n 2012, after a heart attack left him too ill to work and unable to make his mortgage payments on time, John M. Green turned to the Litvin Law Firm for help.
Green, according, in part, to records he provided to federal bankruptcy court, said he paid the firm about $8,000 over the next two years to negotiate better terms with the lender on his house in Baker, La. But he lost the home anyway, he says, because the Brooklyn, N.Y., law firm did little beyond taking his money.
“My experience was horrible,” said Green, 72, who is back at work part time as a schoolteacher. “They didn’t follow through with anything they said they were going to do.”
It’s not just former Litvin client Green who is aggrieved. The attorneys general of New York and Maryland have accused the firm of preying on other distressed homeowners by failing to deliver the legal firepower it promised.
People deeply in arrears on their mortgages wasted money they could ill afford to lose, while dozens lost their homes, Maryland officials charged. The case, filed in 2014, targets the firm and its founder, attorney Gennady Litvin. Both state proceedings are pending.
Litvin declined to comment for this story. In a June 2015 court filing, Litvin denied misleading anyone and said he had saved his clients more than $75 million, including reductions in future mortgage payments.
Since 2010, two years after the crash of the U.S. housing market, tens of thousands of strapped homeowners have alleged they were cheated by lawyers or marketers boasting ties to law firms, whom they trusted to renegotiate mortgage loans or stave off foreclosure actions, according to a Center for Public Integrity investigation.
The complaints are collected by a coalition of consumer and law enforcement groups organized by the Lawyers’ Committee for Civil Rights Under Law, which tracks companies and law firms that promise to “rescue” homeowners from foreclosure and mostly fail to deliver. The group has collected more than 46,000 written complaints from homeowners whose losses totaled more than $100 million — nearly two-thirds linked to alleged misconduct by lawyers or their associates. Minorities accounted for just over half of the complaints, and they tended to lose more money than whites. Hispanics lost the most, more than $4,200 each on average.
Many victims haven’t recovered much, if any, of their money. The Federal Trade Commission, which has the duty to protect consumers, and the federal Consumer Financial Protection Bureau, which oversees lenders and financial companies, have won more than $341 million in civil judgments against foreclosure rescue outlets including law firms since 2009. The agencies have collected less than 5% of that amount. The CFPB is drawing on a special “victim relief” fund to pay out about $23 million to victims of loan modification scams.
The sheer number of attorneys who have engaged in dubious foreclosure enterprises — the center’s research identified more than 1,000 nationwide — also has vexed state bar associations and courts that both license lawyers and run funds to compensate their victims.
Bar groups say the schemes are clearly illegal, yet attorneys who help orchestrate them mostly escape serious discipline, the center found. Less than a third of California lawyers in these cases have been disbarred, under 20% in Florida, both hot spots of the activity. At least three dozen attorneys filed for bankruptcy protection to get out from under debts or orders to make restitution, court records show.
The California Bar’s client security fund has paid out nearly $16 million to compensate people who lost money to about 200 foreclosure lawyers.
The Florida Bar’s client security fund, which is more restrictive in compensating victims, has paid out about $400,000 since 2010 for mortgage-relief misconduct involving about 20 attorneys, according to the center’s analysis of the bar’s records.
In 2009, in the depths of the recession, federal officials rolled out the Home Affordable Modification Program, or HAMP, hoping to keep millions of Americans from being forced from their homes. The voluntary program called on lenders to cut mortgage interest rates or loan balances through a negotiation process called “loan modification.”
How much HAMP has helped overextended homeowners is debatable. Of the 5.7 million households that applied for loan modifications between December 2009 and April 2015, nearly three-quarters were turned down, according to a report from the special inspector general for the Troubled Asset Relief Program, or TARP.
The high rate of HAMP rejections played into the hands of entrepreneurs who falsely guaranteed they could cut through red tape and renegotiate mortgage loans.
In one ad, a male announcer intones: “Attention homeowners. The government has increased pressure on lenders to prevent foreclosures. If you’re one of the millions behind on their payments, struggling to stay afloat and in danger of losing your home, call … for your free professional consultation.”
Some marketers have advised homeowners to quit making monthly mortgage payments while they worked on renegotiating their loans, which is bad legal advice, authorities said.
Others have convinced property owners that their mortgage debt would be forgiven because of past misdeeds by their lenders, an unlikely scenario.
Some have strongly implied or falsely claimed to be affiliated with the U.S. government, court cases show.
In 2010, the FTC issued the Mortgage Assistance Relief Services Rule to combat scammers. The rule barred companies from taking advance fees for foreclosure relief, which the government viewed as the primary trap for homeowners.
But when writing the rule, federal officials agreed with the American Bar Association and some state bar groups that lawyers should be exempted under certain conditions, which have proven difficult for authorities to monitor.
“We anticipated people would get scammed, but not to the level that actually happened,” said Rutledge Simmons, a lawyer and senior vice president at NeighborWorks America, a housing advocacy group.
State bar associations for years have warned members to steer clear of mortgage-modification deals in which they split fees with non-lawyers, or accepted referrals from telemarketers or other salespeople.
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