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ETHICS ALERT
You have all read and heard about the residential mortgage crisis in California. In 2007,
roughly 84,000 California homeowners lost their homes in foreclosure.
Legal Services to Distressed Homeowners
and Foreclosure Consultants on Loan Modifications
Committee on Professional Responsibility and Conduct
(February 2, 2009)
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Seeing a business opportunity in this crisis, “foreclosure consultants” purport to offer
distressed homeowners assistance in assessing their options and/or negotiating loan
modifications with their lenders.
Through the first three
quarters of 2008 alone, that number increased to over 190,000. During that same period, lenders
recorded nearly 330,000 notices of default on California home mortgages. Recording a notice of
default is the first step of a non-judicial foreclosure or trustee sale, the most common process in
California, which typically takes four to six months or more. In other words, the crisis seems far
from over.
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These foreclosure consultants, however, often charge high fees, the payment of
which is often secured by a deed of trust on the residence to be saved, and
perform no service or essentially a worthless service. Homeowners, relying on
the foreclosure consultants’ promises of help, take no other action, are diverted
from lawful businesses which could render beneficial services, and often lose
their homes, sometimes to the foreclosure consultants who purchase homes at a
fraction of their value before the sale. Vulnerable homeowners are increasingly
According to the California Legislature,
1 See Reports on California Foreclosure Activity issued by DataQuick Information Systems, available at
http:/www.dqnews.com/News/California/CA-Foreclosures/RRFor080422.aspx,
http:/www.dqnews.com/News/California/CA-Foreclosures/RRFor080722.aspx; and
http:/www.dqnews.com/News/California/CA-Foreclosures/RRFor081023.aspx.
2 Civil Code section 2945(a) defines “foreclosure consultant” as any pers