When the housing market crashed, scores of California lawyers cashed in by offering services to distressed homeowners seeking loan modifications. Some of that cash came in the form of upfront legal fees that were intended to help secure a much lower mortgage interest rate for people unable to keep up with existing payments.
Some of those promises proved to be empty, a mere ploy to defraud underwater borrowers, and in 2009 the state stepped in, passing a law banning attorneys from collecting legal fees for loan modification services before the work was completed.
Still, some lawyers continue to orchestrate similar schemes to bilk homeowners today.
“The problem still exists,” said Lisa Stratton, a spokeswoman for the state’s Department of Consumer Affairs. “Scammers are scammers and they’re going to find some way to perpetrate fraud against consumers.”
Complaints about attorney-driven loan-modification scams peaked in 2010, when the State Bar of California received more than 4,300 grievances against lawyers. The number of complaints has steadily declined each year since, falling to 1,469 in 2013.
Nearly 30 percent of the complaints filed in recent years pertain to lawyers practicing in Los Angeles County.
Nearly 200 lawyers in California have been disciplined for playing a role in illegal loan modifications between 2009 and May of last year, according to Laura Ernde, a State Bar spokeswoman. During the same period, 70 lawyers were disbarred for engaging in the practice.
One of the more recent and unusual cases came last week when the State Bar proposed a 90-day suspension against Peter Robin Estes, a Beverly Hills real estate attorney accused of running a loan-modification scam directed at out-of-state homeowners. The disciplinary action is pending approval from the California Supreme Court. Estes, admitted to the bar in 1993, had never before been disciplined by state regulators.
At least six people filed complaints against Estes, according to documents filed in the State Bar Court of California last week. Each complaint was virtually the same, accusing him of charging a $3,000 upfront legal fee for home mortgage loan modifications in other states.
Estes, who could not be reached for comment, shut down his law firm and stopped accepting clients after he was notified about the first complaint, according to the State Bar filing. He has since admitted to 15 acts of professional misconduct, all related to loan modifications.
David Cameron Carr, a San Diego attorney representing Estes in the State Bar matter, declined comment.
Estes filed for Chapter 7 bankruptcy protection in November on behalf of his Beverly Hills law firm Westminster Law Inc., which is unusual for a law firm. Court documents filed in that case indicate the firm has less than $700 in assets and owes more than $500,000 to creditors.
Jamie Court, president of Consumer Watchdog in Santa Monica, said he has seen a significant drop in the number of consumer complaints against lawyers involved in foreclosure-related scams.
“The demand for loan modifications has tapered off quite a bit,” Court said. “There’s always people who prey on other people, but I don’t think there has been an uptick.”
SB 94, a 2009 law that prohibits lawyers from collecting legal fees prior to providing loan modification services, helped eliminate many unethical lawyers from the market, Court said.
On the other hand, several lawyers also left the loan-modification practice after the law passed because their business relied on guaranteed revenue from upfront fees, said Deborah Bronner, a foreclosure attorney in West Los Angeles.
Firms frequently deal with clients who cannot afford an hourly rate for time-consuming litigation services and because payouts aren’t usually very high, taking cases on contingency isn’t always very profitable.
“To provide workout services with a lender and expect to get paid once it’s over is not realistic,” Bronner said. “That meant some honest people had to stop providing that service, which made it very unfortunate for the consumer.”
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