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Foreclosure network on way out

By Jenifer B. McKim
Globe Staff / October 22, 2011

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As concerns about fraudulent and sloppy procedures among foreclosure law firms persist, federal regulators are directing Fannie Mae and Freddie Mac to disband a special network of firms that the mortgage giants have depended on to carry out property seizures in Massachusetts and other states.

The Federal Housing Finance Agency, which regulates the two quasi-governmental companies, said this week that it told Fannie Mae and Freddie Mac to end their reliance on designated law firms to do most of their foreclosure work in each state. Instead, mortgage loan servicers will be free to choose their own law firms based on “minimum, uniform criteria’’ created during an undetermined transition period.

Fannie Mae established its attorney network in 2008, limiting servicers to using certain firms for foreclosures, bankruptcies, and evictions. Freddie Mac provides financial incentives for lenders to use its list of firms in 24 states. Because of the two companies’ clout, the setup has created virtual monopolies for chosen law firms in many states.

The housing finance agency said it believedthe changes will “lead to greater transparency and benefit delinquent borrowers who become subject to the foreclosure process.’’

The agency’s decision comes a month after a federal audit found the Federal Housing Finance Agency could improve its oversight of foreclosure firms. The audit was prompted by news reports of inappropriate property-seizure practices in some states, including allegations of “robo-signing’’ and the filing of false documents. The investigation also found that the two mortgage companies did not share information when they took certain firms off their preferred lists because of foreclosure-related problems.

Five Massachusetts law firms are on Fannie Mae’s list, including Harmon Law Offices, based in Newton. It is currently under investigation by the state attorney general’s office for alleged foreclosure and eviction-related abuses. The other law firms include Doonan, Graves & Longori LLC in Beverly; Partridge, Snow & Hahn LLP in New Bedford; Korde & Associates PC in Chelmsford; and Orlans Moran PLLC in Boston.

Harmon officials declined to comment for this story. Representatives from Doonan, Graves & Longoria, Korde & Associates, and Orlans Moran couldn’t be reached for comment. Patricia Antonelli, a lawyer with Partridge, Snow & Hahn, said the change is not significant because lenders will still choose to work with her firm. “We don’t have any fear’’ of losing business once the list is eliminated, Antonelli said.

The Federal Housing Finance Agency’s move to end the law firm network was met with skepticism by some housing advocates who have long complained about lender abuses related to foreclosures. Geoffry Walsh, a staff lawyer with the Boston-based National Consumer Law Center, said he is worried that the decision is simply an effort by federal officials to distance themselves from the responsibility of regulating law firms.

“It is replacing an ineffective supervision of attorneys to no system at all,’’ Walsh said. “The concern I would have is that it sounds like it will be delegating the enforcement of the standards to the servicers themselves. It’s a recipe for disaster.’’

Gary Klein, a Boston lawyer who defends homeowners fighting foreclosure, said it is unclear whether the changes will be an improvement. “There have been enough problems at this point it is time for a change in the system,’’ he said.

Jenifer B. McKim can be reached at jmckim@globe.com.