I wrote an article a few months ago about whether or not Florida attorneys could be considered ‘foreclosure rescue consultants’ under FS 501.1377.  My question at the time was: “what was the legislative intent behind removing the attorney exemption in FS 501.1377?”

Well, three months later we have a better idea, as there are presently some changes to FS 501.1377 and Chapter 494 underway with CS/SB 2226.  Based on what’s been added and marked up as of today’s date in CS/SB 2226, attorneys will now be required to become “a loan originator, mortgage broker, or mortgage lender” when completing loan modifications for clients unless the attorney negotiates the loan modification “as an ancillary matter to the attorney’s representation of the client”.  So basically any of the attorneys that are advertising ‘loan modifications’ will be required to become licensed in the mortgage business.

I also noticed that the present changes to FS 501.1377 have removed the definition of ‘foreclosure rescue consultant’ from the Act and since it appears the amendments to Chapter 494 F.S. referenced above apply to ‘loan modifications’, it would appear that companies engaged in short sale processing in Florida would no longer be subject to its provisions or at least that might have been the intent.  Only problem with that is a ‘loan originator’ is defined (in part, emphasis added) as: “an individual who, directly or indirectly, solicits or offers to solicit a mortgage loan, accepts or offers to accept an application for a mortgage loan, negotiates or offers to negotiate the terms or conditions of a new or existing mortgage loan on behalf of a borrower or lender, processes a mortgage loan application, or negotiates or offers to negotiate the sale of an existing mortgage loan to a noninstitutional investor for compensation or gain.”  So, it appears that every Florida licensed real estate agent who negotiates a short sale must also obtain a Florida loan originator license. Rut-roh!

It should be noted that as of the date of this post we don’t have the final version yet and since that’s the case, I’m going to recommend that everyone in Florida who objects to this provision send an email to Senator Mike Fasano fasano.mike.web at flsenate.gov with a link to this post stating that ‘short sales’ should be specifically exempted from the definition of ‘loan originator’. 

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

ORLANDO, FL – Attorney General Bill McCollum today announced that his Economic Crimes Division has filed a lawsuit against an Orlando company allegedly providing loan modification services to homeowners facing foreclosure – the first lawsuit filed under the new Foreclosure Rescue Fraud Prevention Act. According to the lawsuit filed today in Orange County, FMA Servicing, Inc. and its owners are in violation of the law which, among other provisions, prohibits a company providing foreclosure-related rescue services from charging consumers any up-front fee.

“Companies and individuals who target homeowners in potentially desperate situations should not be operating in our state,” said Attorney General McCollum. “Florida will not tolerate businesses that prey upon those on the verge of foreclosure.”

An investigation conducted by the Economic Crimes Division revealed that FMA Servicing, which does business under the name Financial Management Advisors, allegedly charges an up-front fee as high as $2,500 to homeowners seeking loan modification services. Additionally, the lawsuit claims the company misrepresented relationships with lenders and falsely advertised the presence of attorneys and certified public accountants on staff. The Attorney General has also filed a motion seeking to temporarily prevent FMA Servicing from charging up-front fees.

The lawsuit specifically requests the Court grant a permanent injunction prohibiting FMA Servicing from charging up-front fees and order the company to pay restitution on behalf of affected consumers, civil penalties of $10,000 for each violation, and reimbursement for costs related to the investigation and litigation.

Florida Statutes 501.1377, which took effect on October 1, 2008, protects homeowners who are in foreclosure or nearing foreclosure from companies offering potentially fraudulent foreclosure “rescue” services. Specifically, the statute governs companies providing foreclosure-related rescue services including loan modification and short sale services. These companies are prohibited from charging homeowners an up-front fee for these services and must provide homeowners with a written agreement. The law was one of the Attorney General’s legislative priorities during the 2008 Legislative Session.

Source – Florida Attorney General

I was talking to an attorney recently about newly enacted FS 501.1377 and its application to lawyers in Florida.  The initial version/s of the statute contained a specific attorney exemption which was subsequently altogether removed in the version of the Act that has since become Florida law.

The Broken Credit Blog covered this problem six months ago on June 11, 2008 where we wondered if homeowners would be left in the lurch when desiring attorney legal assistance in filing bankruptcy, or in defending a foreclosure action.  Thankfully, on July 11, 2008 we reported that Attorney General Bill McCollum provided a limited attorney exemption which states (in part) that the FL AG “approves for exclusion from the definition in this provision of a foreclosure rescue consultant, a person licensed to practice law in this state, when such person provides legal representation to a client with respect to a foreclosure” (emphasis added).

To put the Florida AG letter in perspective, he was responding to an inquiry made on behalf of bankruptcy attorneys (who no doubt were in upheaval with 501.1377 because they became the unenviable subject to provisions of BAPCPA in ’05).  And in answering their concern he most assuredly also wanted to aver foreclosure defense attorneys that they were not hindered in any way “when such person provides legal representation to a client with respect to a foreclosure”.

Contrast all of this with the California version of the Foreclosure Consultant Act which exempts attorneys in CA Civil Code 2945.1(b)(1) with the following text: “A person licensed to practice law in this state when the person renders service in the course of his or her practice as an attorney at law.”

The California version of the statute was enacted in 1979 (and amended in 1980 and 2004), whereas the Florida statute is brand new, literally only a few months old. In California, lawyers essentially run loss mitigation companies collecting legal fees for loan modifications, short sales, etc. and I have no problem with that.  The problem and liability arise, in my opinion, when an attorney in Florida offers to assist a homeowner with a loan modification, short sale, or other workout, exclusive of the client engaging him or her in response to the filing of a foreclosure of which the pendency of such “foreclosure proceedings (is) recorded pursuant to s. 48.23” [501.1377(2)(g)].

The serious question remains and undoubtedly case law will develop accordingly to determine what was the legislative intent behind removing the attorney exemption in FS 501.1377?

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

I am setting up website for modifications.  I do business in Florida.  What are the laws regarding companies soliciting for loan mod leads?

Darlene (more…)

As a welcomed follow up and update to Unintended Consequences of Florida Foreclosure Law, Florida’s Attorney General Bill McCollum has released this letter:

“It has come to the attention of the Department of Legal Affairs that there is some question about whether attorneys providing legal counsel to homeowners facing foreclosure, most particularly when such persons are in bankruptcy, are subject to the provisions of the Foreclosure Rescue Act, Section 501.1377, Florida Statutes (2008) effective October 1, 2008. In order to ensure that the attorney/client relationship is not adversely affected by this new provision, the Office of the Florida Attorney General, Department of Legal Affairs, provides as follows:

Pursuant to its authority under Section 501.1377(2)(b)2, Florida Statutes (2008), the Office of the Florida Attorney General, Department of Legal Affairs, hereby approves for exclusion from the definition in this provision of a foreclosure rescue consultant, a person licensed to practice law in this state, when such person provides legal representation to a client with respect to a foreclosure.

Please disseminate this information to members of the Florida Bar by any method you deem appropriate.”

OK, looks like we’re back on track stopping Florida foreclosures once again!

I have been hearing alot about the new law that goes into effect in Florida in November regarding not being able to take a fee or deposit up front from a homeowner unless you are a lawyer.  Is this true and is there any way to to be legal without being an attorney. 

Our clients love us.  We work very hard for them and charge much less than an attorney.  I am afraid that if we don’t get the fee before the Mod is complete it is just human nature that we will have to fight to get paid.  As it is we break our fee into  3 payments to give them some breathing room. 

It really kills me that my company has to pay the price for the crooks out there that couldn’t care less about doing the right thing, and actually making a good living helping people.  They would rather do nothing and just be the bums and theives that they are!!!  Thanks again.

Roben (more…)

A new Florida law that goes into effect on October 1, 2008 will effectively deny Florida homeowners legal representation in foreclosure cases.  You think I’m kidding?

Read the new F.S. 501.1377 which was approved by Governor Charlie Crist on May 28, 2008.

The law defines a “foreclosure-rescue consultant” as “a person who directly or indirectly makes a solicitation, representation, or offer to a homeowner to provide or perform, in return for payment of money or other valuable consideration, foreclosure-related rescue services.” 

Attorneys are not excluded from the statute and therefore are prohibited from receiving payment for a bankruptcy filing or other foreclosure defense “before completing or performing all services”. 

Let me assure you, there aren’t going to be a whole lot of attorneys who would want to or could afford to work for free to assist Florida homeowners defend a foreclosure or file a bankruptcy to stop a foreclosure.

This is troublesome to say the least.

UPDATE: F.S. 501.1377 Attorney Problem Fixed