Foreclosure Crisis Brings
Record Number of Complaints Against Lawyers

By Polyana da Costa
Daily Business Review
New York Lawyer
October 1, 2009

MIAMI - When Maryann Salvas sent $1,795 to Aventura attorney Daniel Fox to arrange a modification of her mortgage and reduce her monthly payments, she didn’t hesitate because she thought "people were supposed to trust lawyers."

Almost a year passed without the loan on her Rhode Island house being modified, said Salvas who hired Fox based on a phone solicitation. In order to pay Fox’s fee, Salvas said she missed a mortgage payment, never caught up on the late payment, and is now four months behind on the mortgage.

"It’s very unfair for a lawyer to take advantage of people who are trying hard to get by," she said. "He put me in a situation that I’m having a hard time to get out of."

Salvas and dozens of other homeowners filed complaints against Fox with the state attorney general or Florida Bar.

Fox, 32, was disbarred on Sept. 3 after pleading guilty to disciplinary charges that he abandoned the "representation of clients" seeking real estate loan modifications.

The attorney general’s office, which has received 50 complaints involving Fox, said its investigation of him continues.

Fox could not be reached and his attorney, Brian Tannebaum, did not return a call seeking comment.

As the state’s foreclosure crisis continues, loan modification and foreclosure defense have been become hot specialties for some attorneys. The state attorney general has received a record 756 complaints through August of this year about loan modifications involving attorneys. That compares with 61 similar complaints in all of 2008.

"There has definitely been a trend in the last six months or year where attorneys are having some involvement in loan modification scams," said Arne Vanstrum of The Florida Bar. He said the Bar has received 100 complaints about lawyers involved in loan modifications in the last six months — most from South Florida property owners.

Like Salvas, Gladis Heras, also thought she was in good hands. Heras said she paid Fox $3,500 in January 2009 to modify her mortgage. Yet months later, the bank told the New York resident it had never been contacted by Fox about the modification.

Her story is familiar, according to the attorney general’s office and Bar officials. The officials say homeowners most frequently report that lawyers charged them from $1,500 to $5,000 to negotiate lower monthly mortgage payments. And that once paid, the attorneys either stopped answering calls or made no effort to contact the lender.

On top of lack of representation cases before the AG’s office and the Florida Bar, there also are ethical questions about how lawyers handle foreclosure defense and loan modifications, especially the way homeowners are billed.

Some lawyers are being criticized for aggressive fee structures that are tied to the amount owed on the mortgage rather than the scope of work involved. Some lawyers charge homeowners monthly fees until the case is resolved or flat fees billed in monthly installments.

QUESTIONS OF ETHICS

Both fee structures are problematic, said George Castrataro, a former lawyer with Legal Aid Service of Broward County who now has his own firm and does foreclosure defense work.

"The fees should be directly related to a reasonable number of hours an attorney spends working on the case," he said. "The amount often taken is very similar to client mortgage obligation. If it takes two hours to resolve it, that is what it should cost, and not how much they pay in mortgage. That [practice] is in direct violation of our obligations."

Another issue: Some homeowners believe that as soon as they start making monthly payments to an attorney they have legal representation. That is not always the case, Castrataro said. Although the payments are in installments, legal representation may not begin until a minimum amount is deposited into a lawyer’s trust account. That could take two to six months.

Castrataro said one client almost lost her house because her former attorney did not appear in court on the day of a foreclosure hearing. The client had been making monthly payments, but not enough for representation to begin.

Castrataro said he has about 100 cases involving foreclosure litigation. In at least 20 percent of the cases, other attorneys had originally been hired to handle the cases.

The clients "complained about lack of representation, lack of responsiveness and failure to move the case forward," he said.

Are attorneys even needed in loan modifications?

"Absolutely not," Castrataro said.

He said he advises potential clients not yet in foreclosure to first try to arrange modifications themselves.

"It’s not a highly technical process," he said. "It’s mostly persistent phone calls."

Another pitfall for homeowners who don’t want to do it themselves: Castrataro said some lawyers take on modification cases where they know — or should know — the homeowner doesn’t qualify for a loan modification. After taking a fee and overseeing a needless process, they tell the homeowner the modification was denied.

Castrataro says inexperience or taking too many cases is as much to blame as greed for that situation.

NO UPFRONT FEES

Under the federal Foreclosure Rescue Act of 2008, loan modification firms are prohibited from charging upfront fees to homeowners seeking help. Attorneys were exempt from the ban and that led many modification companies to partner with lawyers to skirt the fee restrictions, said Ryan Wiggins, deputy director of the Florida attorney general’s office.

"In reality, these lawyers are not working with the homeowners at all," Wiggins said in a written statement through a spokeswoman. "If an attorney is not providing legal counsel to the homeowner, then the attorney is not exempt and is subject to the limitations in the statute, including the restriction against collection of an up-front fee."

Vanstrum said the Florida Bar’s ethics department has received calls from numerous attorneys worried about teaming up with loan modification firms. Vanstrum said unless the lawyers directly work on the homeowner’s case, they cannot partner with nonlawyer firms.

The Florida attorney general’s office said many of its loan modification complaints are from South Florida.

The AG’s office is investigating consumer complaints that Brian Korte, a West Palm Beach attorney tied to a Fort Lauderdale company called Legal Modification Attorney at Law, allegedly charged advance fees and "misled consumers regarding the nature of the legal services provided by the company and the level of involvement the attorney would have with each consumer’s case," Wiggins said.

He said the attorney general’s investigation is continuing and no charges have been filed.

Korte did not return messages left at his West Palm Beach office and did not respond to an e-mail seeking comment.

Homeowner Peter Fischer of Sunrise said in a complaint to the AG’s office that he paid Korte’s law firm $2,900 to oversee a loan modification.

According to Fischer, Korte and his staff told him to stop paying his mortgage and not to contact or answer calls from the lender. Fischer said he was told the fee would be refunded to him if the modification did not go though.

Fischer said after several failed attempts to reach Korte, a member of the lawyer’s staff called and said Fischer’s files had been lost and they needed his information again.

Shortly after that, Fischer said, a Korte staffer told him he did not qualify for a loan modification.

"I asked for the paperwork on why I was denied and nothing was ever sent to me," Fischer said. "So I asked for my money back and they said ‘let me think about it.’ "

Fischer said he was later told half of his fee would be returned. Fischer said ‘half is better than nothing," but still filed a complaint with the attorney general’s office.

The AG’s Wiggins said it has received six other complaints about Korte, but declined to discuss details of the investigation.

The Florida Bar said it too has received multiple complaints against Korte, but would not provide additional information because the investigation is confidential. Bar complaints remain confidential until a grievance committee finds probable cause for the investigation to continue.

Korte is a "member in good standing" and has had no disciplinary actions in the last 10 years, according to the Florida Bar Web site.

AG SUES TWO FIRMS

In another case, the Florida attorney general sued Deerfield Beach-based Housing Assistance Law Center, claiming the firm was affiliated with FHA All Day, which solicited hundreds of homeowners throughout the nation, charged them upfront fees to modify their loans and did not provide the promised service. Coral Springs attorney Karen Grun is the sole principal of Housing Assistance Law Center, according to the attorney general’s office.

She is an attorney in "good standing," according to the Bar Web site.

Grun did not return a call seeking comment.

The attorney general’s office obtained an injunction in Palm Beach Circuit Court blocking both firms from taking on new clients and freezing their assets.

Fox also was working with FHA All Day, according to the attorney general’s office.

The Florida Bar said it also has received multiple complaints against Grun and is investigating her but declined to provide further details.

The Bar permits lawyers who are under investigation for foreclosure and loan modification complaints to continue practicing during the investigation. In some cases, it can take up to two years between the time complaints are filed with the Florida Bar and any necessary action is taken.

"When it comes to loan modification complaints, we have to study each one and see whether in fact services are being provided," said Kenneth Marvin, staff counsel at the Florida Bar.