The New York Times has posted an article about the steep price some homeowners are paying to avoid foreclosure. Some homeowners in Florida have taken out a second mortgage on their home to pay for their foreclosure defense lawyer. The new second mortgage doesn’t take effect until after the foreclosure has been dismissed. This is a controversial idea among defense lawyers, some think it’s “creepy” and “crass” and is currently only being done in Florida.
This option also raises an interesting question: How exactly does the lawyer get paid?
David Streitfeld , author of the article, says that since there have been so many problems with banks improperly processing foreclosures and foreclosing on the wrong homes, there has been a surge of homeowners “flocking to lawyers” to see if they can fight the bank. The problem with this is that if a homeowner is in foreclosure it generally means they’re broke and aren’t able to pay legal fees.
“We thought, ‘Why don’t we use a bit of ingenuity to find an affordable way to represent them?’ ” said Peter Ticktin of the Ticktin Law Group in Deerfield Beach, Fla. “It’s a new model, a new paradigm.”
Foreclosure defense is a new legal specialty whose strategies and techniques are still being worked out. Mr. Ticktin, who has some 3,000 foreclosure clients, says his plan to collect fees by taking another mortgage on his clients’ properties has already been copied by other firms.
The “Ticktin mortgages” are very similar to the loans the homeowner originally obtained from companies like GMAC, Countrywide and others. Each of the second mortgages is a contractual agreement with the law firm, labeled as a mortgage, and a certain amount is paid every month with the house being used as collateral. The defense lawyers typically receive a few hundred dollars in payment each month from each client.
If the defense lawyer can get the homeowner’s mortgage modified or nullified due to the bank’s errors then the homeowner must take out the second mortgage for 40% of the savings.
For instance, if the mortgage was $500,000 and is reduced by the bank to $200,000, the client would owe Ticktin 40 percent of $300,000, or $120,000, minus any legal fees paid by the losing bank as well as any monthly sums paid to the law firm.
Florida homeowners are drawn to this option because it lets them avoid foreclosure, stay in their home, and save a good chunk of money. However, as good as it may sound, there are still some potential problems such as whether or not a homeowner would be able to make the payments over an extended period of time and what the defense lawyers would do about it.
“We would never enforce the mortgage and foreclose,” he said. “We’re not in that end of the game. We’re not money lenders. We’re charging a small amount of interest” – four percent – “just to make it legal.”
If you have further questions or concerns, feel free to contact us through our website or by calling 205-879-2447. You may also obtain a copy of our free book on stopping wrongful foreclosures and the problems of hidden fees by emailing us.
You can join our Facebook Fan Page – Alabama Consumer Protection Attorneys where we share useful information about the same types of issues that we cover in this blog.