Saturday, February 20, 2010

Cal law keeps lawyers from helping clients with foreclosure problems

In the name of consumer protection, the Calif. state legislature recently passed draconian restrictions on attorneys assisting with loan modification. (Civ Code 2944.7 (a) (3) Stats 2009 ch 630 (SB 94), s 10 ) and Business and Professions Code 6106.3.

At times I have been called on to help people in default on their home loans. On each of the occasions I have run into difficulties when the banks or servicing agent invokes the Gramm-Leach-Bliley Act, 15 U.S.C. § 6801–6809). This is the so-called bank secrecy act, and it prevents the bank from revealing or talking about its borrowers’ information with a third party. One of its few exceptions is for
“(E) to persons acting in a fiduciary or representative capacity on behalf of the consumer;”

There is no set way to establish such capacity. The most ordinary and effective way to establish a "fiduciary or representative capacity" is through a written power of attorney.

Now, while trying to shut down unethical attorneys who were taking clients' money and falsely promising their mortgages would get modified, the state legislature has forbidden people who are seeking to help another with a loan modification, including attorneys (under Business and Professions Code 6106.3(a) as applied to Civil Code 2944.7 (a) (3)) to:
"Take any power of attorney from the borrower for any purpose."

These words effectively prohibit or thwart the use of attorneys from helping a homeowner who might hire them to try to modify their mortgage.
In fact, as written, an attorney who helps modify a borrowers mortgage literally cannot hold a power of attorney to do anything else for that person.

Certainly persons promising mortgage modification help should be regulated. Also customers should be warned that the efforts of attorneys seeking to achieve their customers' ends may well be no more successful than those of a homeowner's without any experience or knowledge of the possible tools involved. But the same may be said of plumbers and beauticians with regard to their efforts.

The law could be made reasonable at least by changing the prohibition on powers of attorney "for any purpose" to "for the express or actual purpose of collecting or receiving fees for assisting with loan modification."
Meantime, with private lawyers pretty-well shut out of helping in this field, the advice usually given: to seek out HUD approved non-profit services is probably the best.

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