Bar News - June 18, 2010
Attorneys: S.A.F.E. Act Shouldn’t Apply to Lawyers
By: Dan Wise
Some attorneys say the NH Banking Department is trying to regulate the practice of law with its interpretation and enforcement of laws regulating mortgage modifications.
At a CLE last month, Banking Commissioner Peter Hildreth, at center, (now on voluntary paid leave due to an unrelated matter) discussed enforcement of the SAFE Act with Assistant AG Karen Gorham (at left) and Celia Leonard, Banking Department general counsel.
The issue is more than academic to a number of consumers who have been unable to obtain legal representation to prevent or halt foreclosures due to the "chilling atmosphere" – as one attorney put it – of regulation in NH. [As an example, the NHBA Lawyer Referral Service refers clients inquiring about foreclosure prevention to the Banking Department.] And the issue is very real to Concord attorney Daniel Dargon, whose law firm is fighting an enforcement action – and a threatened $60 million in fines – for allegedly acting as "loan originators" without obtaining necessary licenses. The law firm also faces contempt charges for refusing to allow the Banking Department to examine its client files to determine whether it was complying with the limitations of an injunction which halted the original enforcement action. (See chronology on page 26.)
Dargon maintains that he and his attorneys should not be subject to the Banking Department’s oversight simply because they are helping clients obtain mortgage modifications in the course of attempting to avert foreclosures.
Muddying the waters is that the state law (RSA 397-A) differs slightly from the national S.A.F.E. Act it was meant to parallel. And the US Department of Housing and Urban Development has not yet completed the regulations to administer the law, furthering uncertainties about how the law should be interpreted. The ABA has sought to broaden the narrow exemption in the national S.A.F.E. Act, for attorneys counseling clients, while the National Association of Attorneys General opposes a blanket exemption for attorneys.
The Law at Issue:
LICENSING OF NONDEPOSITORY FIRST MORTGAGE BANKERS AND BROKERS
RSA 397-A, XVII defines a "mortgage loan originator" as: …an individual who for direct or indirect compensation or gain or in the expectation of direct or indirect compensation or gain, takes a mortgage application or offers, negotiates, solicits, arranges, or finds a mortgage or loan or who assists a consumer in obtaining or applying to obtain a mortgage loan by, among other things, advising on loan terms, (including rates, fees, and other costs), preparing loan packages, or collecting information on behalf of the consumer with regard to a mortgage loan or who offers or negotiates terms of a residential loan…."
A:4 Exemptions, in part, provides that the law does not apply to: "V. A licensed attorney who negotiates the terms of a residential mortgage loan on behalf of a client as an ancillary matter to the attorney’s representation of the client, provided that the attorney is not compensated, directly or indirectly, by a lender, a mortgage broker, mortgage servicer, or other mortgage loan originator or by any agent of such lender, mortgage broker, mortgage servicer, or other mortgage loan originator."
Note: There are no definitions in the statute as to what constitutes "ancillary."
The NHBA Board of Governors recently asked the Real Property Law section to make recommendations on the enforcement issues surrounding the state S.A.F.E. Act. On June 8, Section members and leaders met to discuss potential courses of action for the Bar Association. Its recommendations will be presented to the NHBA Board of Governors at its June meeting.
Among the issues to be addressed is the Banking Department’s assertion that law firms assisting clients with mortgage modifications or foreclosure prevention must submit to inspection of their files to determine that they are not representing clients in mortgage-modification matters without being licensed to do so, under RSA 379-A, a 2008 statute passed to comply with the national S.A.F.E Act that seeks to stem incidents of abuse of consumers by unlicensed mortgage brokers.
Dargon and others in the Real Property Section were unaware of any other enforcement actions against NH attorneys, and there is little activity against attorneys in other states representing borrowers in foreclosure-prevention actions. Those familiar with the issue have been surprised to discover that attorneys in other states have not been subject to the "chilling atmosphere" present in NH.
Attorneys also say the interpretation of the state SAFE Act is having a chilling effect on seller financing, since the law appears to require that such sellers might find themselves subject to the Banking Department’s licensing requirements as loan originators. Vagueness in the wording of the law has also called into question whether sales of commercial properties, with perhaps a small residential component, such as a store with a small upstairs apartment, might subject the sellers to the law as well.