In a Final Insult to Homebuyers,|California Loads the Dice for Banks

SAN FRANCISCO (CN) - A California law that threatens attorneys with a $10,000 fine and up to year in jail if they charge clients in advance for negotiating mortgage loan modifications prohibits most borrowers from hiring a lawyer to represent them against the powerful banks, a homebuyer claims in Federal Court. He adds: "The State of California imposes no similar restriction on the ability of a bank to hire a team of attorneys."

Solano County resident Christopher Duenas says that California Senate Bill 94, which Gov. Arnold Schwarzenegger signed into law in 2009, violates his rights to free speech, due process and equal protection by barring attorneys from accepting an advance fee for representing him in loan modifications and foreclosure negotiations.

"The State of California has made it a crime punishable by one year in jail, a fine of $10,000 and professional discipline for an attorney to represent a borrower in a dispute with a bank regarding a 'loan modification or other form of mortgage forbearance,'" the complaint states. "The State of California imposes no similar restriction on the ability of a bank to hire a team of attorneys."

Duenas says that the bill, which was intended to stop loan modification consultants and real estate agents from charging advance fees, was enacted after Schwarzenegger pressured lawmakers to add attorneys to the list.

"Gov. Schwarzenegger's pressure on state legislators resulted from intense lobbying by several groups, including the banking industry, which feared that attorney representation of borrowers would prevent banks from having absolute control over their legal relationship with the borrower and the consequences of that relationship," the complaint states.

Since the bill became law, lawyers have refused to represent borrowers, fearing sanctions and jail time, the Duenas says. While borrowers may seek pro bono or deferred-payment legal assistance, this puts them at a disadvantage in negotiations with banks.

"The intended consequence is to chill free speech and to make reputable attorneys fear representing borrowers," the complaint states. "It is true that borrowers can attempt to find attorneys to represent them at no charge, or attorneys who agree to forego billing for fees earned for one to two years. But there is not a sufficient pool of such free legal assistance to serve the number of borrowers facing complex battles with their lenders. And if borrowers are forced to rely on volunteer legal assistance, the State of California should also have prohibited attorneys from representing banks on a fee-paying basis, and instead required the banks to seek exclusively volunteer legal assistance."

Duenas seeks declaratory judgment stating that the law infringes on his ability to hire an attorney, in violation of the First and Fourteenth Amendments.

He wants a preliminary and a permanent injunction barring enforcement of SB 94.

"Plaintiff seeks to have the same right that his adversary the bank has, which is to hire the attorney of his choice to provide advice and counsel and to represent him in his decisions regarding his mortgage and in his negotiations with his bank," Duenas says.

He is represented by Sean Olender with Olender Pham of San Jose.

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