April 23, 2008

New "Jumbo Light" Loans: Not Much Help to Borrowers

Homebuyers, homeowners, real estate agents, and mortgage brokers have all been awaiting, with high expectation, details on the new "jumbo light" loan limits and lending standards. Everyone had hoped these new loans, authorized by the Economic Stimulus Act of 2008, would provide lower interest rates for folks trying to buy or refinance homes in high-cost markets.

Well, the lending limits and standards are finally here, and (drumroll please) it looks like these new loans will do... nothing. That's right. Due to heavy restrictions on the loans, most people won't qualify for one. And even if they do, the interest rates are still much higher than those for traditional conforming loans.

What does this mean? For starters, people living in high-cost real estate markets that are having trouble meeting their mortgage obligations, or are already behind in payments, won't get relief from a jumbo light loan. Those folks will (1) continue to struggle, or (2) join the large ranks of those in foreclosure. And those trying to buy a home in a high-cost market won't get help from jumbo light loans either. So much for economic stimulus.

Here are the details of how all this works:

What Are Jumbo Light Loans? In the past, Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) could guarantee real estate loans up to $417,000. In a nutshell, the guarantee meant lower interest rates for those loans-which in turn made them more affordable. Loans above $417,000 (called "jumbo loans") carried higher interest rates, due to a perceived greater risk.In its Economic Stimulus Act of 2008, Congress authorized Fannie Mae, Freddie Mac, and the FHA to guarantee (until December 1, 2008) mortgages as large as $729,750 in some high-cost markets.

This creates three types of loans: (1) Traditional loans under $417,000 (called conforming loans). (2) "Jumbo conforming loans" or "jumbo lights" (between $417,000 and up to $729,750). The upper lending limit depends on where you live. To find out what the limit is in your area, check the HUD FHA Mortgage Limits.

(3) Jumbo loans (loans over $729,750 - or less in lower-cost markets). These loans carry the highest interest rates.The hope was that the new category of jumbo light loans would carry lower interest rates, so that people in high-cost real estate markets could more easily buy a home or refinance an existing mortgage. Alas, according to mortgage brokers, the qualifying guidelines for jumbo light loans are so difficult to meet that many people cannot get one.

Restrictive Qualification Rules. Some examples of these restrictive guidelines are:


  • The Debt-to-Income Ratio must be no more than 45%. This means that your total monthly housing expenses (mortgage, home insurance, taxes, and other home related expenses) divided by your gross monthly income is less than 45%. In high-cost housing markets, where people have to spend a large portion of their income on housing, these limits may be tough to meet. Yet these high-cost housing markets are precisely where the need for jumbo light loans is greatest.

  • Buyers must submit full documentation of income and assets (which can be difficult for self-employed people, since the typical self-employed person can deduct a variety of expenses and show very little income at the end of the year.

  • Buyers must have a credit score of at least 700 if their LTV is greater than 80% or at least 680 if their LTV is less than 80%. This factor alone eliminates a lot of would be borrowers.

  • Borrowers cannot have made a late mortgage payment within the last 12 months. Oh well.


In addition, those who are refinancing cannot wrap a second mortgage into the new jumbo light loan. Because second mortgage holders are skittish in the present-day market, borrowers may have to repay a substantial percentage of their second mortgage in order to refinance the first.

Not Much Relief in Interest Rates. In addition to these restrictions, the hoped-for favorable interest rates of jumbo light loans haven't yet materialized. Currently, the interest rates for jumbo lights range from 7% to upwards of 7.5%, not much better than rates for the regular jumbo. In contrast, the interest rates for traditional conforming loans are less than 6%.

Jumbo Light Loans May Improve in the Future. Some experts believe that it will take jumbo light loans a while to hit their stride, and once they do, interest rates may dip a bit. Some predict that for this reason, Congress may extend the planned December 31, 2008 expiration date.

March 16, 2008

Wisconsin's State Bar Plans to Cut Access to Affordable Legal Services

[The following is an op-ed piece by James Turner (Executive Director of HALT), published in the Madison Capitol Times on March 13, 2008.]

The Wisconsin Supreme Court is considering a new definition of the practice of law that could force consumers to hire a lawyer to deal with even the most routine legal needs. If the court approves this State Bar proposal, instead of being able to use an affordable legal document assistant, an income tax preparer, or a real estate agent, Wisconsinites would have to shell out the hundreds of dollars an hour that lawyers charge.

HALT (Help Abolish Legal Tyranny), the nation's largest and oldest legal reform organization, is urging the court to reject the lawyers' naked power grab and, instead, encourage the development of innovative ways to expand the availability of affordable legal help. Our view is supported by the U.S. Justice Department, which also opposes the proposed rule. After complaints about their original proposal were filed with the Supreme Court by consumer advocates like HALT and many Wisconsin businesses, the State Bar added an exception for service providers that are licensed by the state.

We agree with the Justice Department that this new exception "would still prohibit non-lawyers from performing services for which legal expertise is unnecessary" and believe that it would only confuse consumers and deter meaningful competition from non-lawyers.

How do the lawyers defend their monopolistic proposal? They say it is really to protect the public from scam artists, particularly "notarios" who falsely claim to be attorneys and prey on the Latino community. But after two years of beating the bushes, the State Bar could produce only six complaints by consumers about non-lawyer legal service providers. During this same time frame, consumers filed over 2,000 complaints against Wisconsin attorneys.

What makes the lawyers' proposal all the more appalling is that it comes in the midst of a legal access crisis in Wisconsin. As a blue-ribbon panel found just last year, more than "half a million Wisconsinites -- people with families, many of whom have jobs, own homes, and pay taxes -- must contend with significant legal troubles without any legal help because they cannot afford the professional legal help they need." Instead of responding to this access crisis, Wisconsin's organized State Bar wants a new rule that would make it all but impossible for consumers to get help when they can't afford to hire a lawyer.

There is a better way to both serve and protect legal consumers. For many years HALT has argued that the unauthorized practice of law is claiming to be a lawyer when you're not. We believe that the defining characteristic of the practice of law is the establishment of an attorney-client relationship. In recent years, the U.S. Justice Department and the Federal Trade Commission have endorsed this common-sense view. The Wisconsin Supreme Court should too, by defining the practice of law as only including activities that require specialized legal skills where an attorney-client relationship is present.

James C. Turner is the executive director of HALT (Help Abolish Legal Tyranny), www.halt.org, a nonprofit public interest group dedicated to promoting simple, affordable and accountable justice for all.

March 3, 2008

Government Should Let Property Values Sink Lower to Close the Affordability Gap

Many blogs and articles dealing with the foreclosure crisis advocate that the government should act to prevent a further decline in property values. To the contrary, I think the government should let property values continue their decline so that nonprofit community housing organizations such as Habitat can afford to purchase foreclosed properties, and provide the community housing organizations with grants or low-interest loans to purchase the properties and convert them to affordable housing, whether that be in the form of condos, apartments, or multi-family houses. Robert Shiller, Yale finance professor and author of Irrational Exuberance, a book about asset bubbles, appears to share this viewpoint. In a February 19, 2008 article by Karen Jacobs in Reuters entitled "Habitat says affordability gap persists", Professor Shiller is quoted as saying: "Most of us care about our children and grandchildren, and these people have to buy houses, so why would we want high home prices? We want economic growth, we don't want high home prices."

From the perspective of youth and millions of poor and lower-middle-class families, home prices soared far beyond the affordability level. Home ownership for these people could only be achieved through a number of gimmicks, including co-signers, no income documentation, no down payment, interest-only loans, and so on. Even as home prices continue to sink, homes and apartments in many parts of the country are still unaffordable for the majority of the local population .

As real estate values increased during the boom, so too did rents. Rental housing has long been a cottage industry for small investors, giving them a steady income and a means to retire. But to produce income for the investor, rents must at least cover the ownership costs, and the higher the mortgage, the higher the rents. So, in addition to not being able to afford a house, many people have been priced out of the rental market as well. The stories about people not being able to live close enough to their jobs to commute are legion.

Somewhat paradoxically, plummeting real estate prices are forcing rents higher because of the pressure on the rental market caused by folks leaving their foreclosed houses. And because refinancing has become so difficult, investor/landlords have not been able to reduce their mortgages to the value of their properties -- so they could lower the rents they charge.

There are many suggestions floating around for how the government and housing finance industry should react to the foreclosure crisis. These suggestions range from 1) adjusting the bankruptcy laws to allow modifications of mortgage debt, 2) preventing foreclosures by providing people or communities with low-interest loans, and 3) helping homeowners modify their payments to deal with their arrearages.

For obvious reasons -- tax receipts and profits among them -- local governments and the housing finance industry want to prop up real estate values by any means necessary. And this, of course, is fine with existing homeowners. The higher the real estate values, the better their bottom line will be. As you know from my opening lines, however, I believe prices ought to go in the opposite direction. While I'm all for preventing foreclosures, they are going to happen anyway, in large numbers. Why not take advantage of this opportunity to increase the stock of affordable housing?

Letting property values slide and shoveling money to nonprofit community housing groups will help to reduce the imbalance in affordable housing that the boom in property values caused to happen in the first place. As an important side effect, a policy that will encourage the creation of affordable housing will help prevent the blight caused by thousands of vacant houses resulting from the foreclosure crisis. Finally, a massive conversion of single-family dwellings into affordable dwelling units will stimulate employment opportunities for the thousands of contractors who now are suffering right along with the rest of the real estate industry.

February 22, 2008

Don't Worry About Privacy -- You Don't Have Any

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Much to-do is being made of the Bush administration's push for legislative authority under a recently enacted provision of the 1978  Foreign Intelligence Surveillance Act (FISA), known as the Protect America Act (PAA). Under FISA, he must obtain a warrant (one which can be obtained up to 72 hours after surveillance has begun), whereas under the PAA, the president has the authority to eavesdrop on terrorist conversations without a warrant or court permission. While the PAA has only been on the books for approximately six months, the controversy is not over the president's new authority to spy on anyone without accountability -- most senators and many members of congress seem willing to grant this executive request. The real hang-up is whether the telecom industry can be held liable for past cooperation in the government's warrantless surveillance -- the very thing FISA was enacted to combat. However, for reasons of my own -- soon to be explained -- I think the very idea that we have privacy that needs protection is an urban myth, more or less.

To begin, there is the Patriot Act, which made vast inroads to whatever privacy we thought we had. Also, dozens of U.S. Supreme Court decisions (since the Warren Court of the sixties) have been chipping away Fourth Amendment protections in the criminal context, mostly because the justices are loath to let suspected criminals go free because of an illegal search. There are exceptions, of course, but the overall effect of recent Supreme Court decisions has been to vastly expand the circumstances in which the police may search without a warrant.

Whatever the state of the law in our criminal courts, the federal executive branch will use whatever technology is available to ferret out the "enemies of the state," with or without judicial permission. Our national budget allots many billions of dollars to the National Security Agency (NSA), the agency responsible for monitoring the electro-magnetic spectrum, and we the people haven't a clue as to how the money is spent under what's known in Washington as a "black" budget. We can rest assured, however, that the NSA is hard at work to make sure it has access to every communication that occurs in or out of the U.S, save only those disseminated by carrier pigeons (and who really knows about them).

By their nature, civil libertarians oppose the proposition that the executive branch can, without a warrant, legally intercept any and all communications -- domestic and foreign -- if it (in its executive wisdom) thinks terrorists are somehow in the mix. Unlike the FISA, which required judicial approval of wiretaps, the new version of the PAA advanced by the senate, and sponsored by Senator Jay Rockefeller,  makes the government the sole arbiter of whether any particular communication qualifies for warrantless surveillance. This, in the opinion of the ACLU and other similarly-inclined organizations, clearly tramples on the checks and balances inherent in our constitutional form of government. And in doing so, the legislation obliterates our Fourth Amendment protection against unlawful search and seizure. Who can argue with that?

Not me. But I don't much give a damn. Most of my adult life I've assumed that the government is listening in to my calls and emails. And why not? In the 1960s, we were convinced that the FBI or the local cops had taps on our phones, tape recorders in our meetings, and cameras trained on our protests.

Whether this was because of our political activities or illegal drug transactions (consisting primarily of buying and selling bad Mexican marijuana in matchboxes), our sense of self-importance led us to believe we were the center of a law enforcement campaign to put us away for years if not decades. When using the phone we were very careful to speak in what we hoped was undecipherable code, whether about a particular drug transaction or experience, or about plans to engage in civil disobedience. We never doubted that eager law enforcement ears were just waiting for the right words to launch a bust.

Now, of course, we are much wiser. We know there are only so many hours in the day and the government can only listen to so many conversations in real time -- and that ours were and are probably not among them. But the point is, we always assumed we had no privacy when using telephonic communications or engaged in civil rights activity or protests against the Vietnam war. This wasn't paranoia, but rather an understanding that the government had the capacity to listen in, and watch, if it wanted to. And we were pretty sure it did.

Also, back in the 60s, we always assumed the government could get a warrant if it wanted one, and that the only protections we had under the Constitution were if they busted us and we could prove in court that they somehow screwed up the warrant process. As a latter day criminal defense attorney, I'm of the opinion that the warrant requirement didn't (and doesn't) provide much protection. There are numerous loopholes in the warrant requirement itself, and even when one is technically required under current case law, most judges rubber-stamp the applications submitted by the police, and most trial judges uphold warrants issued by their brethren no matter how flimsy the factual basis put forth in the supporting affidavits. There are exceptions, of course, but as the old bromide goes, the exception proves the rule.

There also have been rare instances when the ACLU successfully sued transgressing government agencies for Fourth Amendment violations. For the most part, however, there has been little or no accountability for illegal surveillance that does happen to come to light. The only real accountability for a Big Brother administration is regime change, and even then, the new government will be just as likely to spy on its (or America's) perceived enemies as the last regime. My reading of history is that the level of government surveillance never goes down regardless of who is in power.

In a democracy we theoretically could bring the government to heel on these privacy concerns if, as a people, we were more concerned about privacy. But the fact is, we don't really hold privacy in high regard no matter how we respond to the polls. We are, in fact, addicted to gossip (something common to the entire human race and thought to be the reason we have speech in the first place), and a large part of our entertainment is based on privacy violations of one type of another. It would be nice if we could distinguish social privacy from privacy against government intrusions, but that doesn't seem likely. Our lives are laid bare to the world, and we rather get off on it.

In summary, since we don't have much if any privacy in the first place, we shouldn't worry about what powers the government has under the FISA act, or its amendments and provisions. If you want your communications to remain confidential, stay away from the telephone or figure out a code that is unlikely to trigger the government computers to alert their minders that the conversation warrants further processing. The government has been Big Brother for a long time and, as in 1984, little brother ain't coming back.

February 20, 2008

Launch of New Website by HALT Featuring Works of Fred Rodell

[Here is the text of an email circulated by HALT, the nation's leading law reform organization, announcing a new website and blog featuring the works of Fred Rodell, a Yale Professor who debunked the legal profession and accompanying myths.]

Sixty-nine years ago, a young Yale law professor rocked the legal establishment with a scathing indictment of the American civil justice system entitled Woe unto You, Lawyers! Almost overnight, Fred Rodell became the nation's leading debunker of legal myths, and the target of untold ire from thin-skinned lawyers. And his provocative observations are as accurate today as they were seven decades ago. Here is just a sampling.

Rodell's 1936 article Goodbye to Law Reviews opens by explaining: "There are two things wrong with almost all legal writing. One is its style. The other is its content. That, I think, about covers the ground." The article proceeds to take on the entire profession: "[I]t is pretty hard to find a group less concerned with serving society and more concerned with serving themselves than the lawyers."

In Woe, Rodell's critique is cultural: "In TRIBAL TIMES, there were the medicine-men. In the Middle Ages, there were the priests. Today there are the lawyers." But the effect of the mystifying process is to exclude ordinary people from the legal process: "[L]aw deals almost exclusively with the ordinary facts and occurrences of everyday business and government and living. But it deals with them in a jargon which completely baffles and befoozles the ordinary literate man."

Finally, Rodell points out the basic hypocrisy of the Law: "The last thing any court will ever admit, even when it is being quite practical about what it decides, is that practical considerations have anything to do with the decision."

As a leader in the legal realist movement, Fred Rodell stuck to his guns for the next four decades (including a stint on HALT's Advisory Board), arguing that we should simplify, demystify and open up our civil justice system. Rodell was a true pioneer of the legal reform movement, one of the first to identify the structural failures of our civil justice system and to stridently challenge the legal establishment. But since his death in 1980, his thinking has not received the serious consideration that it deserves, and his key writings have disappeared from print.

That is why we at HALT were so excited to begin working with San Francisco legal reform advocate Alex Kline and Fred Rodell's family to revive these visionary legal reform lessons on the Internet. In addition to introducing Rodell to a new generation, we want to provide a meeting place for those who share an appreciation of his ideals, criticisms and reform objectives. We want to provide a forum where they can put their heads together and work to implement his ideas in practical ways. Rodell taught at Yale Law for over forty years, and we hope that his students will find their way to this site and use it as a place to re-connect, brainstorm, and formulate action plans to bring about the changes he advocated.

Today we are launching www.FredRodell.com to make Woe and Goodbye available to all, along with TheLawBlog.FredRodell.com, a forum for renewed critique, debate and thinking.

Let the fun begin.

James C. Turner
Executive Director, HALT, Inc.

February 19, 2008

Project Lifeline: Too Little Too Late

On February 12, 2008, a consortium of mortgage lenders trotted out a voluntary program purportedly designed to help prevent foreclosures. Under this program, termed Project Lifeline, lenders will give homeowners who are still in their homes some additional time to work things out before foreclosure proceedings are initiated.

Here's how it works. If you are 90 or more days delinquent on your payments, and foreclosure or bankruptcy proceedings haven't yet been started, the lender will give you a 30-day written notice prior to initiating foreclosure proceedings. The notice will invite you to contact the company servicing the mortgage for a possible resolution. If agreement isn't reached within that 30-day period, the foreclosure can begin.

On the surface, this looks like a good thing. Homeowners who fall behind sometimes get fatalistic and don't bother to attempt a resolution. This 30-day notice may stimulate you to give it one more try. It also gives you an extra month without paying if you are ultimately going to lose the home. Every month you can live in a home "rent free" is an opportunity to put some money aside for moving expenses and other costs associated with finding new shelter.

The downside of this new plan? If you are busy negotiating with the lender and the negotiations don't produce anything useful, you may have foregone a more appropriate action for your individual circumstances, such as filing for bankruptcy, passing up an opportunity for new shelter, or even hunting for refinancing on your own.

Don't let time run out. Although the major lenders may say they want to work things out with their borrowers, the truth is that many homeowners have been forced into a kind of rope-a-dope (a la Muhammad Ali) where the lender implied that relief was just around the corner, only to deliver a knockout punch by cutting off communications on the eve of the foreclosure sale. This 30-day notice appears to be more of the same, rather than a new policy that might substantially cut down on foreclosures.

Project Lifeline assumes you can trust the folks throwing the rope, even thought they're the same folks who put you into the water in the first place.

When negotiating with a bank or other entity to avoid foreclosure, it's important to remember that you're most likely not negotiating with the decision-maker -- the owner of the mortgage. An important component of the housing bubble is that mortgages were packaged for easy sale on Wall Street and in international markets. To give you true relief with a substantially reduced interest rate or adding your missed payments to the end of the mortgage, the mortgage owner has to give permission. An investor in China or Germany may not be as accommodating as their American counterparts would like them to be, and while it may make sense for a lender to avoid foreclosing, the relationship between the lender and its investors may favor the foreclosure.

So, if you get one of the 30-day notices, feel free to explore possible workouts, but keep an eye on the clock, and if you are in one of the many states that provides very little advance notice for a foreclosure, have a solid Plan B ready and waiting.

February 17, 2008

Routine Legal Services: The Internet is Fast Replacing Lawyers

[This article was written by guest blogger Ralph Warner, founder and CEO of Nolo. He is also the author of the blogs Retire Happy and The Legal Humor Blog.]

In JFK's America, if you had a legal problem, you either hired a lawyer or went without help. Because the majority of middle-class people couldn't afford lawyers' pricey hourly rates, for the most part, lawyers represented the wealthy, the upper-middle class, and business interests. Things began to change in the mid-1960s when, as part of Lyndon Johnson's War on Poverty, federally funded legal services (legal aid) programs were established for the very poor. Now it was just the 100 million people in the middle who were legally disenfranchised. In the early 1970s, this huge unmet legal need helped produce companies like Nolo -- publishers who produced step-by-step workbooks designed to allow self-helpers to accomplish routine legal tasks at a fraction of the fees charged by lawyers. Especially in California and other states populous enough to support state-specific publishing ventures, the educated and energetic could now affordably do their own divorces, guardianships, deeds, wills, and even form a corporation or a non-profit.

But self-help law books were far from a comprehensive solution to America's legal access gap. They didn't hold hands, give fact-specific advice, and were difficult to use for people without good language and form-drafting skills. Part of this self-help law gap was filled by independent paralegals (legal document preparers). These non-lawyer entrepreneurs typically rely on self-help law books like Nolo's to help their customers prepare paperwork for routine legal actions for about 25% of the fee charged by most lawyers. But, because of the aggressive turf-protection tactics of the legal profession (enforcing archaic statutes that make it illegal without a license, as one example), non-lawyer providers have been kept out of many markets, and forced to operate on the margins in others. The result was that even ten years ago millions of Americans still had little, or at best spotty, access to affordable legal services.

Enter software.

Starting with tax preparation and will-making products published by companies such as Intuit, H&R Block, and Nolo, software successfully married legal expert systems to the personal computer. By first prompting the user to answer basic screening questions (Are you married?, Do you have minor children?, etc.) and then following up with queries that met the user's situation, software could both greatly simplify and expedite routine legal paperwork, and then print out the result, ready to file.

More recently, legal software has become widely available online. Now companies with national reach, such as Legal Zoom, Nolo and The Company Corporation, offer to help consumers complete an extensive menu of legal tasks, such as making a will or living trust, filing for divorce, or forming a corporation or LLC for far less than what lawyers typically charge. And when you combine low prices with the fact that web-based software is increasingly well-designed, online help is excellent, and trained back-office people are standing by to help with technical glitches, it's easy to see why the online law business is taking off -- so much so that my educated guess is that upwards of 250,000 legal tasks will be accomplished online this year. And assuming that, as compared to hiring a lawyer, the consumer saves $1,000 per transaction, this amounts to consumer savings of $250 million.

And, interestingly, the migration of basic legal tasks from lawyers to internet-based corporations is still at an early stage. Provisional patents, trademarks, copyrights, deeds, living trusts, and divorces are just starting to be offered by affordable online services -- and many more such as bankruptcy, and many types of business contracts are in the pipeline, something which almost guarantees that online legal providers will experience at least a decade of rapid growth in the process of becoming a billion-dollar industry.

But what of lawyers who offer personal legal services? Are they about to become an endangered species? Hardly. In large part that's because, as discussed, since lawyers never found a way to affordably meet the needs of America's middle class, it wasn't their business to lose. Or, put another way, millions of Americans can now afford to draft legal documents who even 40 years ago would have gone without. And then there are two other key lawyer-friendly trends. First, the world of American business has become ever more rule-bound. 50 years ago, your average Main Street business, Mom & Pop real estate investor, or small non-profit could get by with occasional legal advice. Today, the plethora of employment, intellectual property, landlord-tenant, and other laws mean they are all but tethered to a lawyer.

Second, the increasing size and affluence of the upper-middle and wealthy classes in America has meant that far more people can afford the hand-holding and customized advice lawyers offer. The result is that large numbers of people who learn about their legal task from a book, or even do basic drafting online, also consult a lawyer. (Nolo has designed its lawyer directory specifically to meet this need.) So, especially as lawyers learn to charge fixed fees for the review of documents created online, internet legal providers and lawyers may yet learn to happily co-exist.

January 30, 2008

Abolish Our Discriminatory Bail System

In an article by Adam Liptak, published on January 29, 2008 in The New York Times, I learned that only the United States and the Philippines have legal systems that use for-profit bail companies as a means of assuring that criminal defendants will appear in court.

According to the article, all other developed countries, as well as Illinois, Kentucky, Oregon and Wisconsin, provide a way for people presumed innocent to achieve their liberty pending trial without feeding a commercial bonding intermediary. Once again, this country that prides itself on its justice system lags far behind the rest of the civilized world -- as it does, for example, with capital punishment and life imprisonment for minors.

How the bail system works. For those not in the know, here is how the bail system works in most states.: When you are arrested, you can usually avoid spending the night in jail by paying a bail bond company a 10% non-refundable "premium" in exchange for the company posting a bond with the court for the full amount of the bail. The amount of the bail is typically based on a local bail schedule.

For instance, the bail in my county for common misdemeanors is $5000, and between $10,000 and $25,000 for felonies. Most people who are arrested for the first time are shocked at their lack of freedom and will do anything to get out right now. Friends and family are pressured to pay the premium, yesterday.

If you are released on bail, you're typically given an arraignment date (first appearance) a month or two in the future. If you don't "make bail," you'll stay in jail until you're taken before a judge a day or two later (or even three or four days if you're arrested on a Friday). At this first appearance, the judge can raise or lower the bail, or even let you go on your promise to return. All too often, however, the bail is either raised or remains the same, and the defendant remains in jail until trial -- which must be held within a couple of months, unless the defendant "waives time." Often, encouraged by their public defender, who invariably has a heavy caseload, defendants end up waiving time and remain in jail for many months before they get their day in court.

The problem with the system. The shame of this system is highlighted by the fact that people accused of misdemeanors can frequently escape further imprisonment by entering into a plea agreement for probation and a fine. And, it's not uncommon for people who insist on their innocence to languish in jail awaiting trial for crimes that predictably will not involve jail time even if there is a conviction. Keeping someone in jail because they can't make bail on a charge that is highly unlikely to result in imprisonment is nothing less than depriving people of their freedom solely because they are poor.

Allowing private companies to determine whether a defendant goes free pending trial is often tantamount to determining the trial's outcome. Defendants who are free pending trial have a tremendous advantage over defendants who must prepare their defense while behind bars. Justice that depends upon one's ability to pay for a bail bond is injustice at its core.

Even the legal establishment disapproves of the system. According to Adam Liptak, "[m]ost of the legal establishment, including the American Bar Association and the National District Attorneys Association, hates the bail bond business, saying it discriminates against poor and middle-class defendants, does nothing for public safety, and usurps decisions that ought to be made by the justice system."

Obviously, I agree. The Eighth Amendment to the U.S. Constitution should be further amended to provide that bail be administered solely by the justice system, rather than by the private sector, as it is now.

January 30, 2008

HALT's Fee Arbitration Best Practices

[Note: This post was prepared by HALT, the country's preeminent law reform organization. Fee-gouging by lawyers is systemic in the legal system. These best practices will give legal consumers an affordable and fair remedy to fight back.   -Steve Elias]

HALT's recent Report Card has produced a set of best practices that should be used in every state's fee arbitration system. "Designed to help clients resolve fee disputes with lawyers out of court, fee dispute resolution programs should use fair procedures, maintain clear rules and be visible to consumers," stated HALT Senior Counsel Suzanne M. Blonder. "We have identified a dozen best practices from around the country that should be implemented nationwide so that fee arbitration systems can fulfill their promise to consumers."


  • Require lawyers to participate in fee arbitration at a client's request, so consumers do not have to submit to expensive court proceedings.

  • Make arbitration decisions binding on lawyers to ensure that the process does not drag on indefinitely.

  • Create a statewide system with unified rules so that consumers in neighboring counties are not subjected to different sets of procedures.

  • Maintain a Web site with plain language resources about the state's fee arbitration system, including a downloadable claim form.

  • Provide guidance over the telephone to individuals with questions about the fee arbitration process.

  • Publicize the state's fee arbitration system in local venues, including courthouses and libraries.

  • Allow non-lawyers fair representation on arbitration panels that decide lawyer-client fee disputes.

  • Resolve fee disputes promptly--from start to finish in no more than three months.

  • Provide free legal assistance to clients to enforce and collect an arbitration award that a lawyer refuses to pay.

  • Offer mediation--a process in which a trained mediator does not issue a ruling but helps guide participants toward a resolution--but do not require it before parties may engage in arbitration.

  • Supply a form to apply for participation in the fee arbitration program, that includes plain language instructions.

  • Abolish all gag rules in fee arbitration and allow individuals to speak freely about the nature of the fee dispute, the arbitration process and the result.


For a more detailed explanation of these best practices and why state bars and courts should implement them, go to www.halt.org.

January 18, 2008

Special Needs Trusts for the People

A few years ago, I taught a "distance learning" estate planning course for Barnes and Noble.com. I created an online curricula, assigned reading in the designated textbook (Nolo's excellent Plan Your Estate, by Denis Clifford and Cora Jordan), and answered questions via an email bulletin board. The course was fun, but I kept getting questions about special needs trusts about which I was clueless.

Intrepid instructor that I was, I turned to the textbook (Plan Your Estate), confident I would be enlightened. At the time there was one small paragraph on the subject, to this effect: Special needs trusts are too complex to do yourself. Get a lawyer. Hmm. Every Nolo book has statements like this when the author believes self-help is inappropriate for the circumstance. Fair enough. However, since I was teaching the Barnes and Noble course, I had to do better than that, so I set out to research the topic. But before I continue, I should bring everyone up to speed about what I'm talking about.

Special needs trusts are devices that allow people with disabilities to enjoy the benefits of gifts, inheritances, and personal injury awards without running afoul of the stringent resource limits imposed on recipients by the Supplemental Security Income and Medicaid programs. The property in the trust can be used for a variety of purposes beneficial to the disabled person (for example: vacations, college tuition, caretakers, periodicals), as long as the trust property isn't spent on items already provided by those government programs.

The first thing I learned from my research is that special needs trusts are commonly thought to be so complex that only a lawyer should draft them. And the complexity is thought to be so great that it's okay for lawyers to typically charge $1500 and up for the pleasure. The next thing I learned (and this won't come as surprise to those who know the history of Nolo) is that the type of special needs trust most needed by the populace, and most often prepared by lawyers in the field, is not at all complex and can easily be done without a lawyer's tender ministrations.

The simple type of trust is where a third party, for instance a parent or grandparent, leaves property directly to the trust rather than to the child. In this way, the trust owns the property and the child continues to receive the government benefits. The reason this type of trust doesn't need a lawyer's tender ministrations is that since the trust property never belongs to the beneficiary in the first place, it is virtually impossible for the government to break the trust, unless the trust has language that gives the trustee the wrong type of discretion. "Aha," the lawyers might say, "it's just that type of technicality that requires a lawyer to do the drafting." But the language that makes a special needs trust airtight is just a few sentences that are the same type of boilerplate that is found in wills, living trusts, and other estate planning documents -- documents that people have been preparing without lawyers for the past half-century.

In case you're wondering, there are some situations where the lawyers are right and it's worthwhile to pay a lawyer to draft a special needs trust. This is when the money going into the trust belongs to the beneficiary from the get go. The reason why this is more complex than when property goes directly to the trust is that you are transferring the recipient's property to the trust to make him or her eligible for government benefits. Understandably, broke state governments are suspicious of these transfers and do everything in their power to break them. And if they are broken, the money will be considered a resource that will force the beneficiary to spend down the money before he or she can once again be eligible for SSI and Medicaid.

Anyway, back to my story. Part of my research disclosed that the hundreds of thousands of parents of children with disabilities who would benefit from a simple special needs trust couldn't afford to pay for one (or maybe just wouldn't because they didn't trust lawyers). Since this type of simple trust is easy to draft, involves less choices and variables than do wills and living trusts, and can be explained in plain English, I decided to write a book on the subject (Special Needs Trusts: Protect Your Child's Financial Future, by Stephen R. Elias (Nolo)). The book is now in its second edition and doing well.

I expected to be attacked by the special needs trust cartel when the first edition came out, but no such luck. Maybe I'll take on the more complex type of trust in my third edition, just to get the goat of all those lawyers who grossly overcharge their clients for the simple type of special needs trust.

January 7, 2008

When Defense Lawyers Want Their Clients to Get the Death Penalty

In one case I know of, the defendant wanted death rather than life. After handing down a first-degree murder conviction, the jury must decide between death and life in prison. In most cases, the defendant wants the life sentence and the lawyer works hard to achieve this result. I know of one case, however, where the defense strategy throughout the trial was to make sure the jury brought home a death sentence. You know a justice system has to be screwed up when a murderer wants the death penalty rather than life in prison. Of course, some criminals prefer to die than be locked up for the rest of their life, but this isn't common.

A death sentence takes a long time to carry out. The starting point for this discussion is that it usually takes a long time to move a convicted murderer from the courtroom to the execution chamber. Stays of over 20 years on death row are not uncommon, which means that in many states, a death sentence means the murderer still has a lot of living left to do. Death row gets the condemned prisoner a cell all by himself and removes him from the general population. The prison wants to make sure that nothing bad happens to the prisoner before he's executed. The majesty of the law is hard at work here. (Incidentally, please forgive the male gender reference. As you'll see, this discussion applies almost exclusively to male prisoners.)

A life sentence is no picnic. Unlike the death penalty, a life sentence means the convict will necessarily come in contact with other prisoners, subjecting him to the possibility of sexual assaults, AIDS, and even attempts on his life. And the convict will likely be double- or triple-celled unless he is put in "lockdown" for long stretches -- which happens more often that you would care to think. Nonetheless, almost always, a convicted murderer prefers the opportunity to live a long life, even in prison, even in solitary confinement, rather than face execution somewhere down the line.

Not so for the case I'm talking about. In this case, the defendant raped, tortured, and murdered a young girl. The evidence was overwhelming -- including a solid confession -- and an insanity plea was not viable for a number of reasons. In other words, it was clear that the jury would convict this defendant of first-degree murder. The defendant and his lawyers had to decide whether they should at least introduce evidence that would soften the jury's attitude toward him, such as the fact that the defendant was horribly abused as a child, or whether they should play along with the prosecutor's portrayal of the defendant as a monster.

The decision was a no-brainer. As it turned out, the decision by the defense team was an easy one. As most of you know, the life span for prisoners who have raped, tortured, and murdered children is short. We're talking vigilante justice to the max. When the jury came back with a death sentence, the defendant and his lawyers felt they had won the day, or, rather, a good 20 to 25 years of a not-half-bad life on death row. How do you like them apples? Of some interest, the U.S. Supreme Court will soon decide whether raping a child justifies the death penalty even though no death resulted. If the Court approves of the death penalty in such an instance, it may cut down on the number of vigilante murders, since these folks will now be put on death row instead of the general prison population.

And now for the editorializing. We really ought to follow the lead of the rest of the civilized world and do away with the death penalty in all states. In my opinion, it's flat out immoral and serves no useful purpose, an opinion that is corroborated by the many studies on the subject. Also, it is a waste of public resources. Capital murder cases are hideously expensive to try, and a 20-year stretch on death row eats up millions of dollars per prisoner. And then, of course, there is the issue of those who are wrongfully convicted. Our experience with DNA, and the fact that many innocent prisoners have been executed, should teach us that we always should allow for an opportunity to prove a convicted prisoner's innocence -- through new technology or other new evidence. The death penalty, of course, puts an end to such possibilities.

We need prison reform. Whether or not the death penalty is abolished, we desperately need prison reform so that a life sentence means life with at least a minimum amount of dignity, freedom from sexual assaults, and protection from murder as a result of an uncontrolled vigilante system of justice operating within the prison. See Rebecca Tuhus Dubrow's article in The Nation about prison reform for more on what we can do to make our prisons more humane.

January 2, 2008

Independent Paralegals Improve Access to Justice

Paralegals who directly help consumers prepare their own divorce, estate planning, name change, and guardianship papers have been around for a long time. Usually, these paralegals gain their expertise from having worked for lawyers or having attended formal paralegal schools. Yet many lawyers have sought to drive these independent paralegals out of business by charging them with "unauthorized practice of law"--a criminal offense in many states. While some of us believe that a thriving independent paralegal industry would vastly increase access to the justice system for the many millions of people who can't afford lawyers, others--especially many lawyers--believe that only lawyers can be trusted to help people with their legal problems.

In October 2007, a Massachusetts statewide commission examining barriers to access to justice recommended that independent paralegals be allowed to speak on behalf of low-income parties embroiled in certain civil matters. According to the Massachusetts Lawyers Weekly, the Massachusetts Bar Association predictably shot the concept down, arguing that poor people deserve legal representation just the same as rich people and that non-lawyer paralegals could not be expected to deliver competent representation. Their answer to the access problem? More court-based assistance to self-represented litigants, more lawyers, and more pro-bono legal services.

This reminded me of an experience I had in California some 20 years ago. I was a member of an ad hoc California State Bar committee (called the Public Protection Committee) that was charged with investigating what role California independent paralegals might play in facilitating access to justice for people who couldn't afford lawyers. We held three public hearings in addition to collecting a ton of information from consumer protection agencies, courts, and other entities that could provide us with a factual basis for making recommendations.

At one of the hearings, a lawyer employed by the Los Angeles legal services program testified that under no circumstances should non-lawyers be allowed to help people fill out the paperwork necessary to fight their evictions. She went on to say that her agency turned away 40,000 eviction cases every year because there weren't enough lawyers to help. I asked her why it wouldn't be better to authorize independent paralegals to assist in these cases. With considerable passion she responded that allowing non-lawyers to help the poor would create a two-tier justice system--which was unacceptable to her--and that the only appropriate way to help the Los Angeles poor fight their evictions was to petition Congress to authorize more money to hire more lawyers. I was so shocked that to this day I vividly remember every detail of the encounter.

Our Committee--four lawyers and four non-lawyers--went on some months later to unanimously recommend the repeal of the California unauthorized practice laws and the creation of a system in which independent paralegals could help people with their legal paperwork. Not unexpectedly, the California State Bar president immediately showed up on local TV condemning our report and literally calling us "brain dead" for thinking the Bar association would ever agree to such a "cockamanie" scheme.

He wasn't far off the mark. It took another 10 years before the California legislature (with no help from the Bar Association) authorized independent paralegals to provide the same kind of assistance our committee had recommended earlier. There are now many hundreds of registered independent paralegals in California (called Legal Document Assistants) that help people prepare the forms they need to handle their own legal work. For more information about Legal Document Assistants, visit the California Association of Legal Document Assistants' website. Independent paralegals are also authorized to prepare legal forms in Arizona and Florida (and perhaps a couple of other states)

What's my point? That lawyers fight tooth and nail to maintain their monopoly and that legal consumers in Massachusetts probably will have a long and rocky road ahead before the Massachusetts powers-that-be finally accept the obvious facts: there are lots of legal tasks that don't require a law school education, and access to justice in Massachusetts would be vastly improved by bringing non-lawyers into the mix of legal service providers.

December 11, 2007

Should You Care Whether a Lawyer Carries Malpractice Insurance?

Approximately 20% of practicing lawyers in California don't carry malpractice insurance. The California State Bar is trying to make up its mind whether these lawyers should disclose that fact to their clients. The argument against disclosure is that disclosing the lack of malpractice insurance will make it less likely that clients will use their services, and will stain their practice as somewhat lesser in value than the lawyers who are insured. The argument in favor of disclosure is, naturally, that clients have a right to know whether their lawyers are insured against malpractice.

At first blush this debate seems like a no-brainer. I mean, in a world where people pay lawyers hundreds of dollars an hour to accomplish a particular goal, shouldn't they at least be protected against the lawyer's mistakes or wrongdoing? And if there is no requirement that the lawyer be insured against mistakes -- as there isn't in California and most other states -- shouldn't the client at least be warned of this fact so they can shop for a lawyer who does offer this protection?

As you might guess, I'm initially four square in favor of disclosure. But then I ask myself, what exactly is it that I would be disclosing? What protection does malpractice insurance offer that I am not offering? A number of years ago, Nolo published a book (now out of print) by one of the preeminent lawyers who represents malpractice claimants. The purpose of the book was to help people assert their rights against a lawyer's insurance carrier. Those of us who first read the manuscript started joking that we ought to keep the title page and last page and insert 200 blank pages in between. In short, from what we had learned from the manuscript, it was fruitless to assert rights against a malpractice insurer. How could this be?

For starters, to establish malpractice you have to prove that the lawyer has done something wrong, and the only way to prove this is to have a trial. That is, you have to pay a second attorney a small fortune to prove that the first attorney has actually done something wrong. Second, the attorney being sued has no incentive to settle the case because the malpractice insurer is picking up the costs of the litigation, whereas if there is no insurer, you might reach some sensible accommodation with the attorney through mediation. And finally, in many cases the insurance does not apply at all if it appears that the attorney was grossly negligent, or engaged in conduct caused by alcohol or drug use, or engaged in practice while suspended from practicing.

If you were a hypothetical shopper for an insured attorney, it would be helpful if you could discover the name of the insurer, the limitations of the insurance policy, and the history of the company's benefit payouts. Does it pay more for some types of mistakes than others, or more in some legal areas than others? In short, does the insurer engage in full disclosure of its activity so that you would know exactly what protection you were buying? From my own experience, I can tell you that there is zero disclosure about these matters. The most you will ever learn is that the lawyer is covered by malpractice insurance. Just what this means is up to you to decipher.

So, winding my way back to the beginning, should lawyers really have to disclose that they are not covered by malpractice insurance? I think I'll flip-flop on this one and say no way. All mandatory disclosure does is infer the value of malpractice coverage -- an inference I'm not ready to make given the paucity of information available to me as a consumer and client.

December 10, 2007

HALT Opposes the Wisconsin State Bar's Proposed Regulation of the Unauthorized Practice of Law

This article is posted with permission from HALT, the nation's oldest law reform organization.

HALT Submits Comments Rejecting the Wisconsin State Bar's Proposed Regulation of the Unauthorized Practice of Law

HALT believes that consumers should have access to a continuum of legal services provided by both attorneys and qualified non-lawyers that meet the full range of their legal needs. On behalf of HALT's 50,000 members nationwide and 1,200 members in Wisconsin, HALT urged the Court to reject the State Bar's Proposed Supreme Court Rule Chapter 23, Regulation of Unauthorized Practice of Law.

The Wisconsin Supreme Court should recognize that lawyers alone cannot provide all the legal services consumers need. Study after study has shown that lawyers have priced themselves beyond the reach of average Americans. According to a 1996 ABA study, some 38 million low and moderate income American households simply cannot afford to hire a lawyer. Lawyers' fees of $100 per hour or more mean that the traditional source of legal services is out of the reach for many Americans. Wisconsin's own Access to Justice Study Committee stresses in Bridging the Justice Gap: Wisconsin's Unmet Legal Needs that more than "half a million Wisconsinites ― people with families, many of whom have jobs, own homes and pay taxes ― must contend with significant legal troubles without any legal help... because they cannot afford the professional legal help they need." Access to Justice Commissions around the country are also expressing great concern about this growing accessibility crisis.

Instead of responding to the access crisis, Wisconsin's organized Bar has asked the Court to adopt a new draconian rule that will make it all but impossible for consumers to get help when they can't afford to hire a lawyer. The Bar's sweeping new definition of the practice of law ― "the application of legal principles and judgment with regard to the circumstances or objectives of another entity or person(s)" ― covers every legal service imaginable. "Giving advice or counsel, ...selection, drafting or completion of legal documents, ...representation of another entity or person(s) in court, ...negotiation of legal rights or responsibilities on behalf of another, ...or any other activity determined to be the practice of law by the Wisconsin Supreme Court" would all become the exclusive domain of licensed Wisconsin attorneys.

Continue reading "HALT Opposes the Wisconsin State Bar's Proposed Regulation of the Unauthorized Practice of Law" »

November 29, 2007

Let's Give Barry Bonds the Benefit of the Doubt

I'm glad that Barry is finally getting his trial. Let me start by saying I'm a Barry Bonds fan. Over the past couple of years I've hated watching Barry being booed in stadium after stadium, each filled to the brim with screaming fans hoping, in spite of the boos, to see him hit a home run. I'm therefore actually happy that Barry was finally indicted and is headed for a trial in which he can confront his accusers and establish his innocence in a forum dedicated to finding the truth. Or so I hope.

An acquittal on the charges against him won't necessarily restore Barry's good name. If he's acquitted, Barry's standing in the community--baseball and otherwise may be resurrected. I say "may" because of the obvious fact that acquittals don't necessarily change people's minds about what they think they know. Remember the O.J. double-murder trial? A jury acquitted O.J. pretty darn quick--and vast numbers of (mostly white) people decided that the jury was either reckless or stupid and continue to believe in his guilt.

What you think you know might not be how it really is. You may be quietly snickering at my reference to Barry's possible innocence. It's obvious, isn't it, that Barry lied to the grand jury when he said he didn't knowingly use steroids. I mean, look at the guy, all bulked up. Give me a break. Barry should cop a plea, do his time, and retire to a world marred only by a flood of asterisks accompanying his many marvelous records. Not so fast.

The case against Barry has not yet been challenged in a court of law. The case against Barry--largely built by the media--depends heavily on testimony and evidence from a 2002-2003 grand jury proceeding. In our system of justice, evidence introduced in a grand jury proceeding is supposed to remain secret, at least until an indictment issues. In this case, the testimony was leaked early. Journalists and sports pundits alike treated the testimony as the truth incarnate. Barry has been tried in the media and we, the public have adjudged him guilty --most unfairly.

Grand jury indictments are not evidence of guilt. We should never, ever, treat a grand jury indictment--or the testimony on which it's based--as evidence of guilt. In grand jury proceedings, the prosecutor orchestrates the testimony and evidence for the sole purpose of obtaining indictments. The witnesses who the prosecutor brings in to testify are not subjected to cross-examination. In fact, the suspect is not even present and there isn't even a defense. It's the prosecutor's show all the way, with predictable results: As the old saying goes, "the grand jury will indict a whole ham sandwich if given half a chance."

All our rules of fairness preclude pre-judging Barry. If we really believe in due process, in the right to confront our accusers, and in the presumption of innocence, we would refrain from judging Barry unless or until his guilt is proven "beyond a reasonable doubt " in a court of law. If we really believe in the Golden Rule--Do Unto Others As You Would Have Them Do Unto You--we would remember how it feels to be unjustly accused. We would say to our family, friends and associates, "Hey, wait until the trial, give Barry the benefit of the doubt."

Why we give some people the benefit of the doubt. All of this leads me to wonder why we give some people the benefit of the doubt and not others. It probably boils down to trust. We tend to trust people of our own ilk--our religion, our race, our family. But maybe we should strive to move beyond our genetic and cultural predispositions--just because it's the right thing to do. Barry is a baseball immortal, and in my mind that fact alone justifies giving him the benefit of the doubt. Plus, I know from my legal career just how unreliable un-confronted testimony and unexamined evidence can be. And I would like to believe I'm the kind of a person who will give just about anyone the benefit of the doubt since the opposite approach feels, well, uncivilized.