Court rules on ‘foreclosure rescue’ services (OR: Jan. 2010)

by Peg Ritenour
Vice President
Legal Services

The increased number of foreclosures in the past few years has resulted in an outgrowth of businesses offering “foreclosure rescue” services, many of them with questionable business practices.

Since last May, the Ohio Attorney General’s Office has issued over 30 cease and desist orders to companies suspected of operating scams and has filed more than ten lawsuits against foreclosure rescue companies.

This past summer, the Ohio Supreme Court issued a decision that raised another concern about such businesses, namely the unauthorized practice of law.

The case was initiated by the Cincinnati Bar Association against Foreclosure Solutions, LLC, a Cincinnati-area business owned by Timothy Buckley. This company monitored the foreclosure actions filed in Ohio courts and sent mailings to the homeowners offering assistance to negotiate the loan with their lender and to get the foreclosure action dismissed.

As part of its services, Foreclosure Solutions paid a law firm to file an answer to the foreclosure lawsuit on behalf of the owner.

The homeowner paid Foreclosure Solutions a fee ranging from $700 to $1,100 and gave Foreclosure Solutions power of attorney to negotiate with their lender.

Homeowners were not counseled by Foreclosure Solutions or by the attorney it hired regarding any other legal options, such as filing bankruptcy. Instead, its sole approach was to delay the foreclosure, while it attempted to negotiate a settlement with the lender.

As a result of their involvement in this business, the attorneys hired by Foreclosure Solutions were disciplined by the Ohio Supreme Court for professional misconduct. This resulted from the attorneys’ failure to assess the individual needs of the homeowners to determine their best course of legal action.

The Supreme Court also found the attorneys acted improperly by aiding Foreclosure Solutions in the unauthorized practice of law.

As to Foreclosure Solutions and its owner, the Ohio Supreme Court ruled unanimously that it had practiced law without being licensed. Buckley argued that he had not filed pleadings or appeared in court on behalf of the homeowners.

The Supreme Court, however, did not find this to be persuasive. Instead, the Court stated, “We have repeatedly held that non-lawyers engage in the unlawful practice of law by attempting to represent the legal interests of others and advise them of their legal rights during settlement negotiations.”

In this case, the Supreme Court found that Foreclosure Solutions and Buckley had engaged in the unlicensed practice of law and the fact that he acted under the authority of a power of attorney did not change that conclusion. The Court enjoined Foreclosure Solutions and Buckley from practicing law, specifically barring him from advising others on the terms and conditions of settlement in negotiations to avoid pending foreclosure proceedings. It also levied a $50,000 fine.

This case underscores that non-lawyers, including REALTORS, need to be aware of the limitations on the service they can provide to homeowners facing foreclosure. Specifically, REALTORS should be careful not to counsel or advise sellers of their legal options or to advise them of their rights in settlement negotiations with a lender or after a foreclosure action has been filed.