In fact, it costs less than you fear. Consumer lawyers take a few cases at no charge. More likely, you'll pay fees -- upfront or on a monthly plan -- tied to the lawyer's estimate of the time it will take and your ability to pay. If they win your case, they'll collect from the financial institution, too.
Before readers attack the "greedy lawyers" for defending "deadbeat" clients who couldn't repay their mortgage loans, let me quote from a groundbreaking decision reached earlier this month by the Massachusetts Supreme Court. The court reversed two foreclosures because the banks -- Wells Fargo and U.S. Bancorp, acting as trustees for investors -- couldn't prove that they actually owned the mortgages. Judge Robert J. Cordy excoriated them for their "utter carelessness." The fact that the borrowers owed the money was "not the point," he wrote. The right to deprive people of their property is a powerful one and banks have to prove they have the legal standing to do so.
American law cannot allow property seizures based on backdated, incomplete, or fraudulent documentation, no matter what the circumstances are. Otherwise, no one's home is safe. Courts enforce private property rights through the cases brought before them. In other words, lawyers.
The Massachusetts case began not with consumers, but with the banks themselves. They asked the courts to affirm that the foreclosures were valid so they could get title insurance. That pulled the borrowers -- Antonio Ibanez and Mark and Tammy LaRace -- into the fray. When the horrified courts looked at how the foreclosures had gone down, they said, "no way," and gave the former owners their property back.
Ibanez, a special ed teacher, bought the home for investment in 2005 and defaulted in 2007 on a $103,500 loan, according to the court papers. Even since, the house has been boarded up. Ibanez filed a Chapter 7 bankruptcy, so he now has title to the home and no obligation on the debt. The mortgage investors will take the loss. But litigation isn't over, Ibanez' attorney, Paul Collier, says. He expects the bank to appeal to the U.S. Supreme Court.
The LaRaces borrowed $103,200 to buy their home in 2005 and also defaulted in 2007. They had an offer on their home, but the servicer foreclosed anyway. (During the trial, the foreclosing law firm admitted that servicers are graded on how quickly they can liquidate a mortgage.)
The LaRaces have moved back into their long-unattended home, but first they had to clean up mold, fix plumbing, and make other repairs. They would gladly resume payments on the mortgage, their lawyer Glenn Russell says. But the trustee bank doesn't own the loan. The investors don't own it because the mortgage was never transferred properly. The original lender, Option One, no longer exists. So whom do they pay?
This important case opens the door to thousands of foreclosure do-overs in Massachusetts and might influence courts in other states. But there hasn't been a rush by lawyers to get involved, probably because the field is complex and not especially remunerative. No class actions have been certified, so the cases proceed one by one. The financial trail can be hard to track (the Massachusetts documents were unwound by mortgage-fraud specialist Marie McDonnell). The lawyer -- often, a sole practitioner -- is up against the awesome resources of major financial institutions.
Neither Ibanez nor the LaRaces were charged for their lawyer's services. Collier will file a claim for wrongful foreclosure and be paid from any settlement. Russell will do the same. Russell also thinks the LaRaces are owed something for the cost of repairing their home.
Very few cases start as pro bono, however. Lawyers who defend consumers have bills to pay, just as the banks' corporate attorneys do. If you want to fight an unfair foreclosure, you might be offered one of several arrangements:
- An upfront fee. "Many of my clients were formerly very successful individuals," Russell says. On average, the value of the homes of the people who contact him is "somewhat north of $500,000." He suggests a fee based on their means.
- Monthly payments. If you're not making monthly mortgage payments, some portion of that money could be applied to legal expenses. Collier says he puts the payments into escrow and retains them if he gets the house back (he says he always does, in predatory lending cases).
- Bankruptcy payment plans. The clients of North Carolina bankruptcy attorney Max Gardner are usually in a Chapter 13 monthly repayment plan. Each state sets the maximum attorney's fee, payable as part of the plan.
If you think you have a case, your toughest challenge isn't fees, it's finding a lawyer with the expertise to press your claim successfully, Gardner says. If you don't have a personal reference for a qualified lawyer, the best place to look is the website of the National Association of Consumer Advocates. Next best: the National Association of Consumer Bankruptcy Attorneys. In either case, ask if the lawyer has won other securitization, mortgage servicing, and foreclosure cases. "They have to know what documents to ask for," Gardner says. That's what wins.
More on MoneyWatch: