Byline: Maria Aspan
As the mortgage crisis deepens, lawyers around the country are volunteering to help distressed homeowners avoid foreclosure, but those with the most relevant experience often face the potential for conflicts of interest involving lender clients.
Lawyers can be more effective at working out deals with lenders than other consumer advocates, said Sharon E. Goldsmith, the executive director of the Pro Bono Resource Center of Maryland, a co-sponsor of the state's Foreclosure Prevention Pro Bono Project.
"As competent as many of these housing counseling agencies are, they're only getting so far with the lenders," she said. "When an attorney gets involved, it escalates" the negotiations between homeowners and lenders.
But getting involved has also created a delicate situation for some of the largest law firms, which have the most staff to contribute to such projects - but often represent major lenders.
Lynn M. Kelly, the executive director of the City Bar Justice Center, a pro bono arm of the New York City Bar Association, said the city's Lawyers' Foreclosure Intervention Network (which her center co-sponsors)is thriving in terms of interest among small firms and solo practitioners.
"We have all these volunteers," she said. However, "we're hopeful that more people will come forward from the [large] firms, because they have a lot of resources and a lot of muscle."
Some in the legal field say such programs will struggle without that muscle.
"Getting around the conflicts issue and getting law firms interested ... is an issue," said Lisa L. Eschleman, the former associate director for pro bono at the Ohio Legal Assistance Foundation, which in April helped start one of the first free legal assistance programs in the nation.
"We haven't cracked that nut," said Ms. Eschleman, who left the foundation in May to become the commissioner of the Ohio Environmental Review Appeals Commission.
The conflict-of-interest question was particularly urgent for the Lawyers' Foreclosure Intervention Network, a New York pilot program that had to negotiate a structure that would satisfy the state's laws and the city's high concentration of major financial institutions - and the major law firms that represent them.
Thomas C. Baxter Jr., the general counsel of the Federal Reserve Bank of New York, which co-sponsors the program, described the scope of the problem in a panel discussion this summer. "Every major law firm in the city of New York is either working for a large financial institution or praying" to work for one, he said.
Mr. Baxter, who oversaw the program's first training session in June, met with general counsels at financial institutions and developed a "limited waiver" for lenders'attorneys. The waiver allows employees of firms representing the companies to providelegal counseling to troubled homeowners, but not to represent them in litigation.
"As far as I know, we're the first" to develop such a system, Mr. Baxter said in an interview in August. "I know from the calls that I've received in the last few weeks that a number of jurisdictions are looking into this issue right now and are studying the limited waivers that we're using here ... to see whether they could work under the laws" of other states, he said.
Several financial services companies, including Citigroup Inc., Bank of America Corp. and UBS AG, have signed the New York waiver,allowing their law firms to get involved, according to Mr. Baxter.
But the same companies are shying away from publicly supporting - or even discussing - the program. Neither UBS nor Citi would make executives available to discuss the program for this story. B of A did not return calls for comment.
However, JPMorgan Chase & Co. said this month that it had signed about 20 waivers in the New York program. "We work with outside counsel if they wish to seek waivers to help keep people in their home," said Tom Kelly, a spokesman for JPMorgan Chase.
Michael J. Hurley, president of the Mortgage Bankers Association of New York, said, "We haven't really involved ourselves" with the city's program.
Even with some lenders' permission, lawyers from many large firms are keeping silent or staying away. Mr. Baxter said at the panel discussion that attendance at the program's first training session far exceeded expectations, but many of the participants were solo practitioners. (He had expected 80 participants for the first one-and-a-half-day training session in June; 130 attended, including more than 50 solo practitioners.)
When asked in a later interview if any major law firms had agreed to participate, Mr. Baxter named Sullivan & Cromwell LLP. "Some of their attorneys have signed up and have been given cases or parts of cases," he said. A Sullivan & Cromwell spokeswoman would not confirm or deny its participation in the pro bono program or otherwise comment.
Other large law firms are more openly enthusiastic about the program. Miriam Buhl, the pro bono counsel for Weil, Gotshal & Manges LLP in New York, said it is not participating, though it is considering doing so."We will recruit volunteers to attend" the next training session this month.
The firm has not committed to the program because of time constraints and a previous pledge to support another large-scale pro bono project, not a concern over conflicts of interest, Ms. Buhl said.
"A lot of the banks have been very supportive," she said, and one large lender client, which she would not name, has signed a limited waiver.
Ms. Kelly of the City Bar Justice Center said the recent mortgageshake-up has complicated the program's outreach efforts. The government takeover of Fannie Mae and Freddie Mac "may change the remedies available to people" by speeding up the modification process and facilitating more workouts for homeowners. (Since being put under conservatorship, both Fannie and Freddie have dramatically increased their efforts to get loans modified.)
"I feel like we're still in that eye-of-the-storm moment," Ms. Kelly said last month. "We're trying to keep people mobilized and moving."
General foreclosure practices in New York are also making the situation "particularly complicated," because many lenders will send delinquent mortgages to "large law firms that are basically foreclosure mills," she said."I don't think the foreclosure firms are used to having to work deals out with people....We're still having problems getting people on the telephone at the lenders."
But Ms. Kelly said the program will ultimately succeed and benefit both lenders and homeowners.
"In most of these cases, if they go into foreclosure, the banks and other financial institutions are going to end up losing money," she said. "I do think that there's a shared interest in resolving them."
New York may be especially wellcovered by financial institutions and their lawyers, but participants in foreclosure counseling projects in Ohio, Maryland, and Florida said they also faceconflict-of-interest questions.
Adele I. Stone co-chairsthe probono committee of the Florida Bar's Real Property Probate and Trust Law Section, which is a participant in the Florida Attorneys Saving Homes program.
She said she had considered the New York model, but "we haven't been able to find a satisfactory waiver thus far that would allow the attorneys to represent the clients to our comfort level."
For now the program is avoiding the issue by carefully assigning volunteers to cases that do not involve their firms' clients, Ms. Stone said.
"I think the immediate goal is to just help these people," she said. "There are a lot of attorneys in this state that don't have conflicts."
Dionne L. Meyers, the coordinator of the Florida program, said it had attracted at least "four large firms that have signed up with every attorney in their offices working on the project." (She would not name the firms.)
Ms. Goldsmith of the Pro Bono Resource Center of Maryland said that the majority of the state's bar members aresolo practitioners or work at small firms.
"We have large firms, but it's not on the same scale as New York or D.C.," she said. "We certainly plan to approach the large firms," but "we've kind of heard indirectly that there are a few who've said,'We can't get involved, because of the conflicts.' "
Nevertheless, Ms. Goldsmithremains optimistic. "The state actually has been very proactive in trying to work with the lenders," she said. "We did look at the New York materials. ... We're taking that into specific consideration, [and] we're going to approach the large firms to see if there's a creative solution."
She and others said that even if large law firms cannot represent homeowners, they could get involved by training other volunteers or providing advice and counseling. "If it escalates, pass it off to another attorney," Ms. Goldsmith said.
Ms. Eschleman said some large firms have allowed their lawyers to participate in the Ohio program by training other volunteers.
"It's not direct representation that helps a homeowner, but it certainly helps the project," she said.
In addition, the Ohio Legal Assistance Foundation has held initial talks with attorneys for lenders like JPMorgan Chase, Ms. Eschleman said. "They're willing to come to the table with an open mind," but "they haven't yet called us."
For Ohio, "the next step is to look at what New York is doing," she said. "It has been a challenge that I don't think Ohio has been able to get its arms around."
(Jane Taylor, the current associate director for pro bono at the Ohio Legal Assistance Foundation, said that because of the "tremendous" initial response, "right now the lawyers who have volunteered are meeting the needs" of the program. "We're really sort of in a holding pattern" regarding the conflict-of-interest question. "The firms who represent the Ohio lending community have supported the program in other ways" by providing training and logistic support.)
The programs, which have only been active for a few months, have had few results thus far, mostly because of the slow legal process. Ms. Kelly said 47 cases had met the New York program's requirements as of Oct. 3, and 36 had been placed with lawyers. An additional 80 lawyers signed up for the October training session, she said.
Ms. Meyerssaid the Florida program had attracted over 600 lawyers and had assigned almost 570 cases thus far.Those cases are "still in the early stages of negotiations."
Mr. Baxter of the New York Fed said that even though the Lawyers' Foreclosure Intervention Network is still in the testing stage,some of the outside interest in the waiver has come from other parts of the state. "Because our limited waiver is designed to function under New York law, it could work statewide."…