Tag Archives: Texas Acceleration of Debt

“Contingency Fee” Loan Modification Smells Like a “Foreclosure Scam.”

PLEASE NOTE: OUR FIRM IS *NO LONGER* ACCEPTING NEW CLIENTS FOR THIS AREA OF LAW.  PLEASE CONTACT THE TEXAS BAR FOR AN ATTORNEY REFERRAL.  IF YOU ARE AN ATTORNEY LOOKING TO TAKE ON FORECLOSURE CLIENTS, PLEASE CONTACT US.

I’ve been reading about certain “contingency fee” mortgages that some attorneys are having their clients sign.  Specifically referring to a New York Times article written by David Streitfeld on November 6th, 2010 entitled, “Taking On a Second Mortgage to Pay the Lawyer,” Florida foreclosure attorneys have devised a new and creepy way to have clients pay inflated attorney fees.

In short, the scheme is that the attorney charges a contingency fee of 40% for whatever the attorney saves the client in terms of a mortgage loan modification and/or principal reduction.  However, instead of having the client pay the fee out of their pocket (which is impossible because all that is gained is equity and a lower monthly mortgage payment), the client agrees to take out a second mortgage in the law firm’s name to pay the contingency fee.

There are many issues here, and pardon me for sounding the “foreclosure scam” alarm with regard to what on paper appears to be an inventive way for the attorney to guarantee being paid.  In short, the client is essentially signing over to the attorney a security interest in their home in return for providing a service which is supposed to have the end goal of lowering the homeowner’s mortgage payments to a fair and affordable amount.  However, charging an unreasonable contingency fee which attaches to, encumbers, and uses the home itself as security for payment of that contingency fee inevitably defeats the purpose of the loan modification because it will unnecessarily increase the monthly cost of the mortgage payment.

Then, as soon as the homeowner falls short of paying the second mortgage to the attorneys, regardless of what they claim they will or will not do, the law firm immediately has the right to declare a default on the second mortgage, accelerate the entire debt as being immediately due, and can foreclose on the home judicially or non-judicially, depending on the state in which the property is in.

In other words, the homeowner who contacts the law firm for help to protect them from losing their home to the bank signs over a security interest in the home which in the end will cause them to lose that very home the lawyer was sought out and paid to protect… to that lawyer.

While this is not a classic foreclosure scam, it still smells like one.  The lawyer is taking advantage of the fact that the homeowner does not have any other choice than to pay their inflated contingency fees.  However, the contingency fee should be commensurate with A REASONABLE FEE, not how much the attorney can save the client.  This model of charging a percentage of what is saved works well when it is a few thousand dollars, as is often done with tax assessors.  However, with a home which is easily worth hundreds of thousands of dollars, taking a 40% cut of whatever is saved (which can often be hundreds of thousands of dollars) would constitute an excessive fee.

On top of that, there are a number of ethical and legal issues with making such a transaction which would place the financial interests of the attorney and the client to be adverse to one another.  This raises ethical issues which will not be covered in this issue.

In summary, before agreeing to such a “contingency fee” security interest deal, ask yourself whether the amount of money you will save (and that the attorney will consequently earn) would constitute a REASONABLE FEE for the services rendered.

Do judges think an additional form will stop banks from robosigning?

PLEASE NOTE: OUR FIRM IS *NO LONGER* ACCEPTING NEW CLIENTS FOR THIS AREA OF LAW.  PLEASE CONTACT THE TEXAS BAR FOR AN ATTORNEY REFERRAL.  IF YOU ARE AN ATTORNEY LOOKING TO TAKE ON FORECLOSURE CLIENTS, PLEASE CONTACT US.

According to a Reuters article printed today entitled, “New York Courts Impose New Foreclosure Rule“, courts are now requiring attorneys representing banks and lenders to sign an affidavit stating that they took reasonable steps to verify the contents of foreclosure documents they sign.  This is their attempt to stop the too-common practice of “robosigning,” or signing and submitting documents to the courts without reading them or verifying their truthfulness.

It is a surprise attorneys do not do this in the first place.  I would say it is malpractice (and certainly an ethical violation) to submit paperwork that can deprive homeowners of their homes without first making sure that the contents of the documents are accurate.  This is what I call “lazy lawyering,” and it has caused so much of the mess many of our firm‘s potential clients and homeowners facing foreclosure have to deal with every day.

This problem (in my humble opinion) is the tip of the iceberg.  The issue is not that attorneys are blindly submitting often false and inaccurate information.  The problem is that there is an air of irresponsibility and a lack of ethics among the banks, the lenders, and the loan servicers where it is “chic” to break rules and to forge documents just to keep their “foreclosure machine” running smoothly without kinks.

What upsets me is that it is the homeowner that is hurt because the average joe and jane homeowner likely do not know how to tell the difference between falsified signatures and real ones, and even if they did, the documents that flow their way are so complicated that they really need an attorney just to understand what is going on.

Things should not be so complicated.

Also, if the New York courts think that forcing attorneys to sign a document saying that they looked at the documents they submitted will not stop them from robosigning those documents as well.  What is really required is some TEETH, as in SANCTIONS for both the attorneys AND the underlying banks, lenders, and loan servicers.  These sanctions need to be so steep that it will give these parties pause before submitting one more junk, forged, or inaccurate and unverified foreclosure document.

Additionally, instead of news articles and governments getting involved with new “rules” [which ARE already on the books, just not enforced], here the New York Office of Attorney Ethics (and each state’s attorney discipline board) should be involved in stopping attorneys each time it comes to their attention that a particular attorney or firm is involved in submitting documents without verifying their truthfulness.

An attorney should not be the puppet hand of a bank.  Just as we have ethics that we are bound to follow, they too have ethics that they need to follow.  The solution is not more paperwork, but simple ENFORCEMENT of the rules already in place.

Welcome to the Cashman Foreclosure Defense Blawg

PLEASE NOTE: OUR FIRM IS *NO LONGER* ACCEPTING NEW CLIENTS FOR THIS AREA OF LAW.  PLEASE CONTACT THE TEXAS BAR FOR AN ATTORNEY REFERRAL.  IF YOU ARE AN ATTORNEY LOOKING TO TAKE ON FORECLOSURE CLIENTS, PLEASE CONTACT US.

Welcome to the Texas Foreclosure Defense Blawg.

The contents of this blog will be posted on behalf of Cashman Foreclosure Defense, which is a litigation branch of the Cashman Law Firm, PLLC. The law firm focuses on protecting the homeowner from creditors and lending institutions who wish to enforce their foreclosure remedies against homeowner’s properties. The Texas Foreclosure Defense Blawg will create articles helpful to the homeowner to protect his rights against lending institutions.

One of the benefits of living in Texas is that the laws are written to protect the homeowner; many rights are even built into the Texas Constitution. Many homeowners are unaware of these rights, and thus they lay down and passively wait to be ejected from their homes.

As you will learn by reading the pages in the foreclosure section of the Cashman Law Firm and this Texas Foreclosure Defense Blawg, navigating a Texas foreclosure from the home owner’s point of view is quite complex. The Texas foreclosure process is very simple from a bird’s eye view, but each step of the foreclosure process is saturated with areas in which the homeowner will need to tread with caution. There is the notice of default which follows a certain process, an acceleration of the mortgage debt, a notice of foreclosure which must be done properly, the foreclosure sale itself which is laden with trips and traps, and the deficiency judgment after the foreclosure sale. If one is not careful, even losing one’s home to foreclosure can cost tens of thousands of dollars.

Having an attorney by the homeowner’s side at each step of the Texas foreclosure process can mean the difference for him between losing his home next month, losing his home in a few years, or possibly not losing his home at all.

Texas also provides homeowners with protections voiding a mortgage document if in its formation it violated certain statutes, e.g., charging more than the statutory amount closing costs. There are also provisions for protecting the Texas Homestead, for dealing with tax liens, and there are different rules which benefit the homeowner when the loan is a Refinance Loan (Refi) or a Home Equity Line of Credit (HELOC). Without an attorney, these issues may fall by the wayside and cost the homeowner his home, his savings, his business, and may force him to declare bankruptcy.

In the coming weeks and months, we will post new articles that will help a homeowner get apprised of the foreclosure system, what is happening in Texas with regard to homeowners attempting to save their home from foreclosure, and how to most effectively approach the banks in protecting one’s rights.