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Arrangements with Loan Modification Agents Could Be Running and Capping

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By Kevin Fayle on May 05, 2009 1:14 PM

As government programs encouraging loan modifications and foreclosure alternatives flourish, many brokers and loan modification agents are seeking to enlist attorneys in "new business models" around the opportunities created by the subprime mortgage meltdown, according to an article in the California Bar Journal.

But beware: these schemes could lead to criminal and ethical charges against attorneys since most of them are no more than running and capping and/or fee-splitting arrangements.
A runner or capper is a person who accepts payment to act as an attorney's agent and solicit business on the attorney's behalf. 

Many loan modification agents that partner with attorneys seek to do just that.  Typically, the broker or agent will charge the attorney for purported "loan modification services," and then bill the client for referring the client to the attorney.

The attorneys often never meet with the client, and instead simply rubber-stamp whatever strategy the loan modification company chooses to employ for that client - whether or not it's the right move for the individual.  That constitutes a major breach of the attorney's duty to argue on behalf of the client's particular needs.

Moreover, if the client ends up with a claim against the loan modification company, the attorney could choose not to pursue it out of fear that the referrals from the company would dry up.  That's exactly the kind of conflict that led to the traditional prohibition on fee-splitting arrangements with non-attorneys.

Lawyers could also end up assisting in the unauthorized practice of law if the modification companies cross the line and begin to give legal advice.  That has already happened to attorneys in Ohio and California according to Diane Karpman, writing in the California Bar Journal.

Attorneys are certainly free to increase their business by picking up clients affected by the subprime mortgage meltdown, but they should do it in a legal and ethical fashion.  Lawyers have to drum up their own business, and can't rely on outside sources for their clients.