Lawyers’ role in foreclosure mediations sparks debate

By Buck Wargo

Friday, Aug. 21, 2009 | 3 a.m.

The Nevada legal community is getting behind a new mediation program designed to reduce the state’s ongoing foreclosure problem, but some attorneys are facing criticism for trying to profit from it.

As of July 1, homeowners who receive notices of default from their lenders have 30 days to seek mediation. So far, more than 450 homeowners have requested mediation, which could begin by late August or early September, said Bill Gang, spokesman for the Nevada Supreme Court, which is overseeing the program.

Backers of the program are hoping it makes a dent in Nevada’s nation-leading rate of foreclosures whose ripples have been felt throughout the housing market.

But the program that has been tried in other states is creating a new cottage industry — lawyers who are seeking to represent homeowners in the mediation sessions and are launching ad campaigns promoting it.

One legal advocate for the poor has criticized the program, sayings attorneys are preying on homeowners for a service they don’t need. Many attorneys, however, said it never hurts to have legal representation in the complicated process to keep a home.

Michael Joe, an attorney and foreclosure specialist for the Legal Aid Center of Southern Nevada, said he has seen attorneys advertise their services for $1,500 to $3,500 to help homeowners in mediation. It’s piggybacking on attorneys’ ads to help homeowners modify loans, he said.

Joe called it no different from an attorney waiting outside of a hospital for injured patients who are brought in by ambulance.

“What they are doing is trolling the county recorder’s site to see who is getting foreclosed upon and mailing them,” Joe said. “It is preying upon the weak and the desperate.”

Joe said homeowners don’t need attorney representation because the mediators are supposed to be knowledgeable, fair and unbiased. There are programs for homeowners to learn how to represent themselves in mediation and understand how the process works, he said.

“I just don’t think it is worth the money,” Joe said. “Most of the attorneys are providing a service not worth what they are charging. They are giving false expectations. It happens very often that what (homeowners) think they are getting does not make a difference in saving the home.”

Karen Dennison, vice chairwoman of the real property section for the State Bar of Nevada, said it’s up to each homeowner to decide if he needs legal representation, and there is nothing improper for lawyers in advertising their services.

“A home is a pretty important investment and if you want the best representation possible, you want to a hire a lawyer,” Dennison said.

Robert Noggle, a real estate and business attorney with Black & LoBello, said attorneys have helped people stay in their homes by working with lenders and helping negotiate short sales. In mediation, attorneys may need to advise the homeowner on what is offered by lenders.

Although attorneys aren’t necessary, not every homeowner who goes into mediation has the time or inclination to understand the rules, Noggle said.

“We all have opinions,” Noggle said in reference to Joe’s position on the need for attorneys. “They can represent themselves in loan modifications, but the stakes are relatively high.”

The Supreme Court’s Gang said homeowners need to make the decision on whether they need representation. He said he’s seen the flood of ads from attorneys seeking to represent homeowners. It seems there are more than what is usually seen from personal injury attorneys, he added.

“We can’t make the call for them,” Gang said of homeowners. “Lawyers are in the business to try and get clients and offer a service.”

No one is questioning the motives of attorneys when it comes to serving in the program. More than 400 people, many of them attorneys and retired judges, have come forward to serve as mediators. They are paid $400, $200 from each side, for the sessions that can last up to four hours.

The start of the program comes as Nevada posted a record number of home repossessions in July, according to California-based RealtyTrac.

The more than 450 people who have signed up for mediation are expected to be the tip of the iceberg.

“Everyone is excited that this will move the process forward,” Gang said. “What this means is that the lenders have to show up. The major concern has been that homeowners wanted to do something with their loans, but couldn’t get the lenders to sit down with them and discuss the problem.”

Gang said it’s too soon to predict how much of a difference the program will make. When a similar program started in Connecticut, 40 percent of those who got notices of default went through mediation and 60 percent of those got to keep their homes, he said.

“We are hopeful for some very positive results out of this,” Gang said. “When any family is on the verge of losing a home, any program that gives them hope is worthwhile.”

Gang said, however, it’s difficult to compare Nevada to Connecticut and other states that have similar programs. Many don’t have the number of investor properties that Nevada has nor as much of a decline in property values, which makes it more difficult for lenders to work out deals, he said.

Lenders can foreclosure on homes 90 days after they file a notice of default and the mediations must be scheduled 80 days from the filing. Lenders can’t proceed with a foreclosure unless they get a certification they took part in mediation if requested.

Lenders aren’t required to work out an agreement with the homeowner, but must have a person participate who has the authority to make modifications to the loan, Gang said.

“I think it will help because it brings the lenders and borrowers face to face,” Dennison said. “Borrowers have had a difficult time in meeting with lenders on their own, and I think there will be more successful loan modifications because of it.”