In the wake of the housing bubble collapse, several lawsuits have been filed in regard to abusive mortgage modifications, predatory lending and illegal foreclosure practices. Most of these defendants are larger banks and lenders, but recently such a suit was filed against a single attorney.
The legal malpractice suit was filed on behalf of homeowners from New Jersey and eight other states. It alleges that the attorney exploited a loophole in New York in order to con homeowners out of fees in relation to mortgage modifications. The suit claims that the attorney obtained thousands of dollars from homeowners as upfront fees for modifications that were never delivered.
The attorney is reportedly licensed to practice law in Nevada, but he opened branches in New York so that he could charge upfront fees for a mortgage modification company. Under federal law, loan modification companies are not permitted to charge such fees; but under New York law, there is an exception for lawyers who give homeowners legal advice about mortgage modifications.
The mortgage modification company that the lawyer was working with has also been sued in a separate lawsuit. The business has been ordered to shut down during proceedings.
According to news reports, this kind of scheme is actually part of a trend; lawyers are reportedly tricking homeowners into believing they are receiving legal guidance, but then the lawyer disappears with the upfront payment.
The plaintiffs in this case are claiming that this lawyer engaged in fraud, breach of contract and legal malpractice. They are asking for at least $1 million in damages.
Source: Thomson Reuters News & Insight, "Attorney used New York loophole to charge mortgage fees, lawsuit says," Jessica Dye, April 4, 2012