Consumer Law

New Mortgage to Pay Foreclosure Defense Attorney?

By Randall Ryder

http://www.flickr.com/photos/thetruthabout/2745791204

Even before a number of big banks stopped foreclosure proceedings because of issues with robo-signers, consumers with money were fighting foreclosures across the nation. New York recently passed a law (effective next year) that allows consumers to recoup their attorney fees if they fight a foreclosure and win.

Not every state has a similar law, however. As a result, some consumers are agreeing to a new mortgages with their foreclosure attorneys.

How does it work?

Many people facing foreclosure are in that situation because, for various reasons, they are unable to pay their bills, including their mortgage. As a result, this can make it difficult to hire an attorney to fight a foreclosure.

Some attorneys in Florida are agreeing to a de facto mortgage with their clients if they successfully defend their foreclosure. Similar to a mortgage, it is a contract to pay every month and uses the client’s house as collateral. According to the attorneys, if they are successful in lowering the amount owed or nullify the original mortgage, the client must pay them 40% of the amount saved.

Is it a good idea?

At least one person has been critical of the arrangement, Professor Lester Brickman at the Cardozo Law School said that ” [to] . . . replace the banks as a long-term mortgage creditor of homeowners leaves me a little queasy . . .”

He also notes the current public image concerns of attorneys and notes that these types of mortgages are unlikely to help the situation.

On the one hand, lawyers need to be compensated in some manner for their time. On the other hand, as Brickman notes, becoming a de facto mortgagor is a little disconcerting. The attorneys in Florida claim that they would never enforce the mortgage, which calls into question the purpose of the agreement.

Until other states, however, follow New York and establish an attorney fees provision, this issue is not going away anytime soon.

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Full post as published by Caveat Emptor on November 08, 2010 (boomark / email).