SAN FRANCISCO — Warren Jacobs was desperate when he received a “robo-call” promising to help him stave off foreclosure of his home near Dallas.
The father of six had lost his construction job, lacked health insurance and couldn’t pay bills for his 17-year-old daughter’s cancer treatment, let alone his mortgage.
So on Jan. 21, he dialed the return number and was connected to the United Law Group. Minutes later Jacobs agreed to scrape together $2,000 to pay the Irvine, Calif. law firm.
He unwittingly became one of the many thousands of homeowners authorities allege have been taken in by unscrupulous or incompetent loan modification attorneys who rushed into a burgeoning legal niche: helping financially struggling homeowners re-negotiate their mortgages.
Ripoffs of homeowners have become so commonplace that state bar associations from Florida to Arizona are warning their members of the many ethical pitfalls awaiting those who exploit the mortgage crisis. The California State Bar launched a task force a year ago to examine thousands of homeowner complaints about foreclosure lawyers.
Currently, the California Bar is investigating more than 400 attorneys who are suspected of ripping off thousands of homeowners across the country.
The organization that licenses and disciplines California’s more than 250,000 lawyers already has suspended or obtained the resignations of 15 lawyers while disciplinary charges are pending.
The first to be charged was Sean Rutledge, founder of the law firm that purported to represent Jacobs and 13 other homeowners.
Just months after securing a law license, Rutledge had been flying high. His United Law Group ramped up to several lawyers and opened offices in other states.
Today his license is suspended, his nascent career lies in tatters and he is under investigation in California and Ohio for taking fees of up to $3,500 from desperate homeowners then allegedly doing little — or nothing — to save their homes.
The California Bar formally charged Rutledge in July with not only failing to perform vital tasks to stop foreclosures, but calling his clients “losers” during the rare occasions they could get him to return their telephone calls.
Rutledge has denied the allegations and said he would contest the state Bar’s attempts to disbar him. He is appealing the dismissal of a lawsuit he filed against the state Bar, alleging that it violated federal laws protecting the disabled. He suffers from diabetes and alleges state Bar investigators ignored his need for treatment when scheduling meetings, among other claims.
He did not return e-mail messages seeking comment, and could not be reached through the United Law Group, which remains in business and calls the focus on its founder and firm a “witch hunt.”
January represented the 11th straight month of more than 300,000 properties receiving foreclosure filings in the country, according to Irvine-based RealtyTrac, which is predicting a record 3 million foreclosures this year.
There were a 190,360 foreclosure in California last year compared to 236,000 in 2008, according to MDA DataQuick.
The California Legislature in October passed a law barring attorneys from collecting advance fees for foreclosure work, an action that has prompted many to leave the field and soured others on entering it.
Meanwhile, some who have entered the field are looking at possible prison time, in addition to disciplinary action. Christopher Diener of Irvine is being held without bail in the Orange County Jail on 98 theft counts for allegedly scamming more than 400 homeowners out of $1.25 million.
“The complaints are still going through the roof,” said Suzan Anderson, the Bar’s lead mortgage fraud prosecutor, who receives more than 30 complaints daily and expects many more lawyers to lose their licenses.
Many of the complaints, like Texas homeowner Jacobs’, are about do-nothing attorneys.
Jacobs told Bar investigators that Rutledge’s law firm advised him to stop making mortgage payments and to cease communicating with the bank.
When the bank moved to seize the house for which Jacobs paid $175,000 in 2003, the law firm failed to formally request “forbearance,” as it promised, to delay foreclosure. On June 1, he hired another lawyer to file bankruptcy on his behalf to stave off foreclosure the next day. In September, he agreed to a new payment plan with his bank and continues to live in the 4,000 square-foot house in suburban Dallas.
“I nearly ended up in a homeless shelter,” Jacobs said.
Ohio Attorney General Richard Cordray filed a lawsuit against Rutledge and the United Law Group earlier this month alleging they defrauded homeowners in that state.
United Law Group spokeswoman Nina Vultaggio and others contend that the crackdown on lawyers has been motivated by the financial industry. She alleged that the financial industry is the biggest villain in the mortgage crisis and wants to deprive their customers of legal representation during complicated negotiations to save homes.
“When you get into trouble, you need an attorney to talk to these negotiators,” Vultaggio said.
United Law Group has filed class action lawsuits against Bank of America, JP Morgan Chase and Washington Mutual, alleging unfair business practices, she said. The banks deny the allegations.
Rutledge resigned from the firm in December, saying in a press release that the state Bar’s investigation was too much of a distraction for the firm’s clients.
Legal experts still strongly recommend homeowners in peril hire attorneys to counsel them in how best to deal with their lenders. But state Bar officials warn clients to research a lawyer’s background to avoid the problems Jacobs and many other desperate homeowners said they encountered.
For his part, Jacobs says he is still waiting for United Law Group to refund the fee he paid in January.
“I truly need to be reimbursed for the $2000,” he said, “to help me get out the deeper hole ULG has dug for my family.”