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Law firm sues state over mortgage modification licensing

Updated Monday, Nov. 16, 2009 | 5:59 p.m.

A law firm active in Henderson and Las Vegas is suing the state over rules requiring licensing of non-attorney employees working on mortgage loan modifications.

Cogburn Law Offices LLC filed suit last week in Clark County District Court against the Department of Business and Industry, Division of Mortgage Lending.

Court records indicate the law firm won a temporary restraining order against the division on Friday. District Judge Valorie Vega also set a Friday hearing on Cogburn's request for a preliminary injunction, which would extend the restraining order while the issue is litigated.

The lawsuit was filed by attorney Terry Coffing of the firm Marquis & Aurbach.

Coffing said Monday that Cogburn Law Offices has not received any notification of enforcement action against it by the Mortgage Lending Division and that the restraining order should preserve the status quo until Friday's hearing.

The restraining order didn't address licensing of non-attorneys. It restrained the division from "suggesting to the public that lawyers licensed in the state of Nevada working at Cogburn Law are not duly qualified to assist clients and/or potential clients in loan modifications, short sales and/or deeds in lieu of foreclosure."

The division was also restrained from failing to include lawyers licensed in Nevada in its list of qualified companies permitted to provide loan-modification services.

Coffing said the State Bar of Nevada, which regulates the legal industry, has expressed concern over the rules and he hopes the bar intervenes in the case on Cogburn's side.

He said Jamie Cogburn, co-founder of the law firm, supports regulation of the loan modification industry to ensure consumers are not harmed by scam artists.

But the division's rules are too broad, including provisions attempting to regulate the practice of law, Coffing said.

The suit says that attorneys were specifically excluded when the Nevada Legislature passed a bill this year regulating loan modification companies and firms assisting with short sales and deeds in lieu of foreclosures.

But now, the Mortgage Lending Division has imposed rules requiring staff members associated with or employed by attorneys to be licensed, the suit charges.

"Such regulation not only enlarges the scope of (the law), but attempts to govern and regulate the practice of law by forcing employees of an attorney to be licensed and governed by the Nevada Mortgage Lending Division," the lawsuit charges.

Cogburn also charges in its suit that it was wrongly not included on a Nov. 3 list of companies eligible to conduct loan modification services.

The law firm says some clients called the state agency and were told its "employees were foreclosed from talking with the banking institutions in any capacity, assist the attorneys in the loan modification, short sale and deed in lieu of foreclosure process unless the employees of the Cogburn Law Offices received a separate license from the division."

This conduct "has harmed and will continue to harm Cogburn Law Offices as it provides false information to the public, misleads the public regarding the ability of Cogburn Law Offices to conduct activities related to loan modifications, short sales and deeds in lieu of foreclosures and significantly reduces the credibility and goodwill of Cogburn Law," the lawsuit charges.

Cogburn is seeking a court declaration that its legal staff and employees are exempt from licensing, including provisions requiring they be bonded and take continuing education classes.

A request for comment was placed Monday with the Mortgage Lending Division.

Ian Hirsch, owner of Fortress Credit Services in Las Vegas, was critical of efforts by the attorneys to avoid licensing for their paralegals and staff involved in loan modifications.

He said one of the purposes of licensing was to rid the industry of "bad players."

"A good number of those bad players were law firms," he said.

Hirsch said that one of the purposes of licensing was to provide a means for consumers to have fees refunded if loan-modifiers fail to modify loans. But law firms want to get paid regardless of whether they are successful in winning modifications, he said.

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