New Section 501.1377 may make it impossible for homeowners to find lawyers to represent them in foreclosure or bankruptcy proceedings

by Michael Alex Wasylik

Florida’s new Foreclosure Rescue Fraud law

Last week, Florida Gov­er­nor Char­lie Crist signed a new law which imposes broad-ranging restric­tions on so-called “fore­clo­sure res­cue” ser­vice providers. The well-intentioned bill is meant to curb the worst abuses by bottom-feeding preda­tors who use fore­clo­sure as an oppor­tu­nity to bilk money and prop­erty out of des­per­ate home­own­ers. But some unin­tended con­se­quences of the bill may leave home­own­ers out of luck when it comes to seek­ing legal representation.

Some of the pro­tec­tions in the new law will pre­vent con-artists from “res­cu­ing” home­own­ers by sign­ing them into preda­tory loans, get­ting them to sign over their prop­erty unwit­tingly, or just pock­et­ing a fee to nego­ti­ate with the lender and then dis­ap­pear­ing. Unfor­tu­nately, the broad scope of the law also means it applies some strict new reg­u­la­tions on Florida lawyers who are actu­ally try­ing to help these home­own­ers — reg­u­la­tions which may pre­vent these home­own­ers from hav­ing access to any lawyer at all.

Scope of the new law

The new law, Fla. Stat. § 501.1377, [pdf] applies to all “foreclosure-rescue con­sul­tants” who pro­vide home­own­ers with “foreclosure-related res­cue ser­vices.” Those ser­vices include any ser­vice related to “Stop­ping, avoid­ing, or delay­ing fore­clo­sure pro­ceed­ings con­cern­ing res­i­den­tial real prop­erty” or “Cur­ing or oth­er­wise address­ing a default or fail­ure to timely pay with respect to a res­i­den­tial mort­gage loan obligation.”

This broad def­i­n­i­tion appears to include lawyers who would rep­re­sent home­own­ers defend­ing a fore­clo­sure suit; it may also encom­pass bank­ruptcy attor­neys who help home­own­ers file for bank­ruptcy dur­ing fore­clo­sure proceedings.

Disclosure and cancellation requirements

Among the require­ments in the new law, these attor­neys who may fall within the def­i­n­i­tion of “foreclosure-rescue con­sul­tants” would have to pro­vide their prospec­tive clients with writ­ten agree­ments con­tain­ing cer­tain dis­clo­sures — in upper­case type, no less — and also state “the exact nature and spe­cific detail of each ser­vice to be pro­vided,” and “the total amount and terms of charges to be paid by the home­owner for the ser­vices.” The “con­sul­tant” must also pro­vide a copy of the agree­ment to the home­owner “not less than 1 busi­ness day before the home­owner is to sign the agree­ment.” The home­owner also has a three-day right to can­cel the agree­ment after sign­ing it.

The writ­ten dis­clo­sures and can­cel­la­tion rights are minor imped­i­ments, but still, they present prob­lems for the lawyer who might rep­re­sent a fore­clo­sure defen­dant. First, with­out spend­ing time review­ing the doc­u­ments, it may not be pos­si­ble to deter­mine in advance the “exact nature” of the ser­vices to be pro­vided. And for lawyers who might bill hourly, it is not at all pos­si­ble to cal­cu­late the total charges to be paid until the work is actu­ally done. It would be dif­fi­cult, if not impos­si­ble, for many lawyers to take on new clients if they had to com­ply with these requirements.

Also, the one-day advance copy require­ments and the three-day can­cel­la­tion require­ment, effec­tively mean that any home­owner fac­ing an imme­di­ate dead­line may not be allowed to hire a lawyer. Have a court dead­line tomor­row? Sorry, you can’t hire a lawyer until a full busi­ness day has passed. Have a court dead­line in two days? Sorry, but most lawyers won’t enter a case until after the three-day can­cel­la­tion notice has passed. (Oth­er­wise, the court might not let them out of the case if the client can­cels.) A home­owner who needs a lawyer in a hurry will have a hard time hir­ing some­one before time runs out.

Deferred fee requirements

Besides the writ­ten agree­ment, the new law also for­bids the con­sul­tant from ask­ing for or accept­ing any fees from the home­owner “before com­plet­ing or per­form­ing all ser­vices con­tained in the agree­ment for foreclosure-related res­cue ser­vices.” What does this mean? It means that a lawyer who takes on a fore­clo­sure defense case can’t even ask for a retainer — a deposit — until after he has already done all the work on the case, which may be months or even years later. It also seems to sug­gest that a bank­ruptcy lawyer can­not ask for or accept any fee from their client until after the bank­ruptcy case has con­cluded — which, my col­leagues in that field tell me, means that bank­ruptcy attor­neys effec­tively waive their right to col­lect any fees, whatsoever.

What effect would this have on the will­ing­ness or abil­ity of lawyers to rep­re­sent home­own­ers in fore­clo­sure cases? For most, it means they can’t. To defer a fee on a fore­clo­sure defense until the end of a case not only means they have to wait to get paid, in most cases it means they won’t get paid at all. Once a lawyer has pro­vided his ser­vices, he can’t take them back — he has no lever­age to per­suade a cash-strapped home­owner to pay the bill for ser­vices that have already been pro­vided. Faced with the choice of tak­ing an long-deferred fee that might never be received, or refus­ing to take the case, most lawyers will refuse the case. And then the home­owner has to face fore­clo­sure alone. This is helping?

Aiming at the wrong target

And the worst part is, there’s no need at all to apply these restric­tions to lawyers who rep­re­sent fore­clo­sure defen­dants. Attor­neys who, in good faith, take on these cases and lit­i­gate them can pro­vide an enor­mous ben­e­fit to their clients. The rare attor­ney who takes a fee, pock­ets it, and dis­ap­pears, is sub­ject to the strict dis­ci­pline of the Florida Bar. And, despite the rash of fore­clo­sure res­cue scams in Florida and across the nation, I know of none that involve lawyers rep­re­sent­ing home­own­ers in court pro­ceed­ings. By lump­ing these lawyers in with every­one else, the leg­is­la­ture tried to fix a prob­lem that doesn’t exist.

Is there any hope for the future?

I hope I’m wrong about the scope of the bill, but I’m afraid that it means exactly what I think it means. No doubt the con­sumer law bar will even­tu­ally fig­ure out a way to mod­ify these restric­tions, but until then, home­own­ers seek­ing legal help are get­ting the short end of the leg­isla­tive stick.