New mortgage pays lawyer’s fees
Payment method offered to clients facing foreclosure
NEW YORK — For some Florida residents, the price of getting out of foreclosure will include taking on a second mortgage — payable 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 lawyers. They acknowledge, though, that it offers a solution to a vexing question: How do they get paid?
After recent revelations that banks were sloppy in processing many foreclosures and in some cases lack standing to seize a house, potential clients seeking to challenge their lenders are flocking to lawyers. While these distressed homeowners might have a case, they generally lack the resources 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.
Foreclosure defense is a new legal specialty whose strategies and techniques are still being worked out. Ticktin, who has about 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 resemble the loans that the clients originally got from Countrywide, GMAC, and other lenders. Each will be a contractual obligation with the law firm, labeled as a mortgage and structured like one, too, with the client paying a certain sum every month and using the house as collateral.
Unconventional payment structures are becoming popular in the foreclosure hotbed of Florida. “We can put in $100,000 of our time but over the length of a case be paid only $6,000 in monthly fees,’’ said Thomas E. Ice of Ice Legal in Royal Palm Beach.
Many Florida foreclosure lawyers typically receive a few hundred dollars a month from each client. To supplement that, they seek legal fees from the banks they successfully challenge as well as contingency fees.
Contingency fees are standard in cases in which the client has little money but there is the possibility of a large payout. A slip and fall on a store’s wet floor or a medical malpractice claim are classic contingency cases. If the plaintiff wins, insurance companies foot the bill.
In foreclosure cases, however, the client pays the fee. While such an approach is sometimes used in commercial litigation, this is a first for consumer cases, said Lester Brickman, a professor at Cardozo Law School in New York. “For a lawyer to supplement or replace the banks as a long-term mortgage creditor of homeowners leaves me a little queasy,’’ said Brickman.
If the Ticktin lawyers cause the original mortgage to be nullified or reduced because of the bank’s misdeeds, the client must take out a new mortgage for 40 percent of the savings.
For instance, if the mortgage was $500,000 and is reduced to $200,000, the client would owe Ticktin 40 percent of $300,000, or $120,000, minus any legal fees paid by the bank and any monthly sums paid to the law firm.
Ticktin conceded there were potential problems with this “pay later’’ plan, starting with the uncertainty over whether the clients could and would pay the debt over a period of many years and what Ticktin’s response would be if they did not.
So far, Ticktin said, he has mortgages on the homes of five clients. None were available for comment.