SC Supreme Court “debars” two lawyers for UPL violations

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Mortgage modification practices get out-of-state lawyers in trouble

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On April 24th, two out-of-state lawyers were debarred by the South Carolina Supreme Court.* If the word “debar” isn’t familiar to you, don’t feel alone. Miriam-Webster indicates the definition of the word, used in a legal sense is, “to bar from having or doing something.” Our Supreme Court uses the word to mean to preclude a lawyer from another state from practicing law or seeking any form of admission to practice law in South Carolina, including pro hac vici admission, without first obtaining an order of the Supreme Court.

What did these two lawyers do to cause the wrath of our Court? They were both involved in mortgage modification schemes in multiple states. Naderi was licensed in California and provided legal services operation as the Pacific National Law Center (PNLC).

Ochoa was previously licensed in Florida but was disbarred in 2018 for misconduct involving lack of competence, failure to keep clients’ property safe, and conduct involving dishonest, fraud, deceit, or misrepresentation. He operated a solo practice and entered into an agreement with a non-attorney owned company (NVA) to market his legal services on the internet. Through NVA’s advertisements, he specifically targeted South Carolina residents seeking to negotiate modifications of their home loans.

Let’s look at just one example of the activities of these lawyers from the Naderi case. The Court refers to this scenario as “The J. H. Matter.” In December of 2013, Naderi was hired by J.H. a South Carolina resident, homeowner and veteran, to assist him in negotiating a modification of his home loan. Individuals from PNLC assured J.H. that the firm could get his loan modified and decrease his mortgage payments by securing both a balance reduction and a lower interest rate. J.H. was promised that the firm would work diligently and return his telephone calls within 48 hours.

J.H. signed several forms provided by PNLC staff members, including an “Attorney Client Retainer Agreement” and a “Third Party Authorization and Release Form”. The release form permitted the lender to discuss the loan with PNLC. Naderi was specifically named as the individual permitted to discuss the loan on behalf of J.H., but, interestingly, the form listed Naderi’s title as “Paralegal”.

The retainer agreement provided that, in exchange for $2,995, PNLC would provide “legal services” including “representation…for negotiation and resolution of disputes with current lender(s) regarding the subject real property and mortgage loan(s).” But litigation services were excluded from the scope of representation.

The agreement also provided that the fees were not conditioned on the outcome of the case and restricted J.H.’s ability to cancel the agreement and seek a refund after five days. Disputes arising after five days were to be handled by the guidelines and standards adopted by the California Bar.

In January, February and March of 2014, J.H. made payments totaling $2,995 via counter deposits into PNLC’s bank account. PNLC staff members told J.H. not to worry, that the law firm would secure the loan modification, and his lender would not take his home. Shortly after making his last payment, J.H. began experiencing difficulties reaching anyone at PNLC. PNLC never obtained a loan modification or offered J.H. any other solutions.

J.H. received notice of a foreclosure hearing, but he was unable to reach anyone at PNLC. J.H. appeared by himself and eventually hired another lawyer to file bankruptcy.

J.H. testified that he was unaware of any contact PNLC made with his lender. He believed he had been scammed and thought the wrongdoer should be in jail or disbarred.

Other matters were similarly described in both cases. It sounds as if the services were to collect fees only, and not to, in fact, perform legal work. The fact that these schemes cause delays when homeowners are in trouble with their loans make them particularly egregious. Dirt lawyers who are legitimately licensed by the South Carolina Supreme Court should be aware of these schemes and should be in a position to advise clients to avoid them with a vengeance!

 

* In the Matter of Naderi, South Carolina Supreme Court Opinion 27881 (April 24, 2019); In the Matter of Ochoa, South Carolina Supreme Court Opinion 27881, (April 24, 2019).

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Lawyers: be careful with client documents

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You and your staff can’t “fix” them

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A recent disciplinary case from the South Carolina Supreme Court involved a document problem in a child custody case, but the case reminded me of an area that can create difficulties for real estate lawyers. The case, In re Robinson*, resulted in a definite suspension of nine months for a lawyer who submitted a sworn affidavit to a family court purportedly signed by the client and notarized by the lawyer. After the attorney-client relationship was dissolved, the client informed the court that the affidavit was forged. The client indicated that she had no knowledge of the affidavit when it was filed but contents of the affidavit were true.

It’s easy to imagine the scenario. A deadline approached. An affidavit was needed. The client was unavailable. The lawyer decided “no harm no foul” and “fixed” the document problem with an affidavit that spoke the truth but that was not signed by the client.

How does this case translate to real estate? Closing attorneys and their staff members are often tempted to correct errors in executed documents by replacing pages or typing or writing directly on them, both before and after recording. Some practitioners assume that if they can locate the original document after recording, they can simply “fix” it and re-record it. This assumption is incorrect. The documents belong to the parties to the transaction. Lawyers and their staff members cannot revise and re-record documents without party participation.

Changes in documents should be accompanied, at the very least, by the initials of the signatories. Perhaps more often, new documents should be signed, witnessed, notarized and re-recorded. Substantial changes may require more formal corrective measures, such as a deed back from the grantee and a corrective deed from the grantor.

Closing attorneys and their staff members sometimes attempt to correct documents with the participation of only the seller or borrower when actual correction of the problem may require the participation of the buyer or lender. For example, a developer’s deed mistakenly refers to Lot 1, when the closing involved Lot 2. It is not sufficient to correct this problem by having the seller sign a corrective deed using the legal description for Lot 2. The buyer should reconvey Lot 1 to the seller, and the seller should then convey Lot 2 to the buyer. Similarly, if Lot 1 was mortgaged in this closing, the lender should release Lot 1, and Lot 2 should be substituted by way of a corrective mortgage or mortgage modification.

Like the lawyer in the disciplinary case, real estate lawyers and their staff members may believe the adage “no harm no foul” comes into play when a mistake is found in a document. To stay out of the Advance Sheets, resist the impulse to “fix” client documents acting alone. And train your staff to resist similar impulses.

 

* South Carolina Supreme Court Opinion 27824 (July 11, 2018)

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

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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)