When a Law Makes a Problem Worse

Where should we file this legislative botch? Perhaps we should file it under incompetence, lack of diligence, irresponsibility, or inexcusable ignorance of unintended—but completely predictable–consequences.

In California, a statute  passed overwhelmingly by the State Legislature required that lawyers who work on loan modification agreements for homeowners facing foreclosure cannot require any payment until the work is complete. The law was intended to eliminate unscrupulous firms from running scams on desperate Californians, more of whom face foreclosure than in any other state, in which the firms charged large up-front fees and then did nothing. Unfortunately, it also made it unprofitable and risky for legitimate, honest lawyers to put in many hours battling lenders skilled at running out the clock in the hopes of being reimbursed by clients who are already in financial deep water. Thus stressed California homeowners, having been given protection by their tunnel-visioned representatives, now can find no legal help at all, honest or otherwise.

There is no excuse for the legislature passing the measure without knowing this would happen. Simple hearings would have revealed it. Simple thinking would have revealed it. Before a legislator votes on a law, he or she is obligated to have some comprehension of what the law involves, what it will do, and who it affects.  Even a simple modification, in which a mortgage loan is restructured so the homeowner can afford the monthly payments, becomes a long ordeal for attorneys and clients, because lenders have an interest in delaying the change for as long as possible. If the modification falls through, the lawyer’s client may file for bankruptcy, and the lawyer will never be paid at all. California’s lawmakers were so focused on stopping crooked lawyers that they ignored the fact that honest lawyers have to make a living.

Astoundingly, the California Bar Association supported the measure, because it had received terrible publicity and thousands of complaints about their less trustworthy members taking up-front payments and accomplishing nothing. It also was ignoring the obvious consequences of the law. I was convinced that the Bar couldn’t possibly be this clueless about how its own profession works, until I read the logic offered by Suzan Anderson, supervising trial counsel of the California bar’s special team on loan modification. She defended the law by pointing out that in other types of cases, including personal injury and medical malpractice, the lawyers do not get paid until the end. True, but in personal injury and malpractice cases, plaintiffs attorneys get a third or more of any settlement or jury award. That makes the risk worthwhile, and Anderson knows it. Her statement indicates that the Bar was more interested in public relations  than solving the problem.

Fact: this was a measure that was slipshod and stupid, with completely predictable consequences that should have been sufficient to send it to the trash bin of terrible ideas before one could say “foreclosure.” That it was passed and that everyone involved is now shocked when the foreseeable actually occurred, should be used as a constant reminder that laws are powerful and far-reaching things, and when they are passed by careless, lazy, immodest and distracted people, they often do more damage than good.

Let’s file this tale under “Trusting government to solve every problem requires a complete disregard of recent history.”

It’s a large file.

3 thoughts on “When a Law Makes a Problem Worse

    • No. This was a sloppy, careless law, and the consequences should have been forseen. In any event, the process was flawed, and the legislation was irresponsible, even if, by some miracle, it had worked. It isn’t a bad law because it hurt the people it was supposed to help,it hurt them because it was a bad law, badly and incompetently conceived.

      Great question, though. Glad you are paying attention!

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