Advising Clients Facing Foreclosure

by Michelle M. McLean

of Kluczynski, Girtz, and Vogelzang

In today’s economy, more and more homeowners face foreclosure. Often, these homeowners seek advice and assistance from scam operators who hold themselves out to be “foreclosure experts.” A new industry of companies has sprung up which purports to assist distressed homeowners in exchange for a fee. These companies bombard the Web, television, and radio with advertisements promising “relief” from foreclosure. Often, these scam operators often have no special ability to intervene on behalf of distressed borrowers or to work out loan modifications, repayment plans or any other alternatives with the lenders. All they want is to sign-up clients and take their money. Moreover, homeowners can obtain the same services and much more--but for free. Yes, absolutely free.

Free foreclosure intervention counseling is available throughout the entire state of Michigan. This foreclosure intervention counseling completely assists the clients with the entire loss mitigation process—including assistance with foreclosures, loan modifications, deed-in lieu’s, or short sales. All Michigan homeowners, regardless of income, are eligible for these counseling services.

These housing counselors are specially trained and certified by NeighborWorks America ( as “Foreclosure Intervention Counselors.” NeighborWorks America is national nonprofit organization created by Congress to provide financial support, technical assistance, and training for community-based revitalization efforts.

To assist homeowners with locating these counseling services, the Michigan State Housing Development Authority (MSHDA) has established a “Save the Dream” hotline. Homeowners can simply call866-946-7432 to be connected with a local housing counselor or they can visit MSHDA’s website (

Homeowners can also seek assistance through the HopeNow alliance ( The Department of the Treasury and the U.S. Department of Housing and Urban Development (HUD) encouraged leaders in the lending industry, investors, and non-profits to form this alliance. By coordinating services, HopeNow is able to maximize outreach efforts to homeowners in distress and to help them stay in their homes. HopeNow’s hotline is 1-888-995-HOPE.[1]

Often, clients facing foreclosure are experiencing a total financial crisis. These need assistance with a variety of items, including the need for food, assistance with utilities, medical help, toiletries, household Items, furniture, and even help with a security deposit to obtain a rental unit. These clients can dial 211 for emergency help. “211” is the social services emergency hotline similar to the “911” hotline.

The Michigan Department of Human Services ( offers emergency grants to prevent some clients from losing their homes. The DHS Home Ownership Services program provides services such as assistance with house payments (mortgage or land contract payments), property taxes, homeowners insurance, and lot rent. The lifetime benefit available through the Home Ownership Services is $2,000.

Lawyers may provide foreclosure intervention counseling as well. But, most will provide this counseling for a fee. Before they begin expanding their practice in this direction, they should first consider the practical implications of the Michigan Credit Services Organizations Act (M.C.L.A. 445.1821 et seq.) as well as ethical and moral implications (M.R.P.C. 1.5 and MCR 9.104).

The Michigan Credit Services Organizations Act prohibits a credit services organization from charging or receiving money or other valuable consideration from a client “before completing performance of all services the credit services organization has agreed to perform.” The Act defines a “credit services organization” as a person who, in return for consideration, attempts to sell, provide, or perform one or more of the following:

(i) The improvement of a person's credit record, history, or rating.

(ii) The obtainment of an extension of credit.

(iii) Advice or assistance regarding the improvement or repair of a person's credit record, history, or rating.

(iv) Advice or assistance regarding the obtainment of an extension of credit.

(v) Advice or assistance regarding foreclosure of a real estate mortgage.

(vi) Serve as an intermediate between a debtor and a creditor on behalf of the debtor regarding credit that was extended prior to any agreement to have the credit services organization serve as an intermediate.

M.C.L.A. 445.1822(b)(Emphasis added).

Attorneys are not exempt from the scope of the Act as it includes attorneys in the definition of a credit services organization if the attorney “engages in the business of a credit services organization on a regular and continuing basis.” (M.C.L.A. 445.1822(c)(iv)). Retainer fees are “things of value” and could not be charged upfront pursuant to the Act.

More importantly, a lawyer must consider the reasonableness of the legal fees in relation to the service provided. (M.R.P.C. 1.5). Legal services include giving legal advice, drafting legal documents, and appearing in a court of law. However, merely brokering a loss mitigation package through the lender’s system is not the practice of law--especially since most lenders already provide this service at no cost and approval for the programs are based on standardized guidelines.

One could certainly argue that clients would be prudent to be represented by an attorney advocating on their behalf--but only to the extent that the attorney is actually handling legal disputes. If the lawyer cannot qualify the services he or she provided the client as the actual practice of law, the fee may be excessive and unreasonable.

In addition to the above, lawyers must refrain from conduct “that exposes the legal profession to obloquy, contempt, censure, or reproach” and must also refrain from conduct “that is contrary to justice, ethics, honesty, or good morals.” (MCR 9.104(2) and M.C.R. 9.104(3)). The practice of law is a noble profession and we, as officers of the courts, should seek to improve the image of our profession in the public eye. Lawyers certainly do not want to be among the accused who unscrupulously took advantage of distressed homeowners.

Finally, a lawyer has a duty to be honest with his or her clients regarding the availability of the free services available for foreclosure relief. As lawyers committed to furthering the interests of justice and the common good, let’s be part of the solution to this housing crisis and not part of the problem.

Author:

Michelle McLean

Kluczynski, Girtz, and Vogelzang

Brassworks Building

648 Monroe Ave., Ste. 400

Grand Rapids, MI 49503

(616) 459-0556/ FAX (616) 459-5829

[1] HUD also recently launched its “Keep Your Home, Know Your Loan” hotline (1-877-HUD-1515). HUD is urging homeowners to seek this free housing counseling advice before they are at risk of foreclosure.