Legal News

Foreclosure Legal Work: A Shoddy, Assembly-Line Practice?

By Dan Slater

Does flat-fee pricing foster assembly-line lawyering?

That’s what U.S. bankruptcy judge Jeff Bohm suggested in a decision, entered yesterday, in a consumer bankruptcy case involving Countrywide and a Texas homeowner. While Judge Bohm declined to enter sanctions against Countrywide and its lawyers from two firms — Barrett Burke and McCalla Raymer — he wrote: “This fixed-fee business model appears to have been an overwhelming financial success. . . . Meanwhile, the profession has suffered from the ever decreasing standards that firms like Barrett Burke and McCalla Raymer have heretofore promoted. This demise must stop.”

The judge called problems at the firms’ culture “disconcerting” and described what he called the firms lack of care for accuracy and failure to communicate with clients. “[W]hat kind of culture condones its lawyers lying to the court and then retreating to the office hoping that the Court will forget about the whole matter.” While “perfection” he said is “too much to demand, preparedness and candor are not.”

What’s the legal backstory behind all this? Apparently, in a Chapter 13 bankruptcy – used by homeowners to catch up on their mortgage payments — the lender can seek to foreclose by filing a “motion to lift stay.” If the movant — i.e. the lender — wants to withdraw the motion between the filing of it and the hearing, it can do so. And, in some cases, it can shift the attorneys fees to the borrower if the original reason for filing the motion was due to payment defaults that have since been cured. However, if the reason for withdrawing the motion was due to the lender having inaccurate financial info regarding the borrower’s defaults, then the lender cannot shift fees.

In this case, Countrywide attempted to shift fees, when in fact the reason for the filing of the motion to lift stay was due to its own inaccurate information. Judge Bohm put part of the blame on Countrwide’s limited contacts with its law firms, who largely hand off the work of analyzing mortgage histories to paralegals, he said. That system, he said, delivered a windfall to the law firms but fostered an assebly-line process, resulting in shoddy legal work that hurts consumers and the courts. He did not go so far as to impose sanctions. Here’s a story from Peg Brickley at Law Blog sister pub the Daily Bankruptcy Review.

The Law Blog reached out to Barrett Burke and McCalla Raymer but did not immediately hear back. Here’s a statement Countrywide put out yesterday in response to the decision. Here’s part of the judge’s ruling, and here’s the second part.

These law firms aren’t the only ones that have hit speed bumps in the foreclosure crisis. Law blog colleague Amir Efrati did this story on so-called “foreclosure mills.” He quotes a lawyer who says that while most firms who handle these cases for lenders in general do a good job, in the “gold rush” to get a piece of the growing business, some firms “have cut corners.”

LB’ers, we imagine that, with the increase in Chapter 13 filings, this issue of how law firms analyze payment histories for the lenders they represent is not going away. Those familiar with this work — is the judge right on? Too soft? Too harsh?

Full post as published by Law Blog - WSJ.com on March 06, 2008 (boomark / email).