More and more attorneys are venturing into mortgage law, but they must ensure that their efforts don’t leave them in violation of the law.
As many Georgia homeowners face foreclosure, there has been a marked increase in the number of attorneys practicing “foreclosure defense,” including aiding with bankruptcies, loan modifications and short sales.
This appears to be a booming area of law for many recent graduates exploring the idea of solo work or for those who have long worked in the related field of real estate law. However, with all the regulatory changes over the past four years, on both the federal and state levels, there are new land mines to watch out for—even for the most experienced attorneys.
Since 2010, much has been made of “robo-signing,” whereby mortgage company employees signed documents needed to conduct lawful foreclosures without reviewing the documents to determine whether the foreclosure was valid. In February 2012, Wells Fargo, JP Morgan Chase, GMAC, Bank of America and Citi consented to a $25 billion settlement resulting from their employees’ transgressions.
The CEO of DocX, an Alpharetta company used by mortgagees to produce documents, pleaded guilty in the Middle District of Florida to conspiracy to defraud the United States. The CEO, Lorraine Brown, was sentenced in June 2013 to five years in prison and ordered to pay $15,000.
The robo-signing crackdown can affect attorneys too. Obviously, attorneys must take care to review foreclosure documents before executing affidavits attesting to information. Similarly, lawyers must be sure not to engage in “surrogate signing”—permitting paralegals, secretaries and other support staff within a firm to forge the attorney’s signature. Such precautions are appropriate even in nonjudicial foreclosure states like Georgia.
It all seems obvious, but good intentions can go awry. For example, attorney Thomas P. Dore of Maryland’s State Bar became the subject of ethics violations when documents were signed that he did not review. Dore explained that he did not want his employees signing the documents because he wanted to shield them from retaliatory homeowners.
With mortgage servicers heavily relying on local attorneys, counsel can get bogged down with the sheer volume of cases and documents to sign. No matter what the reasoning is, robo-signing and surrogate signing can lead to violations of the Rules of Professional Conduct, including Rule 3.3: Candor Toward the Tribunal, Rule 3.4: Fairness to Opposing Party and Counsel, Rule 4.1: Truthfulness in Statements to Others; Rule 5.1: Responsibilities of Partners, Managers and Supervisory Lawyers; and Rule 5.3: Responsibilities Regarding Nonlawyer Assistants.
In a formal advisory opinion, the State Bar of Georgia has issued guidance concerning whether a lawyer aids a nonlawyer in the unauthorized practice of law when the lawyer allows a nonlawyer to prepare and sign correspondence which threatens legal action or provides legal advice. In addition, the State Disciplinary Board issued guidance in an advisory opinion concerning the ethical responsibilities of attorneys who employ legal assistants or paraprofessionals and permit them to deal with other lawyers, clients and the public.
Attorneys might also consider tailoring their fees and retainer agreements for those clients for which they will be providing mortgage services. In addition to the legal ethics rules related to fees, there is the FTC’s Mortgage Assistance Relief Services (MARS) Rule to consider. The MARS Rule prohibits charging upfront fees for mortgage assistance relief services. Although there are exemptions, attorneys must be careful to consider to what extent the exemptions apply to the services that the attorney is providing.
Finally, an attorney must ensure that he is providing actual legal services and not mortgage services. For example, guidance from the Georgia Department of Banking and Finance, the state regulator for state-chartered banks, mortgage lenders, brokers and originators, suggests that loan modification companies must be licensed under Georgia law. Specifically, the Georgia Residential Mortgage Act requires a license for anyone who solicits, processes, places or negotiates a mortgage loan.
Mortgage industry licensees must pass federal and state tests, submit to a background check and maintain a surety bond, among other requirements. Such requirements, set by the Georgia Residential Mortgage Act, help to ensure that a licensee, negotiating with a lender on behalf of a consumer, is knowledgeable concerning rules and standards specific to the mortgage industry.
These rules and standards, which might successfully help a licensee negotiate a loan, may fall outside the law itself, which is likely to be a lawyer’s primary focus. For example, an attorney may be able to consider finances to determine that a bankruptcy, a legal service, is a client’s best option, whereas a licensee or a HUD-approved housing counseling agency may review a consumer’s finances and be in a better position than a lawyer to advise which loan modifications the consumer qualifies for.
The department’s website has issued numerous press releases related to law firms that have received cease and desist orders from the regulator. The Georgia Residential Mortgage Act does provide an exemption from licensure for attorneys licensed in Georgia, but only if the mortgage service, such as a loan modification, is provided as an ancillary matter to the attorney’s representation of the client for legal services. An attorney should not solicit or provide stand-alone loan modification or other mortgage services. A final cease and desist order from the department or a referral of a consumer’s complaint to the state bar could prove detrimental to a lawyer’s reputation and livelihood.
Mortgage law has allowed many Georgia lawyers to thrive in recent years. The practice area itself is not new, but it certainly is changing. Whether the client is a servicer or a Georgia homeowner, it is important that lawyers be mindful of any unintended consequences that may result from a desire to expand their practice into mortgage law.
The FTC’s MARS Rule prohibits charging upfront fees for mortgage assistance relief services. … Attorneys must be careful to consider to what extent the exemptions apply to the services that the attorney is providing.