'Tsunami' of foreclosure complaints swamps Fla. Bar

Article Courtesy of The Palm Beach Post

By Kimberly Miller

Published April 13, 2012

The Florida Bar has fielded nearly 1,400 complaints against attorneys relating to the housing crisis, an unprecedented amount that has buried investigators and forced the group to rethink how it will handle widespread grievances in the future.

Beginning in the fall of 2010, as foreclosures receded because of robo-signing revelations, a wave of consumer complaints alleging attorney misconduct began to hit the Bar.

The complaint categories - mortgage fraud, foreclosure fraud, loan modification misconduct - didn't even exist three years ago, said Ken Marvin, director of lawyer regulation for the Florida Bar.

His first recorded loan modification complaint was in November 2010. Today, 793 cases have been opened.

"They just started coming in and the numbers were incredible," Marvin said. "We never even had a loan modification category or mortgage fraud or foreclosure fraud, and we had to create all of this because we wanted to track these reliably."

The Bar hired an additional attorney to specifically process foreclosure and mortgage complaints, which make up about 17 percent of all open Bar cases.

"The most important thing is to get it right," Marvin said.

As of late March, 208 of the 1,394 housing-related cases have resulted in some kind of disciplinary action against an attorney, which can range from a public reprimand to disbarment.

But while foreclosure fraud may be the most high-profile type of case following the collapse of the Law Offices of David J. Stern last year, no punitive actions have been taken so far against an attorney in that category. Of 377 foreclosure fraud cases opened, 234 are still pending.

"Oftentimes you have a disappointed client, but that doesn't mean there was bad action by the attorney," said Boca Raton real estate attorney Marlyn Wiener.

"Everybody pushes the fraud button, that's everyone's first reaction. You may find sloppy processing, but not necessarily fraud."

Specifics of the Bar investigations are not public, but foreclosure complaints generally include forged signatures on court documents, bad notarizations and backdated paperwork.

David Stern, who remains a member in good standing with the Bar, is less of an investigative priority because he "is no longer in a position to potentially harm the public," Marvin said.

Of a more pressing concern are attorneys still doing business, including those performing loan modifications - the largest housing-related complaint category investigated by the Bar.

Of the 793 loan modification cases opened since late 2010, disciplinary actions have been taken in 137 cases, including three disbarments.

Florida's attorneys became more involved in the loan modification business following a 2010 law requiring loan modification businesses to be state-licensed and a 2008 law that banned companies from collecting upfront fees.

Excluded from the new statutes are attorneys, some of whom found themselves solicited heavily to front loan modification firms so they could continue doing business.

Wiener said she got hundreds of phone calls from loan modification firms all over the country wanting to partner with her. She declined .

"A lot of attorneys did get involved, and I think a lot are sorry they got involved," Wiener said.

"I think the Bar came down harshly on these folks because a lot of people's money was taken and nothing was ever done."

In August, Boca Raton attorney William O'Toole was put on emergency suspension when the Florida Supreme Court said his home loan modification and foreclosure defense business was causing "great public harm."

O'Toole's Summit Legal Group worked with as many as 3,000 clients nationwide who paid between $1,500 and $3,000 in upfront fees, according to a deposition O'Toole gave in the Bar's case against him.

O'Toole said he allows almost exclusive control of his office to non-lawyers who handle all contact with clients.

"As you get new types of laws and lawsuits you get new types of fraud on clients and the Bar just follows that," said Nova Southeastern University law professor Bob Jarvis, who specializes in attorney ethics.

Jarvis said he's not surprised by the few disciplinary actions taken so far. Often, he said, clients complain about things the Bar has no control over or that are vindictive .

"Just because a lawyer made a mistake doesn't mean they are unfit to practice," he said. "The Bar is overwhelmed right now because no one saw this coming and when it hit, it hit like a tsunami."

But the Bar is working on a plan to better handle future mass complaints.

Last year, Bar President Scott Hawkins created a commission to look at attorney regulation, focusing standards for imposing sanctions, how complaints are processed and handling widespread discipline cases.

There are five Bar offices throughout the state and typically the office closest to where an attorney practices would investigate a complaint, Marvin said.

But with housing-related complaints, attorneys were handling cases all over the state .

The commission's report will be presented to the Bar's board of governors in May.

"Hopefully there will never be another situation like this, but now we realize things do occur and there should be a plan in place," Marvin said.