Through a Glass Darkly: the State Bar’s Lack of Transparency On Loan Mod Lawyers

Sometimes you know when you have hit a nerve.  The podcast that I did with Martin Andelman discussing the State Bar of California and the loan modification crsis produced an interesting communication to Mr.  Andelman from the State Bar:

FROM THE STATE BAR PRESS OFFICE: (Laura Ernde, Acting Communications Director)
For the record, since February 2009, the Office of Chief Trial Counsel has pursued disciplinary charges related to loan modification services in approximately 1,186 cases involving about 153 licensed California attorneys. Of those, approximately 581 cases have resulted in discipline (involving 69 attorneys) and 18 cases have resulted in disbarment. Approximately 720 cases are still pending before the State Bar Court, with another 291 matters under active investigation.

This was reaction to our discussion about the low numbers of loan modification lawyers disciplined by the State Bar through April 2011.  In a report dated April 26, 2011, former Chief Trial Counsel James Towery reported:

Since 2009, OCTC has filed 15 notices of disciplinary charges against attorneys for loan modification misconduct, some of which relate to the same attorneys against whom section 6007(c) petitions were filed involving the same cases.  The other avenue-and one used by the Bar’s Loan Modification Team-is seeking the attorney’s inactive status based on the threat of public harm, pending the resolution of disciplinary charges. Business & Professions Code section 6007(c) (1) provides “[T]he involuntary inactive enrollment of an attorney may be ordered upon a finding that the attorney’s conduct poses a substantial threat of harm to the interests of the attorney’s clients or to the public….” Because OCTC must file a verified accusation showing that there is a substantial threat of harm to clients or the public, these petitions typically rely on a multitude of investigated complaints. However, some attorneys pose a substantial threat of harm to the public despite only a few pending loan modification misconduct complaints. Since mid-2009, the Loan Modification Team has filed eleven section 6007(c) petitions, ten of which have been granted by the State Bar Court. One matter is currently pending.

Any student of modern public relations will admire the artfulness of Ms. Ernde’s press release. 1,186 cases seems to be an impressive number; as does the number of attorneys involved in those cases, 153.  It almost seems to confirm Howard Miller’s statement in October 2009 about “hundreds, perhaps thousands” of attorneys being  involved in loan modification misconduct until you read on discover that only 69 attorneys have been disciplined, and only 18 disbarred.

Questions then arise:  if 153 lawyers have been “pursued” and 69 disciplined, what has happened to the other 84?  Were cases against them dismissed? Did they resign?  Were some of these lawyers given warning letters or agreements in lieu of discipline (ALD) ?, dispositions typically merited for extremely low level misconduct.  Are there pending disciplinary prosecutions against some of the 84?  How many? The information that 720 cases are pending before the State Bar Court is interesting but we are not told how many attorneys those 720 cases represent.  One could speculate that since 1186 cases resulted in discipline of 69 attorneys, 720 cases may mean pending prosecutions against  41.  If so, what happened to the other 43?  Does that mean that the remaining 291 cases that are pending in investigation represent about 17 attorneys? Also, since we know that recidivism occurs among disciplined attorneys, are any of the 69 disciplined attorneys also among the the unknown number of the 84 that may be the subject of current discipline proceedings?

Part of the problem is the use of the vague term “pursued”.  It seems to mean that a notice of discipline charges (NDC) has been filed in State Bar Court against the attorney.  Is so, why not be precise and say that, as Mr. Towery did in his April 2011 report?  Another is use of the “cases” instead of identifying numbers of attorneys.  720 cases pending in State Bar Court might mean 43 attorneys or it might mean 21, or even less, depending on the number of cases filed against each attorney.  A few attorneys with 40 or 50 cases “cases” could skew the really important number, the number of attorneys involved in this type of misconduct pretty low.  I know of several Respondents with numbers of “cases” in this range.

And, at risk as being identified as a real nitpicker, how exactly is “loan modification misconduct” defined?  At one end of the spectrum, consider an attorney of 30 years unblemished record in an established real estate practice who takes on the representation of a single client with a pending foreclosure sale, and neglects to take any steps to stop the foreclosure, and his failure to perform doesn’t harm to client because there was no real basis to stop it.  This would probably be resolved with a public reproval (see Standard 2.6(b), Standards for Attorney Sanctions for Professional Misconduct, Title IV, State Bar Rules of Procedure.)  At the other end, an attorney with record of prior discipline who lends his name to non-attorneys who run a loan mod shop and take money from dozens of clients without doing anything.  Certain disbarment.  Both are “loan modification misconduct” but the first example is not what Howard Miller was talking about.  The fact that only 18 lawyers out of the 69 have been disbarred means that the activity that so exorcised Miller was far less widespread than advertised.   As the State Bar has taken aggressive action in the loan modification area in the last year (as a comparison of the press release numbers with the April 2011 numbers shows), it is likely that almost all of the real scammers, the ones that inspired SB94, have already been taken out.

What the State Bar is left with now may largely be attorneys who did some volume of loan modification work, failed in a certain number of cases to obtain the loan modification the client wanted, perhaps because of lender intransigence or client cupidity, and took a fee before the work was “complete”, allegedly in violation of SB 94.  Not the lawyers that SB94 was intended to address but a target nonetheless because of SB 94’s overbroad  and possibly unconstitutional remedy.  Lawyers caught up in the loan mod dragnet.

But the biggest issue is that the State Bar could have produced informative numbers and chose not to.  I was curious as to whether more comprehensive information loan modification misconduct had been provided in any public report to the State Bar Board of Trustees.  So I plumbed the Board meeting archives.  Lots of interesting stuff there but nothing in the Chief Trial Counsel’s public status reports since last July but the tantalizing statistic that there had been 4,451 “allegations” of loan modification misconduct made at the Intake stage in 2011 (OCTC Status Report dated January 25, 2012).  “Allegations”, if anything, is a more opaque category than cases but the number is impressive.  At least until it is compared with the other numbers discussed above and you realize that it is largely sizzle and not steak.

Ms. Ehrde’s artful email confirms that reasons for the State Bar to inflate the threat presented by loan modification attorneys remain in play.  As an organization, the State Bar has been criticized in the past for a lack of transparency in the information that it provides.  This is one tradition that doesn’t seem to have changed.

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