Multi-state mortgage modification practice may be hazardous to your law license!

Standard

Last week, this blog discussed two April 19 South Carolina Supreme Court cases* in the context of the social media issues they raised. This week, I want to point out the mortgage modification issues, which were, no doubt, the impetus for the discipline in both cases.

Let’s look at the facts in the first case, In the Matter of Bacon. In November of 2012, attorney Brunty hired INMN, Inc., a marketing company, to solicit out-of-state clients interested in modifying their home mortgages. Brunty hired Integrity Partners, LLC to process the loan modifications. Brunty was suspended and later disbarred.

Brunty introduced Bacon to a principal in Integrity, who assured Bacon that Integrity and INMN were complying with federal laws and regulations and had a network of attorneys licensed to practice in every state where clients were accepted. Bacon accepted those assurances and hired INMN and Integrity. (Two people who’ve read this blog asked me about the relationship between Bacon and Brunty. I don’t know. The Court did not specify.)

Handling the former Brunty cases did not go smoothly, to say the least. Integrity continued to work on those cases without attorney involvement. Integrity employees incorrectly advised many of Brunty’s clients that their files had been assigned to Bacon. Some of Brunty’s clients became Bacon’s clients, but some did not. Some of Brunty’s clients’ credit cards were charged fees that were paid to Bacon.

Bacon admitted that he violated federal rules against unfair or deceptive acts or practices in respect to the mortgage modification matters.

The FTC’s “Regulation O” places a number of restrictions on mortgage modification services. For example, a provider may accept a fee only after the client has executed a written agreement with the lender or servicer. Attorneys are exempt from this rule if they are licensed to practice in the state where the home is located as long as they hold advance fees in trust accounts and comply with trust accounting rules.

Bacon was not licensed to practice in all jurisdictions, so he was not authorized to accept any up-front fees. He also failed to deposit the fees into a trust account, failed to maintain separate ledgers for these clients, and failed to properly supervise the individuals who had access to the accounts.

The Court stated Bacon was involved in the unauthorized practice of law in several states. He was suspended from the practice for six months and ordered to pay restitution to clients.

In the second case, In the Matter of Emery, the attorney received a public reprimand. In 2013 Emery signed a contract with Friedman Law, a New York law firm, to accept referrals for mortgage modification cases. Emery received client referrals from an internet marketing company and paid for the service based on the potential number of clients referred to her. Regardless of the residence of potential clients, cases would be assigned to Emery as a part of the Friedman Law network.

Non-lawyers employed by Friedman Law or two paralegal services worked the cases. The non-lawyers included Emery Law in their signature blocks and used Emery Law letterhead. Other than the fact that some of the non-lawyers employed by one of the paralegal services worked in Emery’s office, she did not directly supervise the work.

For the most part, the non-lawyers worked diligently, but six clients filed disciplinary cases because of some issue or complication resulting in client dissatisfaction.

The Court stated that the written fee agreements in these cases were confusing and self-congratulatory and often contradicted the verbal communications of the non-lawyers.

The non-lawyers sometimes wrongly held themselves out as employees of Emery Law. Clients never knew whether they were dealing with employees of Emery Law, Friedman Law, a firm in the Friedman Law network or one of the paralegal services.

Interestingly, in 2013, the South Carolina Supreme Court held that lenders do not engage in the practice of law when they handle mortgage modification transactions.** In the present case, however, the Court stated that assisting clients in mortgage modification matters is the practice of law in South Carolina when performed by a lawyer.

Friedman Law represented to Emery that assisting clients in mortgage modifications is not the practice of law and that its network of lawyers in other states satisfied the requirements of multijurisdictional practice.

The Court stated that regardless of whether a particular state had adopted a rule permitting multijurisdictional practice and regardless of whether the particular state had determined that loan modification assistance was the practice of law, the fee agreements repeatedly referred to the services as “legal services”. In other words, the clients believed they were being represented by an attorney.

The Court said that Emery was involved in the systematic and continuous presence in other states, which constituted the unauthorized practice of law.

Accepting mortgage modification cases across state lines may be possible in certain circumstances, but these cases are obviously fraught with hazards. DO NOT accept these cases without carefully examining the federal and state laws involved in each situation and without carefully supervising each person who touches the cases. The best advice may be to never accept these cases when they involve properties located outside of South Carolina.

 

*In the Matter of Bacon, S.C. Supreme Court Opinion 27710, April 19, 2017; In the Matter of Emery, S.C. Supreme Court Opinion 27712, April 19, 2017.

**Crawford v. Central Mortgage Co. and Warrington v. Bank of America, 404 S.C. 39, 744 S.E.2d 538 (2013)

Advertisements

SC Supreme Court publishes new commentary on social media

Standard

Real estate lawyers are involved in two disciplinary cases

Two disciplinary cases* were published by the South Carolina Supreme Court on April 19 concerning lawyers involved in multi-state mortgage modification practices. Stay tuned for a blog on the mortgage modification issues because Palmetto State dirt lawyers should steer clear of the unauthorized practice of law and other prickly issues these practices may trigger.

But ostensibly even more pressing, the Court provided ample guidance on lawyer marketing in the context of social media. Using websites and social media in marketing effort is common in 2017 for most lawyers.

The lawyers in these cases failed to adequately monitor the individuals (staff members and third parties) who handled these marketing efforts for their practices.  Failure to properly supervise these effort resulted in running afoul of the Rules of Professional Responsibility.

Dirt lawyers, here are some practices you should avoid taking in your marketing efforts:

  • You should not “cut and paste” from other lawyers’ websites without scrutinizing the materials.
  • If you are a sole practitioner, your website and other marketing materials should not indicate your practice includes “attorneys” or “lawyers”.
  • You should not exaggerate your years of experience.
  • You should not use the word “expert” except in those areas where you are certified as a specialist by the Supreme Court.
  • You should not advertise practice areas where you have no experience in those areas and where you do not intend to take cases in those areas.
  • You should not congratulate clients on their closings without obtaining the clients’ permission to post their names and other information about their legal matters on social media. I see (and “like”) lots of these congratulatory messages on Facebook, and these messages are not objectionable if the lawyer has obtained the clients’ consent.
  • Your marketing materials should not refer to your legal services as “best”.
  • You should not advertise special discounted rates for legal services without disclosing whether or not these rates include anticipated costs.
  • You should not compare your services to other attorneys in ways that cannot be factually substantiated.
  • You should not allow third party vendors to identify themselves as employees of your firm when communicating with prospective clients.

Not many of us are “experts” in the area of attorney advertising, but I strongly recommend that you pay close attention to the Rules in all aspects of website development and social media use. Unlike most areas of the law, the Rules of Professional Responsibility that control advertising appear to be somewhat “black and white”. And failure to follow these Rules will anger your fellow lawyers and will likely to land you in the Advance Sheets. Be careful out there!

 

In the Matter of Bacon, S.C. Supreme Court Opinion 27710, April 19, 2017; In the Matter of Emery, S.C. Supreme Court Opinion 27712, April 19, 2017.