In 2008 when people were losing their jobs and home values were plummeting, mortgage modification became a big thing.
The market for new loans and refinances crashed at the same time. Loan officers were looking around for another way to make a living, and so they jumped into doing mortgage modification. They took their fees up front.
The problem was that the banks still did not know what they were doing. So very few modifications were getting approved. The mortgage loan officers were taking people’s money and not accomplishing anything. Their contracts were payment up front but no payments upon completion. So whether the modifications went through or succeeded, the loan officers were getting no additional money. A lot of them went out of business. People who had paid a lot of money up front got nothing to show for it.
The regulatory agencies jumped to the conclusion that modification services were a scam and that borrowers should just send in all their papers and deal directly with the banks, without the assistance of any kind of modification services, not even attorney modification services. Lenders and the government warned: Don’t pay anyone an advance fee, and they included attorneys in that warning.
Meanwhile attorneys were chugging along, applying and reapplying, writing threatening letters, throwing clients into chapter 13 if necessary, eventually figuring out how to make modifications happen. The banks were figuring out what the programs meant, and we were figuring out how to submit successful modification packages.
In 2010 the Federal Trade Commission decided to prevent any modification services provider – whether lawyers or loan officer or Joe Blow – from accepting a retainer or any payment before full completion of modification.
The FRT proposed its draconian rule, and I responded. I cannot take on a modification and not get paid part of my fee in advance. I have an overhead. Also, if I don’t get paid in advance, I often don’t get paid, even if I do excellent work. So the FTC was not going to usurp the role of the Washington State Bar Association and tell me I cannot get paid part of my fee in advance without my saying something about that.
So you can read the comment I sent to the FTC about what should be done:
In a nutshell, what I said to the FTC was that it should rule that modification is the practice of law and that non-attorneys should stay out of the business. Attorneys should be able to collect advance fees provided they follow state bar rules about handling fees.
Read other comments to the FTC here.