Real Estate

Loan Modification Fees Spark Legal Showdown

The CDA Law Center in San Clemente says the California State Bar's interpretation of a rule that outlaws upfront fees to homeowners could push the firm out of business. Court battles are in the works.

Ralph Gimple says he nearly lost his home. He was jerked around by bank officials when seeking a loan modification, and his wife nearly had a nervous breakdown, he said. After trying three times on his own to get a modification through the bank, Gimple sought help from several loan modification specialists. Gimple said they all blew him off -- until he enlisted San Clemente’s CDA Law Center. Now CDA faces troubles of its own. The law firm is embroiled in a lengthy -- and possibly precedent-setting -- battle with the State Bar Association over how attorneys charge clients for loan modification services. CDA senior partner Robert Scurrah is fighting disciplinary charges in Bar Court in Los Angeles, and has sued the bar. The lawsuit, which is progressing through Orange County Superior Court, has caught the attention of law firms and loan specialists statewide because it could determine whether attorneys can charge homeowners fees leading up to a successful loan modification rather than only after it's completed. In 2009, the state passed a law -- Senate Bill 94 -- aimed at curbing rampant fraud by loan modification specialists who charged desperate homeowners thousands of dollars without ever coming through for them. Scurrah and other critics of the law contend the state bar's current interpretation of the rule deprives homeowners of legitimate help from attorneys because clients pay them as legal work is completed leading up to a loan modification, which helps defray case costs. The Case for CDA
Gimple said CDA enabled him and his wife to keep their home by shepherding them through the modification process. “We must have tried it six times,” he said. “My wife ... got so burnt out doing this. The bank played all kind of games.” When the couple finally realized they needed an expert – even though Gimple himself is in the real estate business – he said they got jerked around by the “pros” as well. Gimple enlisted a loan modifier based in Northern California. “He said, ‘Oh, we’re going to get this done, we’re going to get this done,’ and then it was months and nothing happened, and it was like he didn’t care,” Gimple said. “We owned the house for 13 years and we were already at the stage where we were going to move into mom’s rental property.” Then CDA Law Center came to the rescue, he said. “We would not be in our house if it weren’t for them,” Gimple said. Attorneys at CDA Law Center said their firm and others like it could be forced out of business by the California State Bar Association, which they contend has changed their interpretation of SB94 to make it virtually impossible to collect fees. The Bar’s Allegations The State Bar Association charged CDA senior partner Robert Scurrah Jr. with six counts of violating the state’s business and professions code for charging clients thousands in fees from several clients “prior to fully performing each and every service [Scurrah] had contracted to perform or represented that he would perform, in violation of Section 2944.7(a)(1) of the Civil Code,” according to the disciplinary document. The section cited by the Bar was enacted in 2009 in response to rampant swindling by real estate licensees who billed themselves as “loan modification consultants.” The law says Department of Real Estate licensees can collect fees only after a loan modification is successfully completed. Until recently, the state bar interpreted the law as exempting attorneys in good standing. However, the California attorney general and state bar officials have begun cracking down on attorneys accused of defrauding homeowners. "The number of lawyers who have tried to take advantage of distressed homeowners in these tough economic times is nothing short of shocking," State Bar President William Hebert said in 2011. The trouble is, said Fullerton-based foreclosure expert and blogger Martin Andelman, no attorney can afford to work for free. “They don’t make much money at this in the first place,” Andelman said. “There’s a lot of scams, but the number of attorneys? I just don’t see it. Lawyers aren’t scamming people for two or three grand. Come on. [The bar] has been obtuse at every turn. It’s the craziest thing I’ve ever seen. All the legitimate attorneys will be gone.” Andleman, who is testifying in court on behalf of CDA Law Center, said about 700 attorneys in California are disbarred every year for various reasons, but in the last three years, only 22 were disbarred for actions related to services involving real estate. According to court documents and Andelman, who said he did a random audit of the CDA's case files, the firm has a history of successfully modifying loans for 85 to 90 percent of its clients. The firm’s attorneys said they turn away clients they don’t think they can help. “Since 2009, CDA has assisted homeowners to restructure more than 4,400 loans worth an estimated $1.5 billion,” Scurrah states in court documents. “CDA turns away more than 60 percent… as it will not represent persons whom it deems have little or no chance of success.” Attorneys at CDA said they don't charge clients in advance of performing services, but they do charge them as individual services are completed, such as completing a "REST" report that helps build a case to the bank of the client's eligibility for a loan modification. However, attorneys who wade into loan modification have to be prepared to delay their charges to clients, said Michael Mallow, who heads the Santa Monica firm Loeb & Loeb’s Consumer Protection Defense Department. “It comes with the territory,” he said. “The obligations we have for our clients transcend the desires we have for ourselves. The attorney that goes into a personal injury case... doesn’t collect money up front. The state bar association’s [interpretation of SB94] is neither surprising nor unprecedented.” Mallow, who defends corporate clients -- including firms that negotiate debts -- against regulatory and other consumer protection action, agreed the state set up harsh fee rules. But it was necessitated by the staggering volume of loan modification services fraud that was going on statewide, he said. “There is some kind of balance they’re trying to reach,” Mallow said. “There was enough abuse that there was a very draconian and swift reaction by the Legislature.” Fighting the Bar After the bar slammed CDA’s Scurrah with disciplinary action, he fought back. Scurrah has been wrestling in court with the California State Bar Association since September. He doesn’t deny collecting fees from clients, but argues the bar’s interpretation of the law is way off base. Scurrah points to a federal case, Duenas v. Brown, in which he says attorneys for the bar association successfully argued the opposite of their recent interpretation of Senate Bill 94. “Plaintiffs continue to insist on the erroneous premise that California Civil Code Section 2944.7 somehow prohibits an attorney from charging a homeowner for any legal services in connection with the homeowner’s mortgage until all of the services are complete,” the bar’s attorneys state in the document responding to the Duenas complaint. “As defendants have explained numerous times, the statute does not say that.” Officials with the California State Bar declined to comment on Scurrah’s case. No final decision has been made by either the Superior Court or the Bar Court in either of the cases, said CDA's attorney Mark Zanides. The next hearing in Scurrah’s lawsuit against the bar is expected within the next month, he said.


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