A “Mass Joinder” Lawsuit Is Not the Same as a “Class Action” Lawsuit.
In our March 11, 2010 post, we explored California attorney ethical prohibitions against taking advance fees for residential loan modification services, attempting to protect vulnerable homeowners from doing whatever they need to prevent impending foreclosures during the on-going economic recession. We now have an update for you on both the national and California sectors.
Lew Sichelman, in his September 25, 2011 article in The Los Angeles Times, reports that California’s Department of Justice (through the Attorney General) has sued 14 entities, including several law firms and individual attorneys, for alleged deceptive marketing to solicit residential owners facing foreclosure to join “mass joinder” lawsuits (individualized lawsuits with a lot of plaintiffs rather than a class action). The perceived problem is that owners could be charged up to $10,000 in retainers to join the action, with millions in dollars at issue even though the attorneys have not done any work or have very little chance of achieving success with lenders. Although there is nothing illegal per se with “mass joinders,” the California suit alleges that defendants preyed on desperate homeowners by “selling” them “participations” in lawsuits against lenders. At least one law firm using this “mass joinder” lawsuit method has been put into receivership.
Earlier this year, the Federal Trade Commission (FTC) prohibited providers of mortgage assistance relief from collecting or even requesting fees in advance from homeowners, although there are some narrow and conditional carve-outs for attorneys who are licensed, have practices including mortgage assistance relief, who place upfront fees collected in a separate client trust account, and who comply with state laws. In California, of course, the more restrictive rules do not even allow collection of any advanced fees.