California lawyers won’t help with loan modifications

Greater numbers of California lawyers are turning down homeowners fighting for a loan modification since state advance fee law prevents them from being paid until and unless their client receives a loan modification.

Strict advance fee regulations for lawyers were the result of an effort to eliminate real estate scammers, who made big promises to desperate homeowners before disappearing with their up-front fees. A side effect of the increased protection is that honest lawyers (and brokers) who are not willing to defer payment are forced, until the objective has been attained, to sit on the sidelines and leave underwater homeowners without their representation.

While many states have courts overseeing foreclosure proceedings, the California process is handled privately between lender and borrower. Since lenders are generally unwilling and notoriously slow to process modifications, there is diminished opportunity for lawyers to provide their legal assistance to underwater homeowners.

first tuesday take: The reporter failed to consider that in California the primary sources of advice on real estate transactions, mortgages and leasing are real estate licensees—not attorneys. However, a widespread belief exists in California that there is no dichotomy for the giving of legal advice. This is the real estate trade union mantra to keep the dumb agent rule in effect and deprive the public of the only source of information readily available to them on a contingency fee basis. Legal aspects of real estate are known to the real estate licensee as a blatant matter of basic and continuing education (CE).

No such exclusive right exists for attorneys to give real estate advice on matters that affect a real estate transaction’s legality, tax repercussions, or utility (for an example, look no further than escrow and title companies, the epitome of those who dispense legal advice as a matter of necessity on all sorts of real estate matters).

Even the settlement of disputes in real estate transactions is handled by the brokers and agents involved in the transaction, as this is exactly what they are contracted to do as licensees. Negotiations are the name of the agent representation game when acting on behalf of a client in a real estate deal.

If it comes to litigation and strategy for litigation, then the attorney is the one authorized by law to advise on the practice of law – namely the setting of probabilities of a successful action and the compliance with procedures in their management of that action.

“I’m not an attorney, but…” This is how the insecure broker/agent, inculcated in the doctrine of the dumb agent rule, begins to give advice he senses he must give when the client does understanding what the real estate law is, or is acting in a fashion ignorant of the law. The law is a material fact, which may have an adverse affect on the client – and the broker need not defer to an attorney as though a lesser professional to tell the client what the broker or his agent in the transaction already know.

Simply, brokers do deals (and unlawful detainer (UD) actions), and render all the legal and tax advice that could possibly be coupled with that transaction (agreements to lease, borrow, purchase/sell); attorneys do court (and as licensed generalists may do deals), and all the forms needed to get that job done to accomplish the courtroom objective.

All this rendering of legal advice has to do with the authority granted by the license one holds and the business one can hold themselves out to practice. Once retained, brokers and agents must do all that any other member of the real estate profession would be expected and capable of doing in the way of advice, whether on the real estate, trust deed or landlord-tenant law involved, contracting or tax aspects of the transaction, or on the list of all the other material facts related to the transaction.

*caveat to attorneys: nearly every activity in real estate is controlled by a code, regulation or case law, and brokers are duty bound to know and advise their clients on them or they will be held incompetent to practice real estate brokerage.

Agents and brokers can step up to the plate and provide homeowners with counseling, advice and information to complete a loan modification, all part of negotiating or compromising the terms of a loan. The sooner these considerations are taken to heart and put into action, the sooner the real estate market will recover — making these efforts particularly relevant to those who make a living buying and selling homes and investment properties or managing property.

Re: “Homes at Risk, and No Help From Lawyers” from the New York Times

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One Comment

  1. V La Froscia said:

    What??? You’re advising people that a real estate agent is in a better position through their continuing education classes to give legal advice? This is utterly insane and irresponsible advice. Your article notes that “brokers are duty bound to know and advise their clients on them or they will be held incompetent to practice real estate brokerage”. It is a much shorter climb for a harmed client to make a case for “incompetent broker” than it is for “legal malpractice”. If real estate agents were as well versed in the law as attorneys they’d be allowed to practice law.

    The you go on to note that “The reporter failed to consider that in California the primary sources of advice on real estate transactions, mortgages and leasing are real estate licensees—not attorneys.” It may be true that brokers are the primary source of advice but that doesn’t necessarily translate into it being the best place to get advice.

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