Homeowner Legal Aid Programs Address Conflicts

By Aspan, Maria | American Banker, October 20, 2008 | Go to article overview

Homeowner Legal Aid Programs Address Conflicts


Aspan, Maria, American Banker


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. …

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