"FTC Issues Final Rule to Protect Struggling Homeowners from Mortgage Relief Scams," Nov. 19, 2010

Brief Summary
The Federal Trade Commission (FTC) has issued a rule designed to protect consumers of mortgage-related services. The rule imposes disclosure requirements, prohibits certain claims, and governs the collection of fees by service providers. But it contains a broad exemption from these requirements for attorneys.

Complete Summary
The FTC has issued a rule requiring providers of foreclosure rescue and loan modification services (mortgage relief providers) to refrain from making certain claims about their services and to disclose particular information to consumers. The rule also prevents mortgage relief providers from collecting fees until homeowners have a written offer from their lender or servicer that the homeowner deems acceptable. The disclosure requirements become effective December 29, 2010, and the advance fee ban becomes effective January 31, 2011.

Specifically, the rule prohibits false or misleading claims about mortgage relief providers’ services. Mortgage relief providers must indicate that they are not associated with the government and that the lender may not agree to alter the consumer’s loan. If mortgage relief providers recommend that consumers stop paying their mortgages, the consumers must be informed that they could lose their home and damage their credit rating.

Attorneys are generally exempt from the rules regarding disclosure and prohibited claims. The exemption applies so long as the lawyer (1) is practicing law; (2) is licensed in the state where the consumer or dwelling is located; and (3) complies with state rules governing attorney conduct. Lawyers also are exempt from the advance fee ban if they meet a fourth requirement by placing any fees collected in a client trust account and abiding by state laws governing such accounts.

Significance of Rule
This rule recognizes that, to the extent lawyers offer mortgage related services, consumers are adequately protected by existing state laws governing attorneys, and an additional layer of federal regulation is largely unnecessary. Notably, American Bar Association president Stephen N. Zack echoed this sentiment in a written endorsement of the attorney exemption. See Stephen Zack, “President Zack Statement Re: The Attorney Exemption in the FTC’s Final Mortgage Assistance Relief Services Rule,” ABANOW, Nov. 22, 2010.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. 

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Attend the Tenth Anniversary of the industry's premier event focused on current and important developments in the law and litigation of malpractice claims, legal malpractice insurance and risk management strategies. Each Conference panel examines recent case law and significant developments throughout the last year. One and one-half days will be devoted to legal malpractice (February 16-17), and one and one-half days will be devoted to risk management (February 17-18). The Conference will be held in Chicago at The Westin Chicago River North.

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Conference Topics

Legal Malpractice Sessions (February 16-17) 

• Settle and Sue: Is Legal Malpractice a Remedy for An Inappropriate Settlement or for the Settlement That Did Not Happen?
• What You Need to Know About Lawyers’ Liability Under the Federal and State Securities Laws
• Establishing a Fiduciary Breach
• Using Pretrial Remedies — Anti-SLAPP Statutes, and Other Evidentiary Early Disposition Motions
• Significant Developments in Litigating Legal Malpractice Claims
• Insurance Law
• Stump the Panel

Legal Malpractice/Risk Management Cross-Over Sessions (February 17)

• The Insurance Marketplace and Considerations
• Who is a “Partner” — The Legal Implications of Titles
• Mitigating or Avoiding the Loss

Risk Management Sessions (February 17-18)

• The General Counsel Forum
• Don’t Ignore the “Basics” — Engagement, Disengagement and End-of-Representation Letters
• The Growing Threats to Client (and Firm) Data — Managing Technology to Meet the Challenges
• High Tech Tools — and Traps — for Mergers and Lateral Hiring
• On the Horizon: Is Susskind Right? Technology and the Future of Large Law Firms

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$925 for the Risk Management Sessions Only — February 17-18

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• Returning registrants receive 5% off the Conference price
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