Monday, November 16, 2009

The First Thing We Do, Let's Kill All the Lawyers.

"The First Thing We Do, Let's Kill All The Lawyers."

These are the words spoken by that great citizen Dick the Butcher in Shakespeare's Henry VI. Dick the Butcher was a follower of the anarchist Jack Cade. As you've probably read a few million times, Dick the Butcher wanted to kill the lawyers because he feared they would stand up for democracy and all that is right and good in the world. Hah!

I suppose attorneys as a group are no worse than politicians, stockbrokers, bankers, brokers, salespeople. But maybe that's the point. We expect them to be better. Why? Because they spent 3 years studying the Constitution, the original creation of our country, the ideals and principles upon which it was founded, the sacrifices of so many, the progress made over the years to include those originally excluded like women, blacks, other minorities. They study the great legal writers of our nation who have explained the importance of democracy and equality and freedom, the importance of defending our constitution and the Bill of Rights. And because they have studied all this, we expect attorneys to be law abiding, to have a love of country, to want to uphold and enforce the laws and the principles.

Sadly, most attorneys are quite the opposite. They learn early in their training that they will be judged by their bosses mostly based on the number of hours they bill to clients, that they can flat-out lie about work they claim to have done and nobody will say a thing about it, that they can lie to the court and, if they get away with it, there will hi-fives all around. If they overbill and overcharge the clients, better still. There simply are no ethics or scruples inside most law firms. It is all about bringing in the money.

Let me give you just one quick example. Most attorneys have a written contract that they and their clients sign that reflects the terms and conditions under which the attorney will represent the client. It does not say anything about charging clients $150/hour for a secretary's time in stuffing an envelope, but that is exactly what many of them do.

Many attorneys no longer have legal secretaries and instead only hire paralegals, who have to be qualified legal secretaries, but also have an additional two-years of training and a certificate issued by the state. The paralegals are paid around $36,000/year, around $20/hour. But the fact is that mostly they spend their days doing legal secretarial work. Attorneys have never historically billed clients for secretarial work. But they do now. They just hide it from the clients because it is so unconscionable. When a secretary faxes a copy of a letter to a client, or makes a copy of it and puts it in an envelope to the client -- it is often billed to clients as "Paralegal Services, Transmission of Communications." Although the paralegal is only paid $20/hour, the clients are charged $150/hour for the secretary's time. Attorneys don't disclose to clients that they are being billed for secretarial work, never mind that they are being billed at 7 times the actual cost.

That's just one example of the thievery that is typical in the legal profession today. I could provide hundreds.

Now let's look at the other side. There are a few attorneys who volunteer their time to work for poor people who could not otherwise afford an attorney. The volunteers usually are retired attorneys who want to keep their hand in, or women attorneys who are basically shut out of most paying legal work in their community. That's about it for the other side.

I have been an attorney for over 25 years. I cannot practice law unless I am a dues-paying (emphasis on dues-paying) member of the state bar, which charges me $410/year in exchange for which I get a plastic card that says I'm still an attorney, and a lousy magazine. The only thing worth reading in the magazine is in the back, where it lists all the attorneys who have been suspended or disbarred, or resigned with charges pending, or sometimes fled the country, because of their illegal or incompetent work as attorneys. It's a good way to keep track of my former classmates. Because of these criminals attorneys, the rest of us have to take courses that instruct on ethics. Things like "Don't steal your client's money." "Don't have sex with your client." "If you agree to do the work, then do the work." I have to pay money to take courses to listen to people tell me things that a 6-year-old already knows.

The widespread foreclosures and loss of homes across the nation has been a great money-making opportunity for lawyers. There are lots of reasons lawyers might want to stay away from this field, but the prospect of taking money from terrified and desperate homeowners has just been too tempting for many in my profession. Of course the lenders are pounding on the homeowners on one side, the attorneys are robbing them blind on the other. No particularly good answers here.

Here's the thing. Let's say somebody borrowed 100% financing on a home, paid $500,000, now it's lost 30% of its value and is only worth $350,000. Plus, to make things worse, let's say one of the home buyers lost their job. Or maybe when they originally bought they figured the property would increase in value and they would sell it in 5 years, take money out, use that as a downpayment on something else. One way or the other, homeowners cannot afford the house, and they're behind in their payments. They cannot sell it and pay off the existing loan because they owe $500,000, but the house is only worth $350,000.

Some people and lawyers think that people should fight to keep their homes on the assumption that the value will soon go up again. I'm not a seer, but personally I don't think so.

What is a loan "renegotiation?" Some people think they can convince the lender to just write off a big chunk of what's owed. Give the homeowners a new loan for $350,000, and forgive the additional $150,000 that's owed on the existing loan. Fat chance. And if you multiply that by the number of houses in default, no chance at all.

So what's the answer? I would say walk away. Negotiate with the lender to take back the property. But that's not legal advice for anyone -- it's just my own opinion. There's no reason to fight to continue to pay $500,000 on a house that's only worth $350,000. People would be better off negotiating a deed-in-lieu of foreclosure, walking away, go rent or live with the relatives, then maybe try to buy something somewhere down the road. But that's just my opinion, not legal advice. Homeowners need to get tax advice before doing anything because forgiveness of debt can be treated just like income, and create a tax problem.

Attorneys see opportunity here. And advertise on TV to desperate homeowners that they should call some 800 number and an attorney will help them renegotiate their loans. Which sounds good, right? Well, not exactly. It turns out that many attorneys demand a flat-fee up front before they'll do a thing, then once the homeowner pays, the attorney writes a letter to the lender, the lender blows them off, and the attorneys says sorry, homeowners, you're out of luck.

Of course some attorneys try hard to get the lender to make a deal, but if they don't want to make a deal, there's really nothing the attorney can do. In general, there is very little an attorney can do for homeowners in default in today's market. So the question is whether an attorney soliciting clients under a representation that they can help, when it's highly unlikely they can, represents some kind of fraud.

Well it's certainly lucrative, because there's been lots of TV time purchased by attorney-groups set up to take advantage of the foreclosure disasters. One of the biggest attorney-advertisers in one area just resigned from the bar because he was getting nailed for advertising and taking money from homeowners, then allegedly not doing anything to help them. It also turns out he had a prior sex-with-a-minor conviction that he had never reported to the bar. Oops!

One group of attorneys had set up a series of related businesses that were supposedly going to help homeowners keep their homes. Here are the names of the some of the businesses the attorneys set up: "Safe Haven," "Home Loan Negotiators," "Your Dreams Come True." It would almost be funny if it wasn't so tragic. No, actually, it is pretty funny.

Now let's look at the other set of scummy low-lifes in this foreclosure mess: the lenders. You know, the lenders, the banks, the Wall Street scum who bribed our politicians in the first place to artificially hold down interest rates and loan them money at 1%, the lenders who bribed our politicians to eliminate all regulations in the banking industry, the people who created this mess in the first place.

What would you expect the lenders to do in this or any other situation? Bribe the politicians to pass another law. The new law makes it illegal for attorneys to get a retainer up front, to get money up front from a client in order to assist the client in trying to renegotiate a loan.

What's wrong with that? If the client is already broke and facing foreclosure, the only way an attorney is likely to get paid is if they get something up front. This is fairly standard practice in the law. You get a retainer up front -- say $2500 -- put it into a trust account, bill against that amount. That way the attorney will be sure to get paid something for their time. Although most attorneys may not be thieves, they're also not stupid, and if they cannot get a retainer up front, they will not take on this work.

So the banks bribe the politicians, the politicians pass a law making it illegal for any attorney to get any money up-front in connection with representing homeowners in foreclosure. That means few attorneys will be willing to do that work. Which means the lenders are free to shove down the homeowners' throats ridiculous loan modificiations by which the homeowners will likely be indebted for 100 years, with lots of additional fees tacked on.

What should have happened? Well first of all, Bill Clinton and Bob Rubin and all the scummy politicians in Congress and all the criminals on Wall Street should never have changed the laws regulating banking, because that is what led to this problem. Alan Greenspan should never have held interest rates down so low for so long, because that caused real estate to balloon in value and cost, leading to the unaffordable loans currently in foreclosure.

What's the answer? First, implement immediate regulations going back to the old days. Nobody can borrow more than 80% of the value of a home, and must put 20% of their own money as a down payment. This will cause real estate values to drop back down to where they should be, which is about 4 times the gross income of the average working person.

Second, the federal government should intervene on behalf of homeowners in foreclosure in homes with loans $500,000 and under, and allow those homeowners to deed the home back to the lender with a forgiveness of any balance owed in excess of the current value of the home, and no tax consequences to the homeowner as the result of any forgiveness of debt. Those same homeowners should also, by law, have any negative consequences as a result of this transaction removed from their credit history within 3 years. The effect of this would be to force many of the banks to go ahead and re-write the loans down to the current real value of the home, since that's all they will get after they go through the foreclosure.

Third, the federal government should establish one standard "loan renegotiation" form, or law, with the allowable terms and conditions, without fees, and without extending the term of the loan beyond 30 years. This form should be posted on-line. Any other renegotiation terms a lender attempts to insert will be declared void.

Fourth, the federal government should start charging all the insiders a fair rate for borrowing money, maybe starting at 2.5% but quickly going up to 5%.

Fifth, the federal government should pass laws making all lenders including credit card companies subject to a usury law with 10% being the maximum interest rate that can be charged, outlawing late fees or other fees.

That would stop the foreclosures, stabilize the housing market (at a lower valuation which is where it's headed anyway), stop the raping of the public by the credit card companies, give people a chance to get back on their feet, and stop the chaos inside so many communities from the instability in the housing market.

After that, the next thing we do, let's kill all the lawyers. Except for me, of course.

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