Troubled homeowners, beware of 'mass joinder' lawsuit invitations
The mailings are often scams that promise to force lenders to modify the loans of borrowers who no longer can afford their house payments or who owe more than their homes are worth
Reporting From Washington—
What financially strapped homeowner wouldn't want to join other troubled owners in a last-ditch effort to save their homes from foreclosure? But beware of unsolicited mailings inviting your participation in a "mass joinder" lawsuit as a way to do so.
Mass joinders can be just another way to separate desperate borrowers from their money — as much as $5,000 or more in upfront fees, according to the St. Louis Better Business Bureau. The bureau warned earlier this year that the mailings are the latest twist in scams that promise to force lenders to modify the loans of borrowers who no longer can afford their house payments or who owe more than their homes are worth.
Now, California has sued 14 entities, including several law firms and individual attorneys, accusing them of working together to defraud perhaps millions of people nationwide through the deceptive marketing of mass joinder lawsuits.
It is believed the defendants sent about 2 million pieces of mail to homeowners in at least 17 states. It is not known how many borrowers fell for the alleged ruse, but the California Department of Justice estimates the defendants' take from the operation to be in the millions of dollars.
The term "mass joinder" gives the appearance of a class-action lawsuit. But they are far from the same thing.
In a class-action suit, a large number of people with similar legal claims join together as a group — the "class" — to sue someone or something, typically a company or organization. Everyone in the class shares in the judgment, if any, after the attorneys take their cut.
In a mass joinder, plaintiffs who sue the same entity share their legal fees, which could be tens of thousands of dollars if they pursued their grievances on their own. But their actions remain separate, and judgments can differ from one individually named party to another, depending on the circumstances.
Mass joinders are perfectly legal. But according to the California complaint, the defendants preyed on desperate homeowners by "selling" them "participations" in lawsuits against lenders.
Allegedly, the defendants, which include three law firms and four lawyers, falsely led owners to believe that by joining with others, they could stop foreclosures, reduce their loan balances or interest rates, obtain money damages, and even receive title to their homes free and clear of their existing mortgages.
Owners were said to be charged retainers of up to $10,000 to join the suit against their lenders or loan servicers. But California's Justice Department maintains that those who did fork over money were frequently unable to receive answers to simple questions, such as whether their names had been added to the suit as promised.
Some were unable to establish any contact whatsoever with the lawyers or their firms. And some lost their homes anyway soon after paying the retainer required by the defendants.
Challenging the legal community is a rare but welcome development, according to consumer activists who long have complained that regulators treat attorneys who participate in — or even perpetuate — loan modification scams with kid gloves.
"There's virtually no discipline anywhere against lawyers," Robert Strupp of the National Community Reinvestment Coalition told a recent gathering of state mortgage regulators. If the authorities "moved any slower" against lawyers, he said, "they'd be backing up."
In conjunction with the suit, the State Bar of California has taken over the practices of the defendant attorneys. "The number of attorneys who have tried to take advantage of distressed homeowners in these tough times is nothing short of astounding," said outgoing bar President William Hebert.
Early this year, the Federal Trade Commission prohibited providers of mortgage assistance relief from collecting or even requesting fees in advance from homeowners. But the ban came with a narrow and conditional carve-out for attorneys who meet certain conditions.
Among other things, the attorneys must be licensed, their practices must include mortgage assistance relief and they must place any upfront fees they collect in a separate client trust account. But most important, they must comply with state laws. And in California, a more restrictive ban does not allow lawyers to collect money in advance for loan modification or forbearance purposes, period.
Still, some unscrupulous attorneys are using the lawyer exemption to rip off owners who will grasp at any perceived opportunity to save their homes, even if they are asked to pay thousands of dollars in advance. But asking for money upfront is one of the key red flags in any scam, real estate or otherwise.
Another important signal that something is amiss is being on the receiving end of a mass mailer, as opposed to receiving a letter that is addressed to you and you alone. In the California case, the alleged scam supposedly began with deceptive mailers, some of which were designed to resemble official settlement notices or government documents, informing recipients they were potential plaintiffs in a "national litigation settlement" against their lender.
But no settlement existed, and in many cases no suit had even been filed.
According to the complaint, moreover, when consumers responded, they were given legal advice by sales agents, not lawyers, who made additional deceptive statements and provided "often inaccurate" legal advice about the "likely" results of joining the lawsuits. The sales reps allegedly were paid commissions on a per-client sign-up basis, a practice known as "running and capping."
Although there are law firms qualified to handle complex joinder litigation, desperate owners should beware of grasping at such questionable claims as: You can stop paying your lender, your loan can be stripped entirely from your home, your payment obligation and foreclosure against your property can be stopped when the suit is filed, and the litigation will take power away from your lender.
There are other sales pitches too. But according to a warning issued by the California Department of Real Estate, you should carefully examine each promise to determine whether filing a suit against your lender or servicer or joining in a class or mass joinder action will have any value to you and your particular situation. Otherwise, you could fall prey to litigation marketing fraud.
For starters, obtain the names of the lawyer or lawyers who will be providing your services and check them out with your state bar association. You want to know if they are licensed and whether any disciplinary actions have been taken against them.
Also check them out with your local Better Business Bureau to see whether any complaints have been lodged there. Run an Internet search too. Often, aggrieved consumers post their experiences online, experiences that serve as an early warning system long before any legal action is taken against scammers.
If the lawyers you are considering to handle your case pass these tests, it's time to ask plenty of specific, detailed questions, such as how many mortgage-related joinder or class actions they have filed and handled through trial or settlement. But don't just take their word for it. Ask for copies of the pleadings and copies of news articles about their successes.
You'll also want to obtain a list of current and former clients and then call them. Finally, ask what specific services the lawyer or firm will do for you and at what cost, and get it in writing.
