Thursday, August 27, 2009

Foreclosure Advice Is Unauthorized Practice

A decision today from the Ohio Supreme Court:

The Supreme Court of Ohio ruled today that Cincinnati-based Foreclosure Solutions L.L.C. and the company’s owner, Timothy A. Buckley engaged in the unauthorized practice of law by giving legal advice and negotiating with lenders on behalf of thousands of property owners facing foreclosure of their mortgages.  

In a 7-0 per curiam decision, the Court accepted the recommendation of its Board on Unauthorized Practice of Law that it issue an injunction ordering Foreclosure Solutions and Buckley, who has never been licensed as an attorney,  from engaging in any future acts that constitute the practice of law and impose a $50,000 civil penalty for the company’s past illegal conduct.

According to joint stipulations of fact in the case, Foreclosure Solutions sent direct solicitations to property owners against whom foreclosure actions had been filed and also marketed its services on two Internet sites. In exchange for a fee of from $700 to $1,100, the company and property owners  entered into a business agreement under which the owners agreed to make regular deposits into a bank account as evidence of their solvency. Foreclosure Solutions used a portion of the owner’s fee to pay an attorney hired by the company to file an answer to the foreclosure complaint, forestalling an immediate default judgment. It then used non-attorney employees to negotiate with the lender for an adjustment of the owner’s mortgage terms, using the owner’s bank deposits as a bargaining chip. As part of the business agreement, the homeowner agreed  to file for  bankruptcy protection only as the “last alternative” to save their home.

In today’s decision, the Court observed that: “In Ohio, the practice of law is not limited to the conduct of cases in court but embraces ‘the preparation of pleadings and other papers incident to actions,’ ‘the management of such actions,’ and ‘in general all advice to clients and all action taken for them in matters connected with the law.’ …  In Cincinnati Bar Assn. v. Mullaney (2008), … we sanctioned lawyers for, among other forms of professional misconduct, aiding Foreclosure Solution agents in the unauthorized practice of law …  In that case, three lawyers facilitated a widescale operation in which respondents and their agents promised legal assistance to allow thousands of debtors to avoid foreclosure. Respondents hired the lawyers to appear in court and delay pending foreclosure proceedings while the agents, principally nonlawyers, obtained financial information from the customers and negotiated with mortgagees to reinstate the loan. Contrary to professional duties and responsibilities, the three lawyers in Mullaney did not assess individualized needs of Foreclosure Solutions customers to determine the best course of legal action for relieving their financial distress, including whether to petition for bankruptcy immediately. They instead pursued the single strategy that respondents offered as a resolution – to stall the pending foreclosure proceedings in the hope of the agents’ or lawyers’ negotiation of a settlement with the mortgagee. By surrendering their professional judgment in this way, the lawyers aided respondents in engaging in the in the unauthorized practice of law.”

Quoting further from its decision in Mullaney, the Court wrote: “‘Counseling debtors in financial crisis as to their best course of legal action requires the attention of a qualified attorney.’ … Here, however, respondents and their agents implemented a one-size-fits-all plan to protect customers’ legal interests when they did not have the qualifications and training required of the legal profession nor were they constrained by the ethical standards with which lawyers must comply. … We have repeatedly held that nonlawyers engage in the unauthorized practice of law by attempting to represent the legal interests of others and advise of their legal rights during settlement negotiations. … And we have specifically so held with regard to nonlawyers attempting to advise debtors of their legal rights and the terms and conditions of settlement in negotiations to avoid pending foreclosure or other collection proceedings. … Finally, we have long ago concluded that laypersons may not insulate themselves from responsibility for engaging in the unauthorized practice of law by using powers of attorney executed by the customers or by simply informing customers facing foreclosure that the layperson is not an attorney and is, therefore, incapable of giving legal advice.”

The Court concluded: “We accept the recommendation of the board. We enjoin respondents Foreclosure Solutions, L.L.C., and Timothy A. Buckley, their officers, agents, employees, successors, and assigns from attempting to represent the legal interests of others or attempting to advise others of the terms and conditions of settlement in negotiations to avoid pending foreclosure proceedings and from engaging in all other acts constituting the unauthorized practice of law. We also order respondents Foreclosure Solutions, L.L.C., and Timothy A. Buckley to pay civil penalties, assessed jointly and severally, in the amount of $50,000, representing the amount obtained through the unauthorized practice of law.  Costs are taxed to respondents.”

The opinion of the court is linked here. (Mike Frisch)

http://lawprofessors.typepad.com/legal_profession/2009/08/a-decision-today-from-the-ohio-supreme-court-----the-supreme-court-of-ohio-ruled-today-that-cincinnati-based-foreclosure-sol.html

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Comments

The opinion above takes a broad definition of practicing law, including "all advice to clients and all action taken for them in matters connected with the law." As many activities one may undertake are potentially controlled by law, or may have legal consequences for the client, it would seem that under the Ohio Court's opinion, only a lawyer may give a client advice.

This reasoning can result in questionable results from a policy perspective. Many activities benefit from having advisers with complex subject-specific knowledge, or with years of experience. Individuals who are non-lawyers may be better situated to give advice in those areas, even though those areas are controlled by law, and the adviser must consider or explain those laws when advising the client.

For example, both doctors and pharmacists operate in highly regulated professions. They may even have to explain some of those regulations to clients. A pharmacist may need to advise a client what uses of a drug are legally authorized, and that unauthorized use of a drug violates federal law. Yet these individuals are better situated to perform their respective professional functions than lawyers. Government agencies at all levels frequently require scientific and economic expertise. Regulations are often written by these individuals, with the lawyer only performing the limited role of making sure the agency stays within its legal authority.

Legal training is lengthly and expensive; one consequence of that is that lawyers typically charge higher hourly rates than many businessmen or other professionals. They must pay down loans and make profits for partners. The result is that a client can afford fewer hours of time when seeing a lawyer to solve a problem, as opposed to a non-lawyer charging a lower rate. In many cases, a person with greater subject matter expertise who is also very familiar with the relevant regulations may be better situated to give advice, and could also spend more time exploring the details of the client's situation for the same total fee.

Take for example, a high school driver education instructor. Part of those courses involves teaching/advising students on the relevant regulations that apply to driving in the applicable state. Most of these regulations are simple and mundane, yet important. Under the broad view of practicing law, one could argue that teaching people how to drive involves the practice of law. Yet few people would insist that only lawyers should teach driver education, or that a lawyer would even necessarily be better than an experienced teacher, who knows what students tend to remember and forget.

In the Ohio case, it may be that real estate brokers or other non-lawyers could likely perform the task of renegotiating mortgages just as well as a non-lawyer. Renegotiating appears to require at least as much knowledge of the economics facing the homeowner and the bank, as it does any special legal skill. There are unlikely to be alot of novel legal questions, and when they do arise, the lawyers could be called in at that point. At least for now, though, states like Ohio do not want to allow these services to be done by non-lawyers.

Posted by: Practice of Law | Aug 31, 2009 11:50:31 AM

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