by Calculated Risk on 12/20/2010 11:44:00 PM

From David Streitfeld at the NY Times: Homes at Risk, and No Help From Lawyers

Lawyers throughout California say they have no choice but to reject clients ... because of a new state law that sharply restricts how they can be paid. Under the measure ... lawyers who work on loan modifications cannot receive any money until the work is complete. ...

The law, which has few parallels in other states, was devised to eliminate swindles in which modification firms made promises about what their lawyers could do, charged hefty fees and then disappeared. But foreclosure specialists say there has been an unintended consequence: the honest lawyers can no longer afford to assist [borrowers] ...

The problem was widespread modification fraud:

Two years ago, the state bar association had seven complaints of misconduct in loan modifications. By March 2009, there were more than 100 complaints, and a task force was formed to deal with the problem. Soon, there were thousands of complaints. ... The president of the bar association wrote in a column last year that “hundreds, and perhaps thousands, of California lawyers” were victimizing people “at the most vulnerable point in their lives.”

Several lawyers emailed me about this possibility before the law passed, but no one seemed to have a good solution for the widespread fraud. Very sad.