One of the biggest advantages to hiring an attorney to assist a homeowner with foreclosure relief or loan modification is the fact that there are numerous issues people are unaware of that, if not handled properly, could result in making their situation worse.
Remember that your lender is often taking computer notes and usually records calls. Although there are issues regarding the legality of recording phone calls in California and its potential as evidence in a case, it is still something that could come back to haunt homeowners.
Here is just one example: Let’s say you purchased your house 3 years ago and told your loan officer or broker that you made a certain amount per month. The broker may have done what is called “stated income” which does not require proof of income, such as paystubs. Some borrowers may have heard or even been told by their broker that they can exaggerate or increase how much they make because it is not verified by the bank, thus allowing them to qualify for a more expensive house. Whether you intentionally increased (“fudged”) your income or your broker may have done it for you, if you later tell your lender how much you were really making at the time or accidentally tell them you may have gone a little too high on what you actually make, you may have just given the lender the leverage it needs against you. “I shouldn’t have even qualified for the loan because I didn’t really make that much.” You were likely in a non-recourse loan in California, which means you have no personally liability. The only thing the lender can do is to take back the home, they can’t sue you for any missed payments, decrease in value of the home below what you owe, etc. Now suddenly the lender can sue you for fraud in connection with the original loan. Without realizing it, you opened yourself up for personal liability.
This is only one of a number of small legal issues that many homeowners don’t understand. Lawyers serve as an intermediary to take the emotion out of the issues and understand the potential legal issues out there.
I am often asked by potential clients what exactly I do for homeowner that they couldn’t do for themselves. Many people think it is just a matter of calling the lender and faxing over some bank statements and tax returns. Yes, that is part of the process, but remember that the banks spend millions of dollars per year on law firms and lawyers. They have an army of lawyers working for them to be sure they protect their financial assets. Homeowners should understand that banks see numbers not people and they will use any potential legal edge possible to be sure to maximize their profits.
I can’t tell you how many of our clients have already paid thousands of dollars to a loan modification company or a loan modification law firm or lawyer, only to have nothing happen. In some cases, the client’s home has already been sold and they don’t even know it until they get a notice of eviction (3 day notice to quit) on their door. There are reputable companies and law firms/lawyers out there putting forth efforts to save homeowners, but there are many that are simply greedy. They pile on as many cases as possible and have legal assistants, paralegals, or former loan officers do all the work.
These companies and law firms may not realize the potential liability associated with case overload. The loan modification arena is a very tricky one. Lenders may tell an assistant that they are postponing a foreclosure, but the trustee moves forward with the sale. There could be certain duties owed to the client and failure to exercise the proper amount of care can result in liability for negligence.
In addition, the State Bar of California and California Attorney General are dedicating significant amounts of staff to investigating and prosecuting anyone who ventures outside the ethical and legal bounds in search of getting rich. There have already been several loan mod companies shut down, but there are also loan modification attorneys that should be shut down. I have personally checked up on some companies advertising as loan modification lawyers here in southern California, only to find that some are not even licensed to practice law in California, have large histories of disciplinary actions from the state bar, or have been working in a completely unrelated field until 3 months ago when they suddenly became a trusted loan modification attorney.
In order to protect yourself, here are a few words of caution:
1) Anyone who tells you that you have to have an attorney to modify your loan is not telling you the truth. You can do it yourself; however, there are many legal issues involved in the process, so you could be doing yourself a disservice to not at least speak with an attorney before moving forward.
2) Beware of “attorney-backed” or “attorney-affiliated” companies. The state bar has already issued an ethics alert stating that these types of companies are not acting within the ethical bounds of the state bar here in California. I don’t know exactly what these words mean, but my understanding is that they have an attorney who may work for the company or is somehow connected to the company, but they never actually review or get involved in your case ever.
3) Do your homework on law firms. There are confidentiality and ethical issues involved in giving guarantees, success rates, and prior cases results, but the attorney or firm should be able to give you an idea how long they have been working in real estate law and what type of experience they have. For example, have they ever gone to court and gotten an order to stop a foreclosure, have they represented clients in bankruptcy court so they are familiar with these interrelated issues, have they actually filed lawsuits for predatory lending, have they postponed existing trustee sales? If you never speak with an attorney at the firm when you are looking to hire them, do you really think an attorney is aggressively going to work on your case? Would you ever go to the doctors office for a serious condition and never actually see the doctor, just do whatever the nurse or assistant tells you to?
If you feel that you have been a victim of these types of scams, you may have legal rights you can pursue.
Chris Barsness, Esq.
Law Office of Barsness and Cohen
There are thousands of owners of rental and investment properties that are facing decrease in rental income or other financial hardships. Although they want to save the property, it may not feel like it is as pressing of an issue as their own home where they live. However, if you have tenants, this raises another potential issue for liability. If the lender forecloses on the property, they may do a trustee sale in which they will not be able to go after the owner for personal liability for any unpaid payments or a difference between the sale price and what was owed. This does not mean that the owner is free to just let the property go. Obviously there are potentially harmful credit impacts, but also the existing tenants have rights. More than likely, they have a written lease agreement with the owner. If they are suddenly served with a notice to move out or be evicted by the new owner after foreclosure, they may decide to bring a lawsuit against the former owner for damages. In fact, if they find that the former owner knew about a pending foreclosure when entering into the lease, they could have a claim for fraud, which will not go away even in bankruptcy.
Even though it is not where you live, owners of rental and income properties must still work to resolve any potential foreclosure of those properties. The federal programs do not include investment or rental properties, but many lenders will still work with you to try to reduce your payment and keep the rental. They will not do this if you don’t aggressively pursue any potential option they may have.
Call us today to evaluate your situation.
Law Office of Barsness & Cohen