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 a 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.
CONTACT: Those wishing to reach me about this article can use this web form to send e-mail.
UPDATE: Jacksonville bankruptcy attorney Chip Parker sees this bill the same way.