As the housing crisis continues, low income Virginians depend on Legal Aid services to help them get through wrongful foreclosures, loan modification scams, predatory lenders etc. Unfortunately, Legal Aids in Virginia have seen their revenues take a hit just as demand on their services is peaking. Housing counselors often refer complicated cases involving foreclosure fraud or illegal predatory lending to Legal Aid lawyers. For most Virginians, Legal Aid is the only option to access the justice system in this bad economy. Legislation at the 2012 General Assembly in Richmond could help bring in more revenue, but it has some interesting opposition.
In Virginia, like most states, legal aid societies are funded through private donations, charities, the federal government and state and local governments. A prominent source of state funding for Legal Aid in Virginia is through a source called IOLTA (Interest on Lawyers Trust Accounts). This source is created from interest-bearing accounts in which practicing attorneys keep client money.
Like many programs, funding for legal aid has taken a serious hit over the past few years. First, Federal funding for legal aid has been dramatically reduced. Second, revenue from IOLTA accounts has fallen off. While, Virginia Legal Aid could once depend on millions of dollars from these interest-bearing accounts, they now only bring in significantly less. Despite declining revenue, demand for services is higher than ever. Many Legal Aid chapters in Virginia find themselves turning away over half of their traffic due to insufficient staff and funds.
To help remedy this, Delegate Manoli Loupassi (R-Richmond) introduced House Bill 100 to give more leeway to the Supreme Court of Virginia so they can make rules encouraging lawyers to dedicate their IOLTA money for Legal Aid. Currently, the requirement to deposit client funds in an interest-bearing account was subject to enforcement only by the Virginia State Bar or the Attorney General. The bill would repeal the Code section that bars the Virginia Supreme Court from taking any disciplinary action against attorneys who fail to comply. There was a hearing on this bill on Monday Jan 16th in the Civil Subcommittee of the House Courts of Justice Committee where there was much discussion and confusion about how exactly this system worked.
On paper, Virginia has an opt-out system: IOLTA money should go to the legal aid system unless Lawyers specifically opt-out. However, lack of enforcement means that, by default, only those who specifically opt-in have their IOLTA money going to Legal Aid. If lawyers do nothing (or opt out) their money does not end up going to Legal Aid. This is borne out by the numbers. There are around 30,000 active attorneys in Virginia but only 5,200 IOLTA accounts with money going to Legal Aid. When the economy was better, this did not matter. Now with historically low interest rates and the higher demand for legal aid services, the outlook for legal aid is bleak.
The Virginia Bankers Association opposed HB 100 during the subcommittee hearing claiming that the bill was unnecessary since the IOLTA system is already opt-out in Virginia. As mentioned earlier, the actual language of HB 100 is simple. It creates no new regulations or rules. Rather it repeals the provision prohibiting the Supreme Court of Virginia from adopting a disciplinary rule requiring that lawyers deposit client funds in an interest-bearing account.
During the subcommittee hearing on HB 100, representatives from the Virginia Bar Association, which includes HB100 as part of its legislative agenda, spoke in favor of the bill. VBA argued that under the current system with many attorneys unfamiliar with the rules, thousands of client accounts remain “in limbo” and inaccessible to the IOLTA system. 43 other states have mandatory IOLTA systems and this puts Virginia among a small minority. The Virginia Bankers Association opposed HB 100 during the subcommittee hearing claiming that the bill was unnecessary since the IOLTA system is already opt-out.
Ultimately, HB 100 was passed out of the subcommittee, with six delegates in favor and three delegates voting against. The bill will now head to the full Courts of Justice Committee for a vote.
The housing market in Virginia continues to be weak and the foreclosure crisis is on-going. Low-income Virginia families need Legal Aid services to work through bad foreclosures, predatory lending, and other challenges.
HB 100 is a smart idea.