Saturday, April 13, 2019
A very interesting opinion of the California State Bar Court Review Department absolves two attorneys alleged to have charged an advance fee in violation of the law governing mortgage loan modifications
The Office of Chief Trial Counsel of the State Bar (OCTC) charged Yelena Aneley Gurevich and Lauren Ann Rode in count one with receiving illegal advance fees for loan modification services in a single client matter. The hearing judge concluded that Gurevich and Rode were not culpable because they were retained to litigate against the imminent foreclosure of their client’s home, and not to perform loan modification services. The judge dismissed this count with prejudice, along with five charges against Gurevich that alleged she violated her disciplinary probation based on count one.
Dueling opinions about the motive for the litigation
At trial, [counsel for the opposing party] Stoltzman testified that he believed the purpose of the lawsuit was to obtain a loan modification for Howard. Charles Hansen, an expert with over 40 years’ experience in the area of mortgages and foreclosures, disagreed. He testified that the facts and circumstances of the present case did not establish a standard request for loan modification and that the Howard lawsuit was a typical breach of contract action to enforce an existing permanent loan modification. In other words, he opined the lawsuit was “legitimate, good-old-fashioned litigation.” He explained that the object of the lawsuit was to force the lender to honor the borrower’s legal rights, rather than to ask the lender to modify the loan or for any other ulterior purpose. The hearing judge accepted Hansen’s expert opinion and analysis.
The Code provision did not apply
On a broader challenge, OCTC also proposes that Civil Code section 2944.7, subdivision (a), prevents attorneys from negotiating for a loan modification during even valid litigation if the attorney has charged an advance fee. No legal authority exists for this interpretation and to so hold would be wholly inconsistent with the reasoning of SB 94. The bill was intended to reach individuals or companies who lured homeowners with false promises and guarantees, and charged exorbitant fees for loan modification services that HUD-certified counseling agencies provided for free. It targeted scammers who were charging as much as $8,000 to fill out loan modification applications and negotiate with lenders on behalf of homeowners. (Sen. Judiciary Com., Analysis of Sen. Bill No. 94 (2009–2010 Reg. Sess.) as amended Apr. 13, 2009, pp. 4–6.) Nothing in the legislative history suggests that SB 94 intended to have the chilling effect of precluding attorneys from negotiating a loan modification as a settlement after valid litigation is filed. Nor does the legislative history support precluding attorneys from charging advance fees for filing legitimate causes of action when a homeowner is in imminent danger of losing his or her home, and has colorable claims that can be made against a lender. Such is the case here.
The attorneys - perhaps ironically - had filed suit against one of these predators on behalf of the client and secured a lengthy delay of the foreclosure.
Based on these unique facts, we find no evidence that CALG’s lawsuit on behalf of Howard was pretextual or for any other purpose covered under Civil Code section 2944.7. We conclude, therefore, that Gurevich and Rode did not illegally charge and collect advance fees in violation of Civil Code section 2944.7, subdivision (a).