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Attorneys take on foreclosure crisis

By Kristina Horton Flaherty
Staff Writer

One recent fall morning, nearly 80 attorneys, paralegals and housing counselors streamed into San Francisco’s Practising Law Institute — another 166 arrived via the Internet — to learn how to better help desperate homeowners facing foreclosure.

More than 79,000 Californians lost their homes in the third quarter of 2008. Another 94,240 new default notices went out during the same period. And with credit tight, housing counselors overwhelmed and loan modification scams on the rise, experts say, thousands of homeowners are sinking fast.

The free, day-long “Defending Subprime Mortgage Foreclosures” training, still available online, was just one of several initiatives jointly sponsored by the State Bar to provide information and rally more volunteer assistance for those caught in the foreclosure crisis.

Other efforts include a free training on how to defend unlawful detainers (co-sponsored by Housing and Economic Rights Advocates of Oakland and others), and a new Web site — Foreclosure — launched by the Public Interest Clearinghouse and the bar for homeowners and tenants, as well as attorneys interested in volunteering their help.

“There aren’t enough people out there to help the borrowers,” said Tara Twomey, the National Consumer Law Center attorney who conducted the foreclosure defense training. “It’s a numbers problem, a sheer numbers problem, especially in areas like California.”

And attorney volunteers from all areas of practice can make a difference, she says. “Does that mean every borrower can be helped? Probably not. But I do think that with some persistence, a lot of borrowers can.”

That help might involve seeking a loan modification or simply developing an exit strategy — delaying an eviction or negotiating a payment from the lender to vacate the home. Freezing an interest rate for two years while the borrower’s child finishes high school, for example, might be one homeowner’s goal. “Not everybody needs a long-term solution,” Twomey said.

The training includes an overview of the subprime mortgage market, the foreclosure process, the current crisis and responses to it, available options and how to spot potential predatory lending, federal law violations and state claims in the origination and servicing of subprime mortgages.

A recent explosion in loan modification scams illustrates that borrowers are not finding the help they need, Twomey points out. Desperate borrowers pay fees in advance to someone who promises to renegotiate their loan but winds up doing little or nothing.

“People are willing to pay money because the system’s so broken that they can’t get anywhere,” Twomey said. “Really, this should be able to be done for free.”

But housing counselors and non-profit programs are stretched too thin, many say. And borrowers often cannot get through to anyone at their financial institutions who can help them. In turn, a spin-off loan modification industry — along with numerous scams — has sprung up in just months.

“It’s just exploded,” said Tom Pool of the Department of Real Estate.

But companies that promise to help consumers in foreclosure cannot legally collect advance fees (attorneys are exempt from this prohibition). If no default notice has been recorded, real estate brokers can collect advance fees for such work if they have special approval from the DRE. In early November, just 12 brokers had such approval; six weeks later, that number had jumped to 40, with another 400 applications pending.

Loan modification scams typically start with a flyer, phone call or knock at the door and an offer to renegotiate the homeowner’s loan — for an upfront fee. Participating homeowners often are told to avoid contacting their lenders. Then, while the company does little or nothing to renegotiate the loan, the unwitting homeowner loses precious time and falls deeper into foreclosure.

“Loan modification scams are becoming more and more prevalent across the country, particularly in California,” Attorney General Jerry Brown said in November, after announcing arrests in an alleged Southern California scam involving First Gov (also operating as Foreclosure Prevention Services).

Homeowners allegedly paid First Gov an advance fee of $1,500 to $5,000 and then, when delinquency or foreclosure notices continued to pile up, were told that they needed to make an additional “good faith” payment to secure new accounts for their renegotiated loans. According to the Attorney General’s Office, records suggest homeowners lost more than $700,000 in the scheme.

Prosecutors and nonprofit counselors alike stress that assistance is available for homeowners at little or no cost. But many swamped non-profits need help — particularly from attorneys in such areas as bankruptcy, probate, elder abuse and consumer law.

At the Sacramento-based Senior Legal Hotline, those manning the phone lines can only handle about half of the 80 to 100 calls that back up every day, says supervising attorney David Mandel. And the bulk of those calls now involve foreclosure-related cases that tend to be more time-consuming.

“The amount of time we’re spending on each case has shot way up,” Mandel said. In some instances, he turns to reverse mortgages to help seniors stay in their homes. And he could really use help, he says, from attorneys willing to handle predatory lending cases that might lead to litigation.

The Housing and Economic Rights Advocates in Oakland currently handles 100 to 200 foreclosure-related calls a week, sometimes as many as 65 calls a day. Executive Director Maeve Elise Brown says she’s hoping to build a list of vetted pro bono attorneys who could be tapped, with some guidance, to take on some of their cases.

Kellie Morgantini, one of two staff attorneys at Legal Services for Seniors in Monterey County, says she’s recently seen a huge jump in senior tenants on the verge of eviction. They live in homes purchased as investment properties during the boom. They pay their rent on time. And then one day, the sheriff shows up with an eviction notice.

All Morgantini can do in most cases is negotiate a delay in the move, she says. She works to keep the tenant’s name off of the unlawful detainer as well. And she’s met with the sheriff to try to find a way to ease the situation. In one recent case, Morgantini’s client moved out after a delay, but bank investigators later insisted the woman was still in the home. As it turned out, someone else in dire straits had settled into the vacant home and placed a post-it on the window: “Please don’t throw us out. We’re a family.”

Morgantini attended the recent foreclosure defense training via the Webcast, she said, to learn how to better assist the surge of seniors falling victim to foreclosure, predatory lending scams and potential homelessness.

“This has been something that has been getting bigger and bigger,” she said. “We needed to be able to see how to focus on what’s important.”

Dan Mulligan of Jenkins, Mulligan & Gabriel LLP, a presenter at the training, says very little can be done for borrowers in the current climate. But, he said, attorneys who want to help should take the training, get into an organized pro bono program and try to do something. “Dig in,” the La Quinta attorney said, “and see where you can go on the loan modification process. It’s still possible.”

To view the trainings at no charge and earn MCLE credit, go to The Web site also provides a link to a list of programs that are seeking pro bono help from attorneys statewide.

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