Archive for June 19th, 2013

Attorneys’ Fees in Foreclosure Cases

In November of 2010, the New York Times did a story about how some Florida foreclosure defense attorneys charge homeowners facing foreclosure.  I was troubled by the fees being charged by some of my colleagues, and it prompted me to write this blog.  After inquiry from a Florida homeowner today, I’m fired up about this issue again, so it’s time to circle back and talk about the fees that defense attorneys charge homeowners.

First off, I realize there are different ways to skin a cat, particularly in the foreclosure defense industry.  It’s not my prerogative to say that I’m right and the fees everyone else charges are wrong or unreasonable.  That said, I have seen instances where the fees being charged by some foreclosure defense attorneys are just patently ridiculous, totally unreasonable, and offensive.

Consider today’s inquiry.  A Florida homeowner contacted me by email, indicating he had retained a well-known Florida defense firm to fight his foreclosure case.  He made it clear he wanted a loan modification, and after years of trying, he was able to obtain a permanent modification.  He obtained the modification all on his own – his lawyers didn’t even realize he was doing so, and the modification was obtained through his own persistence.  To this homeowner’s surprise, however, his lawyers then told him that he owed them a contingent fee equal to 10% of the amount that the bank had sued him for.  In fact, it seems that is this firm standard fee arrangement – to obtain a 10% “contingent fee” whenever a foreclosure case is dismissed (regardless of the reason for the dismissal).

With this homeowner’s consent, I am posting a redacted copy of that firm’s fee agreement.  Do you see the language, entitling the firm to 10% of the amount demanded by the bank in the complaint if the case is dismissed?  Notice that this contingent fee seems to apply regardless of the reason the case was dismissed and even if the bank is able to immediately turn around again and file a new lawsuit.

Suppose the amount being sought in the foreclosure complaint is $500,000.  Do you seriously mean to tell me that a lawyer can charge $50,000 (10% of $500,000 = $50,000) to that homeowner where that case was dismissed even though the bank can turn right around again and re-file a new lawsuit?  That’s insanity, in my eyes.  Equally unreasonable, in my view, is a lawyer telling a client to pony up the 10% contingent fee where the foreclosure case was dismissed because the homeowner was able to procure a modification through his own efforts.

I can already see that attorney’s justifications.  “But the homeowner never would have been able to get the modification if we weren’t defending the foreclosure case and preventing the bank from foreclosing.”  I suppose that argument isn’t totally frivolous.  After all, that’s part of what we do as defense counsel – defend cases long enough that, hopefully, the parties can reach a resolution in lieu of a foreclosure.  However, just because the lawyer defended the foreclosure case, does that really mean he should get a windfall at his own client’s expense, particularly where the net result to the client is in no way commensurate with the contingent fee owed?  Personally, I don’t think so.  The fees lawyers charge should bear a reasonable relationship to the work performed and the result obtained for the client.  Standard fee agreements shouldn’t have catchalls that enable lawyers to recoup windfalls, particularly where the client may face another foreclosure suit on that same property.

In fairness, I can envision circumstances where a contingent fee like this is authorized.  For instance, if the lawyer is able to help his client obtain eliminate a mortgage and keep title to the property free and clear, then that is an extraorindary result that can arguably justify a contingent fee.  That’s not how my firm’s standard fee agreements are set up, but I can at least understand a contingent fee in that scenario.  However, that result is extremely rare, so that type of fee arrangement would be rare to even discuss, much less enter.

If you’re a homeowner facing foreclosure, and you’re deciding which counsel to retain, I urge you to think about these issues.  Ask yourself “is this lawyer trying to charge a fair amount in order to stay in business and keep the office lights on?  Or is this lawyer trying to obtain a windfall even though he really didn’t obtain a result that changed my life?”

As I assess this issue, I can’t help but wonder if this issue has much larger, far-reaching consequences than any of us realize.  As I say this, I acknowledge I’m speculating a bit, but I think it’s fair to wonder …

Many in the foreclosure defense industry have commented, particularly in recent months, that judges in the Tampa/St. Pete area (and, frankly, most of the area that constitutes Florida’s Second District Court of Appeal) tend to rule in favor of homeowners more frequently than the judges in other parts of Florida.  I’ve seen – and experienced – horror stories in other parts of the state.  Rocket dockets.  Judges setting trials en masse and never ruling for homeowners, even where the evidence and the law required such.  As I assess these stories, and think about the fees being charged by some other attorneys, I can’t help but wonder “are those judges turned off by the defense industry because they realize how much some defense lawyers are charging?”

I have no documents to show you and no evidence to which I can point to support my beliefs in this regard.  However, I can’t help but believe that one of the reasons I’ve been able to enjoy the successes that I have defending homeowners is that the judges who know me respect the job that I do.  They know, if I get a case dismissed, that I’m not bilking my client for a 10% contingent fee.  They know I’m not asking the bank to pay a $20-$40K fee, either.  Rather, they know that I ask for two or three grand – sometimes more, sometimes less – and I move on to the next file, trying my darndest to help as many other homeowners as possible.  I’d like to believe that’s what garners respect from the judiciary – when you show up in court, time after time, making legitimate arguments, with case law, taking reasonable positions, and show you’re performing a service for your clients and the community, not just trying to get rich.  I’d like to think, if you do that long enough, that it makes judges realize, no matter the pressures they face to move cases, that they should, where the facts and the law justify it, rule for homeowners.

Think about it from a judge’s perspective.  Florida judges make, what, $125,000 a year?  (I’m guessing, but I suspect that’s not too far off.)  If you were a judge, would you want to see a defense attorney recover a $40,000 fee from a bank on one file merely because the case was dismissed without prejudice?  That’s a third of what the judge makes in an entire year!  Should an attorney really get that on one file where the bank can turn right around and file a new lawsuit?  Even if the law says “yes,” and it sometimes does, if you were the judge, how would you feel about entering that fee award?  Would you, perhaps, be a little more hesitant to dismiss a case the next time that lawyer was in front of you?  Or how about if you knew the lawyer charged his clients a contingent fee?  Would that lawyer garner the same level of respect?  Somehow, I think not.

I realize this blog may irritate some of my colleagues.  That’s regrettable, but I’m confident I’m on the right side of the fence on this one.
Mark Stopa

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Not Substantial Compliance. “Compliance.”

Virtually every day in Florida courtrooms, I’m arguing that the letters banks send under paragraph 22 of most mortgages must comply with the specific terms set forth in paragraph 22.  Not “substantially comply,” but “comply.”

Today, the Second District issued yet another decision which supports my interpretation.  The case of DiSalvo v. Suntrust Mortgage, Inc. isn’t directly on point, as the decision turned on the bank’s failure to prove it sent the letter at all, not the content of the letter.  But take a look at this sentence of the opinion:

“First, a mortgagee’s right to the security for a mortgage is dependent upon its compliance with the terms of the mortgage contract, and it cannot foreclose until it has proven compliance.  See F.A. Chastain Constr., Inc. v. Pratt, 146 So. 2d 910 (Fla. 3d DCA 1962).”

Notice the term “compliance” – not once, but twice?  Not “substantial compliance,” but “compliance”?

This decision is yet another instance, along with the many other cases in which I’ve set forth on this blog, where a Florida appellate court had a chance to say the standard for the paragraph 22 letter is “substantial compliance” but declined to do so.  Hence, it seems clear that “compliance” is the standard here.

With each new decision that comes out, the argument that the banks need only “substantially comply” with paragraph 22 gets weaker and weaker.

Mark Stopa

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