- The Washington Times - Thursday, February 21, 2008

The nation’s mortgage crisis is one of the best things that ever happened to law firms. Many of them are lawyering up as the flood of foreclosures rises to record levels.

“Attorneys who work in this specialized area of legal representation are very busy, as one might expect,” said Alberta E. Hultman, executive director of the U.S. Foreclosure Network, a Tustin, Calif., association of foreclosure lawyers and trustee companies.

RDManley Inc., a Palos Heights, Ill., consulting company that helps lawyers set up law practices, said one of its firms started handling foreclosure cases in May 2006. Its business is thriving now.

“They spend approximately $10,000 weekly in advertising to generate 45 new cases, or $157,000 gross weekly,” RDManley says on its Web site, www.foreclosurelawinfo.com.

Homeowners at risk of losing their homes often wind up spending between $2,000 and $3,900 in attorneys’ fees to file bankruptcy petitions to halt foreclosure.

“Generally, it stops everything for approximately 30 to 60 days,” said Al Wilson, a Washington lawyer who specializes in consumer law.

A court then considers a homeowner’s financial condition before deciding whether a lender can foreclose on the property.

Many of the homeowners who have run into trouble bought homes with adjustable-rate mortgages featuring low introductory interest rates that reset to much higher rates they can’t afford to pay.

From the time homeowners are notified they are in default on their mortgage, they have about four months in most states to avoid having their homes sold at auction, according to RealtyTrac, an Irvine, Calif., foreclosure data firm. Homes can legally be auctioned after default in as little as 45 days in Maryland and Virginia and 47 days in the District.

Last year, 2.2 million foreclosure actions were filed in the nation’s courts against property owners — a 75 percent increase over 2006, RealtyTrac reported.

“Loans went into foreclosure at a faster rate in the third quarter of 2007 than any other time in the history of our survey,” said John Mecham, spokesman for the Mortgage Bankers Association, a trade group for mortgage lenders that has tracked foreclosures since 1972.

This year is on track to beat the 2007 foreclosure rate with about 200,000 filings per month, according to RealtyTrac, which expects foreclosure filings to peak this May or June.

“We are swamped with struggling homeowners fearful of losing their homes,” said Gail Cunningham, spokesman for the National Consumer Credit Counseling Foundation, a Silver Spring-based association that represents credit counselors nationwide.

In the Washington area, law firms aren’t just representing homeowners. They are representing the mortgage companies and banks that are getting sued by angry homeowners and investors.

The number of lawsuits filed nationwide against lenders by borrowers and investors nearly doubled, from 97 in the first half of 2007 to 181 in the second half, according to Navigant Consulting, a Chicago financial and legal consulting firm.

Fortune 1,000 companies were sued in nearly 60 percent of those cases.

“This appears to be just the beginning,” said Jeff Nielsen, Navigant’s managing director. “We are already observing a steady acceleration of continuing litigation activity in 2008.”

Some of the companies getting sued are facing regulatory action by government agencies such as the U.S. Office of Thrift Supervision and Office of Controller of the Currency as the subprime mortgage crisis creates suspicions about their business practices.

“Our clients have been calling on us to assist them in working through the crisis since July 2007,” said Steven W. Stone, managing partner for the law firm Morgan, Lewis & Bockius LLP. The firm’s clients affected by the mortgage crisis include securities firms, hedge funds, mortgage companies and investors.

“Despite the credit crunch, today Morgan Lewis finds itself actually seeking more experienced business associates as well as litigation associates in all of our major offices,” Mr. Stone said.

The firm is drawing attorneys from several of its specialty fields — including its real-estate, litigation and tax practices — to handle cases resulting from the subprime-mortgage collapse.

Financial institutions also seek help from Washington law firm Howrey LLP.

“The subprime-mortgage collapse has not had any negative impact on Howrey,” said Robert P. Jacobs, a Howrey partner. “It has, however, provided Howrey with the opportunity to provide insurance-recovery advice and counsel to the various entities that are facing liability from regulators or from civil actions.”

Other legal action involving the mortgage crisis requires attorneys who handle criminal cases.

The FBI has reported an increase in mortgage scams, such as “phantom” credit counselors who promise to help homeowners avoid foreclosure for a fee or others who say they will pay fast cash to consumers who sign deeds over to them.

The FBI and the Securities and Exchange Commission assembled a team of about 100 lawyers to investigate such cases.

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