"Why mortgage litigation is the next refi boom."
That was the subject line of an email the Litigation Compliance Law Center sent out to mortgage brokers earlier this month. It was part of an invitation to a web seminar the Los Angeles law firm was setting up to introduce what the email termed an "increasingly profitable area of mortgage litigation."
As the law center explained during the May 10 webinar, it was offering to pay finders' fees to mortgage brokers for recruiting homeowners who themselves paid a $5,000 up-front "retainer" to affiliated attorneys.
The sales pitch appears to be the latest tactic in a cat-and-mouse game between plaintiffs' attorneys and debt-modification firms on one side and regulators on the other.
The tactics used to sell loan modification services first became the focus of criticism in the media and elsewhere in the wake of the housing collapse a half-decade ago. Many related legal cases involve so-called mass joinder suits in which attorneys claim they can obtain favorable mortgage concessions from lenders, or can stop a foreclosure. Homeowners typically are required to pay $6,000 to $10,000 in advance but often fail to enjoy the advertised benefits.
Such suits have added to banks' legal burdens and to concerns among regulators and bar associations that troubled homeowners are at growing risk of falling victim to mortgage modification scams. The State Bar of California alone has revoked the licenses of 18 lawyers since 2009 over charges related to loan modification wrongdoing.
The Federal Trade Commission responded to growing reports of abuse in late 2010 by implementing the Mortgage Assistance Relief Services rule. Known as Mars, it bans mortgage assistance relief companies — mortgage brokers, lead generators and affiliated marketing companies — from collecting "advance fees" from homeowners. Instead, loan modification firms are permitted to collect fees only after homeowners have received written loan modification offers that they deem acceptable from lenders or servicers.
Attorneys are exempted from Mars, primarily because they are already required to comply with state ethics rules. To be eligible for the Mars exemption, a lawyer must be licensed in the state where a homeowner-client resides, offer mortgage assistance as part of his regular practice and comply with all state regulations, says Reilly Dolan, assistant director in the FTC's division of financial practices.
The FTC has brought 36 actions against companies under the Mars rule. Mars rulemaking authority was transferred last July to the Consumer Financial Protection Bureau, which is yet to launch any enforcement actions. The FTC and CFPB share Mars enforcement authority.
The Litigation Compliance Law Center says on its website that it's involved in "the process of procuring clients" who want to file mortgage-related suits against banks. Mortgage brokers can earn a "six or seven figure income" by helping the law firm enlist homeowner-plaintiffs to pursue mortgage litigation, it adds.
The Litigation Compliance Law Center lists no physical address and Chad T-W Pratt Sr. as its only attorney. Pratt, a 1989 graduate of Loyola Law School, is separately listed as a senior litigation attorney at Real Estate Law Center PC. The Pasadena, Calif., firm appears to be a one-partner shop. Letterhead jointly bearing the name of the firm and Chad T-W Pratt & Associates Inc. lists as its local phone number 441-CHAD.
"Mortgage litigation is the homeowner suing their [sic] lender for predatory lending, robo-signing and bad acts by the lender," Pratt said during the webinar. Pratt spoke only briefly at the beginning of the webinar. He then ceded the floor to Brian Suder, who was introduced by an unidentified presenter as a mortgage expert and a "superstar." No job title or corporate affiliation was given for Suder. Not long afterward, the presenter said that Pratt was no longer online.
Contacted after the webinar by phone, Pratt declined comment and quickly hung up.
A Brian R. Suder is listed as president of an outfit called Home Rescue Programs of Marina del Rey, Calif., according to his LinkedIn profile. A person with the same name was banned from offering loan modification services in Washington state in 2010 after doing business without a mortgage broker's license. That person was fined $12,000 and had to refund $9,195 in fees collected from at least four consumers, according to an order from the state's Department of Financial Institutions. Brian R. Suder was also banned from engaging in loan modification services in Maryland in 2009 over a failure to obtain the required license, according to an order from the state's Commissioner of Financial Regulation. He and four others were fined and ordered to refund more than $55,000 to at least 20 homeowners for failing to obtain loan modifications for them, the order states.
"The Law Center works only with mortgage professionals dealing with repercussions of Mars, and they've been able to transition their offices over," Suder told his webinar audience. "We offer a much better product, more aggressive, with an aggressive stand against the lender. … We want people who already have existing mortgage companies. It's a product in which a lot of people were doing mods [mortgage modifications] and veered away from that because of the legal repercussions."
With his new product, "75% of all mortgages qualify for mortgage litigation," Suder said. Mortgage brokers can "easily and quickly create a pipeline of 100 clients a month."
Continued Suder: "You go ahead and you sell the retainer, which is typically $5,000, and we pay each broker for their [sic] expertise. This is set up so each mortgage company or marketing firm can market this product and we take over from there. Your clients get a phone call from an attorney prior to selling. It sets up the sale and they [clients] talk to a real attorney. … The litigating law firm does their [sic] own compliance call to make sure there are no guarantees. You can't make guarantees."
Efforts to contact Suder by phone at Home Rescue Programs were unsuccessful. Suder did not reply to an email request for comment sent to an address provided by Litigation Compliance Law Center. It is unclear how Suder and Home Rescue Programs are affiliated with the Litigation Compliance Law Center.
Following him on the webinar was a second lawyer, Deepak Parwatikar. Listed as an attorney with the Balanced Legal Group in Los Angeles, Parwatikar was suspended in 2004 from practicing law in California for one year and placed on three years' probation. The penalties were the result of his failure to disclose $30,000 in civil judgments against him by a former employer, according to the state bar association's website.
Parwatikar described to webinar participants how the $25 billion national mortgage settlement with the top five mortgage servicers has made banks especially vulnerable to lawsuits and other mortgage-related claims. "Bringing significant cases against the lenders these days is only going get them to want to get rid of cases," he said. "They want these cases gone. They want the litigation gone completely. They don't like the negative press."
He also described how Litigation Compliance Law Center's process would prevent brokers from running afoul of the FTC's Mars rule and prohibitions on fee-splitting.
"We all know about the Mars issue," Parwatikar said. "The FTC came in and gave exact terms on how you can market, who can market and the exact terms of what the violations might be. Mars does not include litigation. You have to watch out for the unauthorized practice of law. You have to have a potential client speak to an attorney and a nonattorney cannot give legal advice."
On splitting fees with nonattorneys, Parwatikar said a law firm "can pay a fee to a nonattorney for a specific service but you cannot split fees or have a percentage of the fee" go to a nonlawyer.
Repeated calls to Balanced Legal's toll-free number met with repeated busy signals. Parwatikar did not return messages left with the firm's answering service.
Andrew Pizor, a staff attorney at the National Consumer Law Center, was not familiar with the Litigation Compliance Law Center. However, he is familiar with many unrelated cases in which plaintiff attorneys and mortgage brokers have cooperated to sidestep the intent, if not the letter, of the law. "To get the benefit of the attorney exemption [from the FTC's Mars rule], some companies will find an attorney who is willing to cooperate and is fronting a law license even if the attorney is not really participating in it," Pizor says. "This seems to be a way to get referral business."
Pizor fears the massive increase in loan modification firm suits could end up hurting homeowners with legitimate claims. "It's a real serious issue, a complete abuse of the courts, and it runs the risk of prejudicing people, including judges, against legitimate claims," he says.