New Foreclosure Regulation Hurts Homeowners, according to Lawyers
By: Gerri L. Elder
The millions of families that are facing bank foreclosure need help they can trust. However, a new regulation may actually prevent them from getting the assistance they need to hang on to their homes.
Foreclosure lawyers in Massachusetts have been forced to turn away homeowners who are facing foreclosure because of a new foreclosure regulation that was designed to protect property owners from all the shady foreclosure-rescue schemes that have popped up in the wake of the nationwide foreclosure crisis.
Lawyers who routinely assist homeowners in bank foreclosure say that a new regulation from Attorney General Martha Coakley is unclear and unfairly prevents them from representing clients who are facing foreclosure on their homes. The regulation bars foreclosure lawyers in Massachusetts from accepting retainers in certain types of foreclosure cases, and as a result, lawyers are forced to turn away potential clients who need help to avoid financial disaster.
Coakley's new regulation was implemented on September 1, 2007. The regulation, 940 CMR 25.02 (b), states that "it shall be an unfair or deceptive act in violation of [Chapter 93A] to solicit, arrange, or accept an advance fee in connection with offering, arranging or providing Foreclosure-Related Services."
The regulation does state that licensed attorneys are not barred from taking a fee or retainer "in connection with the (i) preparation and filing of a bankruptcy petition, or (ii) court proceedings, to avoid a foreclosure."
And that is where the confusion lies. The regulation prohibits an advance fee or retainer, but allows foreclosure lawyers to collect a retainer in connection with foreclosure proceedings. So which is it? Can foreclosure lawyers collect a retainer, or will they face significant sanctions if they do? Those are the questions that foreclosure lawyers in Massachusetts say they need answered before they can assist homeowners who are facing bank foreclosure.
During the press release in September, Coakely said that foreclosure-rescue schemes are usually initiated by unethical professionals who claim that they can help homeowners avoid bank foreclosure by transferring ownership of their property to straw purchasers.
Straw purchasers would then obtain a mortgage loan and allow the families to continue living in their homes for a limited time. The homeowners are generally promised that they will have the opportunity to regain ownership of their homes. The end result of these schemes is generally the same, the homeowners lose their homes in the foreclosure-rescue scheme.
The goal of Coakley's regulation was to provide protection to homeowners from these foreclosure-rescue schemes. However, in doing so, she has tied the hands of foreclosure lawyers who actually can provide help to homeowners in foreclosure.
Under the regulation, lawyers can not collect an advance fee or retainer from clients unless the client first approached the lawyer on a bankruptcy or litigation matter. This means that lawyers who are approached by desperate homeowners who are headed towards bank foreclosure are unable to collect a retainer, and therefore unable to provide help.
Coakley's office says that the new regulation is not a problem, and says that her office has not received any complaints. She says that she has not heard that the regulation is causing foreclosure lawyers to turn away distressed homeowners who are facing foreclosure, but would be happy to address the concerns that lawyers have about the regulation.
Foreclosure lawyers can still be paid for their services, just not in advance. That has many Massachusetts foreclosure lawyers backing away and refusing to assist troubled homeowners. They say that the regulation prohibits them from even providing the most basic assistance to homeowners to avoid foreclosure, such as renegotiating a mortgage, because they can not collect a retainer for these services under the regulation because it would not be considered in the context of a court proceeding.
So, all in all, it is the homeowners who are desperate for help to avoid foreclosure that seem to be losing out. The regulation that was designed to help them is now making it more difficult than ever to avoid losing their homes in bank foreclosure.