmental agency, or other costs of their services;
Pay a referral or marketing fee to a foreclosure consultant or other person for referring distressed homeowners to the lawyer;
Share legal fees with nonlawyers; or
Partner with nonlawyers in connection with offering mortgage assistance relief services.
Report a Scam
If you believe you have been contacted by a loan modification scammer, please report it to these agencies:
The State Bar maintains an ethics hotline to assist attorneys who encounter situations in which ethical obligations are unclear under Wisconsin’s Rules of Professional Conduct. Contact State Bar Ethics Counsel org tpierce wisbar Tim Pierce at the hotline Monday through Friday, 9 a.m. to 5 p.m, at (800) 444-9404, ext. 6168, or (608) 250-6168.
Information about the Mortgage Assistance Relief Services Rule
The FTC offers guides for lawyers, The Mortgage Assistance Relief Services Rule: A Compliance Guide for Lawyers, and for businesses, The Mortgage Assistance Relief Services Rule: A Compliance Guide for Business.