Taking On a Second Mortgage to Pay the Foreclosure Lawyer

The New York Times has an article on how some attorneys get paid in foreclosure defense cases.

For some Florida residents, the price of getting out of foreclosure will include taking on a second mortgage — payable this time to their lawyers.

The new mortgage, which takes effect only if the foreclosure is dismissed and the homeowner’s debt to the bank is reduced, is controversial among defense lawyers, some of whom call it “creepy” and “crass.” Yet even they acknowledge it offers a solution to a vexing question: How do they get paid? …

“Any time someone calls me and says, ‘I want to keep the house and get my mortgage gone,’ I say, ‘That’s not realistic or fair,’ ” said Margery E. Golant of Boca Raton, a former executive at the lender Ocwen.

She takes foreclosure clients who can afford to pay as they go; there are a few. “I don’t want to be my client’s creditor,” she said. “I want to be on their side.”

In Max’s law practice, he gets paid by the banks when he finds wrongdoing by them and doesn’t take fees from the client for foreclosure defense.  I had the opportunity to follow up with Bankruptcy Boot Camp Graduate Margery Golant about this subject.

Bob: How do you structure your foreclosure defense fees with clients?

Margery: We have different fee structures and sometimes combinations – It depends greatly on the details and the client’s goals.  Many of the attorneys who style themselves as “foreclosure defense attorneys” use a cookie-cutter approach which may serve to delay the end of the case, but typically it is inevitable that ultimately the borrower will lose the house and the case to summary judgment, with no concessions.  That is not what we do; we always start by asking the client what his/her/their objective is and what the current situation is, and we see whether we can put a strategy together which has as its goal accomplishing their objective in the context of what has been going on.  And, if their goal is unrealistic, we tell them so.  So, within the range of what is possible given the facts and issues relating to any particular client’s case  The various possibilities are:

  1. a straight hourly fee with an initial retainer, like any other litigation;
  2. a monthly retainer/fee, where the monthly amount is agreed to ahead of time between me and the client, depending on the client’s situation and goals, and my evaluation of the difficulties / realities of accomplishing that.  In doing that I take into account what the client wants what ammunition appears to exist (TILA, counterclaims, etc.) and how hard we are going to have to work to have a shot at that.  Additional variables in that equation are who the judge is, and whether he/she has an open mind or has only the goal of “reducing the caseload”; who opposing counsel is (for example, if it is the David Stern firm (which presumably will not continue into the future as I believe they are likely to stop getting any referrals), they won’t even respond to our communications.  Certain of the “tall building attorneys”, who are billing their deep-pocket clients large hourly fees, pointedly churn the file, creating a great deal of additional work for us.  Some use overly aggressive and questionable tactics.  Some actually seem to want to work out those situations which appear to be capable of an agreed-upon resolution.
  3. a contingent fee.  This is at times a possibility, where there has clearly been a wrongful foreclosure or some other clear example of a wrong done to a borrower that is likely to result in significant damages being payable.
  4. a shifted fee.  Most of the time, such a situation is used as an adjunct to either 1 or 2 above.  In the foreclosure court context, shifted fees are usually relatively limited in amount, and apply to specific issues.  However, there have been some recent examples where the conduct by the plaintiff side was so egregious and the win by us was so unequivocal that meaningful shifted fees were ordered.

Under all of the above scenarios, except #3, the client is free to stop litigating any time he/she wants to, without obligation to us, other than that that is owed based on whatever agreement we made.  I am sure that cannot be the case where they give their attorney a second mortgage.

Bob: Are there any other comments that you would like to add that the Times didn’t include in the article?

Margery: We often put together a strategy that involves elements of foreclosure defense litigation and elements of bankruptcy.  So, our strategies are customized to the facts and needs of the client.  Often this entails consideration of stripping a junior lien at some point in a Chapter 13, and/or the filing of a Chapter 7 case.  Depending on the details, a forced modification of the first mortgage and a lien strip of a second mortgage and/or Chapter 7 discharge can bring the client meaningful relief.  It seems to me to be a completely hopeless conflict of interest for an attorney who is charged with developing the strategy to best assist the client to have an interest in the client’s real estate; this  makes the attorney a creditor and a junior lienholder, whose lien is subject to being stripped.  Therefore, the foreclosure defense attorney is conflicted vis a vis either a referral to bankruptcy or advice concerning the potential benefit of bankruptcy in a foreclosure defense scenario.

The entire point of what we do is to see how we can help to deliver our clients from a bad-news mortgage situation.  I cannot imagine how we could sleep well and feel that we were acting in the client’s interest if we required them to become obligated to us for a mortgage on the very home they are trying to save.