Them Be Fightin' Words: The Fight Over Foreclosure Fees

Them Be Fightin’ Words: The Fight Over Foreclosure Fees

Them Be Fightin’ Words: The Fight Over Foreclosure Fees

by PAUL JACKSON

Monday, August 30th, 2010, 2:56 pm

For the law firms that manage and process foreclosures on behalf of investors and banking institutions, what’s a fair legal fee? What’s a fair filing fee? Should fees to outsourcers be prohibited? And just how much money should it really cost to process a foreclosure?

As I write this, the answer to these and other questions are being fought out in the trenches, in an out-of-sight but increasingly heated battle involving Fannie Mae and Freddie Mac, the law firms that specialize in creditor’s rights, default industry service providers, and various private equity interests.

It’s a complex fight that many say will ultimately shape the way U.S. mortgages are serviced over the course of the next decade — and perhaps beyond. It’s also a debate that promises to spill over into how loans are originated and priced.

“No aspect of the U.S. mortgage business will go untouched by the outcome of this current debate,” said one attorney I spoke with, on condition of anonymity. “This is the single most important issue facing mortgage markets today, and will even determine how securities are structured in the future.”

How foreclosures are managed

Typically, a foreclosure involves legal and court filing fees — it is, after all, a legal process involving the forced transfer of a property from a non-paying borrower to secured lender. But the foreclosure process also typically involves a host of other associated fees, including necessary title searches, potential property insurance, homeowner’s association dues, property maintenance and repair, and much more.

Many of these fees are ultimately tacked onto the “past due” amounts tied to a delinquent borrower — and done so legally. Much like when a credit card becomes past due and the interest rate kicks into high oblivion, consumers looking to catch up on their delinquent mortgage payments must also make up the difference in additional fees in order to successfully do so.

Legal fees in the foreclosure business, however, aren’t what you might think. Instead of billing hourly for most work, as most attorneys in other fields would do, attorneys that specialize in processing foreclosures are paid on a flat-fee basis, using pre-determined fee schedules.

Thanks to the market-making power of the GSEs, Fannie Mae and Freddie Mac — both of whom publish allowable fee schedules for every imaginable legal filing and process in the foreclosure repertoire — the entire foreclosure process has been reduced to a set of flat fees.

And not even negotiated fees, at that. For firms that operate in the field of foreclosure management, the GSE allowable fees amount to a take-it-or-leave-it menu of prices.

“For us, it doesn’t matter who the client is, even if it isn’t Fannie or Freddie,” said one attorney I spoke with, under condition of anonymity. “We know we’re only going to be able to claim whatever that flat fee schedule they set says we can claim, since other investors tend to employ whatever the GSE fee caps are.”

Fannie and Freddie as housing HMOs? In the foreclosure business, that’s pretty much what it amounts to.

But beyond determining the legal fee schedule for much of the multi-billion dollar default services market, the GSEs also largely determine who gets their own foreclosure work. Both Fannie and Freddie maintain networks of law firms called “designated counsel” or “approved counsel” in key states marked with significant foreclosure volume — and they either strongly suggest or require that any servicers managing a Fannie or Freddie loan in foreclosure refer any needed legal work to their approved legal counsel.

Each state will have numerous designated counsel — sometimes as many as five law firms — but in practice, attorneys say, two to three firms end up with the lion’s share of each state’s foreclosure work. In states hit hard by the housing downturn and foreclosure surge, like Florida, the amount of work can be substantial.

“The GSEs can force a servicer to use their designated counsel, especially if timeline performance in foreclosure management is out of some set boundary,” said one servicing executive at a large bank, who asked to remain anonymous. “It’s usually easiest to simply use their counsel on their loans, even if we don’t see that firm as best-in-class.”

With the vast majority of the mortgage market now running through the GSEs, and much of what’s left of the private market following the guidelines Fannie and Freddie establish, it should come as no surprise to find that a few law firms in each state end up with the majority of the foreclosure work, sources say.

The rise of the ‘foreclosure mills’

Being designated as approved counsel by Fannie Mae and/or Freddie Mac does carry risk. Just ask Florida’s David Stern, who has seen his burgeoning operation pejoratively branded a ‘foreclosure mill’ by consumer groups, dragged through the press for both alleged and real consumer misdeeds, and facing numerous investor lawsuits surrounding the operation of DJSP Enterprises, Inc. (DJSP: 3.22 -1.23%) — the publicly-traded processing company tied to the law firm.

While Stern’s operation may win the award for ‘most susceptible to negative publicity,’ how the law firm operates is far from unique in the foreclosure industry.

Continue reading…Housing Wire

© 2010-17 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.



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One Response to “Them Be Fightin’ Words: The Fight Over Foreclosure Fees”

  1. Bill says:

    The steps outlined below should have been implemented 2 years ago in conjunction with the Fed’s Quantitative Easing programs for the banks. Taxpayers received no benefit from Bernanke’s policies.

    We need policies where each consumer is allowed to clean up their household balance sheet based on credit card abuses and mortgage fraud that has been occurring for years. These Policies may be complicated but need to be fair for all. Banks instead of paying bonuses should hire hundreds of employees to implement the following:

    1. All “purchase money” loans should get an automatic principle write down regardless of financial status. Not helping folks today with a “purchase money” loan is a disgrace, because this is one situation where the bank is equally at fault if not more at fault. These folks were busy working and trusted realtors, mortgage brokers, government propaganda and the whole FIRE industry to provide sound financial advice. This advice was forced on the homeowner for very large fees and commissions paid out of the homeowners pocket.

    All homeowners who refinanced and can PROVE with receipts the additional cash after the first “purchase money” loan was for home improvements then this loan should qualify for a principle write down regardless of income in addition to the above scenario.

    2. Second Home Loans and HELOC not backed by home improvement receipts and credit card debt should be treated equally under the same new policy. There is no difference between the debt if a homeowner refinanced to pay off credit card debt or if a renter / homeowner did not or have the option.

    As it stands today after 6 months of defaulting on your credit cards you have no option but to endure the collection agencies and a 7 year hit on your credit report as opposed to a homeowner defaulting on second loans. Why did congress not add a recourse clause to the recently passed credit card act? What good is the credit card act if there is no recourse to recapture the abusive penalties?

    All debt today already collected and paid, charged off or still being paid should be recalculated going back 10 to 15 years using the new rules for a new outstanding balance. After crediting back to the consumer the years of bad abuses then set up a program for each individual to pay off the debt based on the monthly payment he/she can afford. In addition force the banks to send refund checks to folks who have paid the usury penalties and late fees based on new calculations using the new credit card act definition of credit card abuse. This is fair for both the consumer in debt and the consumer who did not use credit cards or did not do multiple cash-out refi’s. There is no disputing second home loans and HELOC are given huge leniency in the credit reporting arena yet are equal to credit card debt. All state recourse and non-recourse laws would have to be overridden.

    3. Bernanke can assist the banks via QE 2.0 to absorb the losses the banks will take on in the above policies after the losses have been absorbed by clawbacks on ill gotten gains and bank bonuses.
    Where is America’s mainstreet recourse on the fraudulent practices in the FIRE (financial, insurance and real estate) industry?

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