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Archive for November 8th, 2010

Paying a Foreclosure Defense Lawyer

The New York Times did a story over the weekend about how Florida foreclosure attorneys are charging homeowners facing foreclosure.  I’ve read the article and, with respect to my colleagues, I’m disturbed.  According to the article, Roy Oppenheim charges $500/month to his clients (every month the case is pending, no matter how little activity takes place in the case each month).  Ice Legal charges a retainer, monthly fees, and a contingent fee.  Peter Ticktin charges monthly fees plus a 40% contingent fee.  As I see it, instead of trying to make their services as affordable as possible, these lawyers are trying to figure out how much they can get away with billing.  I’m also troubled at the ethical quagmires created by these fee arrangements.   

To illustrate my concerns, let’s take one of the examples in the article.  If a client of the Ticktin lawyers gets the principal on his/her mortgage reduced from $500,000 to $200,000 (be it by modification, settlement, court order, or the like), then that homeowner owes the Ticktins $120,000 ($300,000 x 40% = $120,000).  Perhaps worse yet, that $120,000 is secured by a mortgage on the client’s home.  Hence, the $500,000 mortgage is reduced to $200,000, but there is now a second mortgage, payable to Ticktin, in the amount of $120,000, so the homeowner still owes $320,000.   

Respectfully, isn’t it our job as foreclosure defense and bankruptcy attorneys to help homeowners avoid foreclosure?  To try to reduce their debt?  I realize this is a business, but I can’t help but feel that these fees are excessive.  As I see it, why should Ticktin, Ice Legal, Stopa Law Firm, or any foreclosure defense attorney get a windfall if we’ve helped a client and obtained a principal reduction?  Striving for favorable results is our job – it’s why we get paid.  Sometimes favorable outcomes happen, sometimes they don’t, but either way, we shouldn’t get a windfall, particularly at the expense of our clients.  

I’d be less disturbed about foreclosure lawyers charging a contingent fee if it was the lawyers’ only way of billing.  For instance, if a lawyer somehow eliminates a mortgage from a client’s home, and hasn’t collected any fees, a contingent fee seems reasonable to me.  In that scenario, the client now has a free and clear house and the lawyer helped obtain that result without getting paid, so a contingent fee seems fair.  Unfortunately, there are two fatal problems with this line of thinking.  First, it’s clear that these lawyers are charging more than just a contingent fee – they’re charging retainers and monthly fees, too.  When the foreclosure defense attorneys are already getting a monthly fee, the contingent fee strikes me as excessive.  My concerns are heightened in that regard because I find the $500 monthly fee excessive on its own.  Bear in mind, in foreclosure cases, there are often many months of inactivity, where the lawyer does little or no work.  As I see it, why should a lawyer keep collecting $500/month when he/she isn’t doing any work?  I strongly believe the fees a foreclosure lawyer collects should bear some reasonable relationship to the work being performed. 

Second, I agree with Margery Gallant, who opines in the article that the elimination of a mortgage and client owning a home free and clear is generally not “realistic.”  There are undoubtedly exceptions, but the typical homeowner cannot expect that he/she can march into court and convince a judge to eliminate a mortgage and give the homeowner a free home.  Don’t get me wrong – I’m always on the lookout for fact patterns that could lend themselves to this result.  For the typical Floridian, though, this is not a realistic goal (especially with the climate in the judiciary being what it is).  As such, I’m left wondering just what these foreclosure defense attorneys have to do to earn their contingent fee. 

For example, suppose the foreclosure lawsuit is dismissed without prejudice, meaning the bank can re-file a separate suit and seek foreclosure.  Should a foreclosure defense attorney be able to collect a contingent fee in that scenario?  I’d argue “no,” unless the fee was very low.  After all, the fees obtained should be commensurate with the results obtained, and a dismissal without prejudice does not lend itself to a $50,000 or $100,000 contingency.   Unfortunately, I’ve seen contingent fee agreements that require such a payment even upon a dismissal without prejudice.  As I see it, that’s grossly excessive. 

Also, I strongly believe these fee arrangements are rife with conflicts.  To illustrate, Tom Ice says he “doesn’t ever want to have a client say ‘I’m not taking the deal because I can’t afford to pay you.”  Yet isn’t this the very dynamic that these contingent fees create?  Using the example above, if the homeowner is offered a $300,000 reduction, doesn’t he/she have to think about whether he/she can pay the $120,000 mortgage to Ticktin before accepting the offer?  If so, who is going to counsel the homeowner about that?  Ticktin?  How does that conversation go? “I’m glad you’ve been offered the $300,000 reduction – just be sure you can pay the $120,000 fee to me.”  

Mr. Ticktin says he “would never enforce the mortgage and foreclose.”  If that’s true, though, then why have this fee agreement in the first place?  Clearly, these lawyers want to leave open the possibility of foreclosing on their clients’ homes, as otherwise they wouldn’t be including such language in their fee agreements. 

Also, many homeowners facing foreclosure are candidates for bankruptcy.  Using the same example, above, are the Ticktin lawyers going to give conflict-free advice to a client about bankruptcy if Ticktin has a second mortgage on the client’s home?  How can they?  Ticktin and the homeowner are directly adverse – the homeowner wants to eliminate the mortgage, which could happen via bankruptcy, whereas Ticktin wants to enforce it, which a bankruptcy would preclude.  Undoubtedly, Ticktin’s representation to that client about the benefits of bankruptcy are impacted by its own interests in keeping the mortgage intact. 

The more I study these fee agreements with other foreclosure defense attorneys, the more comfortable I feel with the fees being charged by Stopa Law Firm.

Mark Stopa

www.stayinmyhome.com

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How Loan Modifications Cause Foreclosure

It’s bad enough that the loan modification process is not helping homeowners as intended, a failure I’ve reported in this blog many times.  Unfortunately, it’s even worse than that.  As numerous media outlets are now reporting, and as I’ve seen in my daily practice as a foreclosure defense attorney in Florida, temporary loan modifications often *cause* a homeowner who was otherwise not behind on mortgage payments to go into foreclosure.  

The New York Times has a real-life story, but here’s the simplified version:

The homeowner is making monthly mortgage payments as required, but finances are tight.  The homeowner asks the bank for a loan modification.  The bank says it needs to review the homeowner’s financial information to make a decision, but agrees to a temporary modification while the application is being reviewed.  The homeowner’s payments are temporarily reduced from $1,500/month to $1,000, pending the review process, which the bank says should take a couple of months.  The homeowner diligently makes the $1,000 payments each month and anxiously awaits approval on the permanent modification.  The process seems simple enough, so the homeowner is optimistic. 

Two months turn into six, then eight, then ten.  The homeowner keep making the required $1,000/month payments, never imagining it would drag on this long.  The homeowner keeps calling, and the bank keeps saying the permanent modification is being reviewed.  Then, bam.  The bank rejects the permanent modification, without explanation (or a flimsy explanation that shouldn’t have taken 10 months to disclose).  But instead of telling the homeowner to resume the $1,500/month payments, the bank requires the homeowner pay all of the arrearages.  In other words, the $500/month that the homeowner didn’t have to pay while the modification was being reviewed – those monies need to be paid, all at once, in one lump-sum, plus interest, late fees, attorneys’ fees, etc.  When the homeowner can’t/doesn’t pay that $7,500 lump sum (10 months x $500/month = $5,000, plus $2,500 estimated interest, late fees, etc.), the bank pursues foreclosure. 

This sounds impossible to believe, but this phenemonon is happening to homeowners all across the country.  Please, don’t fall prey to such “gotcha” tactics.”  Retain a foreclosure defense attorney to assist you through this process.

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