Paying The Foreclosure Lawyer With A Second Mortgage

Ever the hotbed of innovation, a new innovation in foreclosure defense is emerging in Florida. Until now, the big question for foreclosure lawyers is “how do we get paid?” If their client can’t afford to pay the bank, how are they going to pay for legal services? One firm has figured out a way. After the original mortgage is nullified or reduced, the client takes out a new mortgage for 40% of the savings, and pays it to the lawyer.

Taking On a Second Mortgage to Pay the Foreclosure Lawyer [NYT]

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  1. Torgonius wants an edit button says:

    Hey, if the government can borrow money to pay off debt, why can’t we?

    • ChuckECheese says:

      Correction: The gov’t doesn’t borrow money, it prints money. Which it then stuffs into empty cargo containers to be shipped back to China.

      • AnthonyC says:

        No, actually, the government issues debt all the time. What do you think treasury notes and government savings bonds are? A promise from the government to pay you in the future (with interst) in exchange for money now. There are government officials whose job is to oversee the public debt; they run the auctions where these bonds are sold.

        • ChuckECheese says:

          Serious Econ man is being srius. Bud, can’t you tell my post is a joke? A gross oversimplification that still gets the main points across? (We’re increasing the amount of $$ in circulation; China’s buying our debt; we import cargo containers full of Chinese-made goods.)

  2. Blueskylaw says:

    “After the original mortgage is nullified or reduced, the client takes out a new mortgage for 40% of the savings, and pays it to the lawyer.”

    These lawyers seem to be worse than hedge fund managers who only got 2% of money invested and 20% of the profits.

  3. Loias supports harsher punishments against corporations says:

    I can see this working really well…. any really poorly.

  4. mythago says:

    I know this is Florida but all kinds of ethical alarms are going off here.

  5. AllanG54 says:

    Does ANYBODY in government in Florida give a shit what goes on there?

  6. kriswone says:

    The “bank bailout” should have been the “people bailout”; the money should have paid off the mortgages so people can stay in their homes, and with the money they saved they could have restored the economy faster. But, instead we paid the banks what they lost, and allowed them to keep the house they foreclosed on, which is a profit from every angle.

    • cynical_reincarnation says:

      If derp-riddled people were paid off of their mortgages, and I am still renting so I can save up for a house, and I got screwed like that for being responsible, i would probably actually explode with rage.

      I dont want to see someone kicked out of their home as much as anyone else, but you also have to not be stupid.

  7. ajaxd says:

    Well, this implies that somebody is willing to give a second mortgage to somebody who just went through debt reduction process. This is certainly will be on the credit report. I just don’t see how any sane loan manager would approve of such a mortgage.

    • squablow says:

      The people aren’t getting a second mortgage from a bank to pay the lawyer, the lawyers themselves are holding the second mortgage and the payments from the homeowners go to them. The lawyers are getting a lien against the property for an amount and arranging payments on it, that’s how I’m reading this.

      • mythago says:

        WHAT NO THEY DIDN’T.

        I can’t believe the Florida Bar is not all over this like tigers on an antelope. Wait, I can.

  8. squablow says:

    So the lawyers take and hold the second mortgage against the house that their clients couldn’t pay for, and technically, they have the right to forclose on the very same house should the client not be able to pay for the second mortgage.

    Ethics aside, that has to be a conflict of interest. According to the article, the lawyers themselves are holding the second mortgage and taking payments on it. So they convince the bank to reduce the loan and/or stop the forclosure, but then add debt and payments onto the loan to pay their own bills?

    And how does this help the homeowner? They couldn’t pay before, the lawyer manages to stop the forclosure, but in the end the homeowner has more debt on the house than they started with. Am I missing something?

    • jessjj347 says:

      Is the “homeowner” then just a renter at that point?

    • ndonahue says:

      There isn’t a conflict of interest. In fact, it could be argued that the lawyers now have a vested interest in seeing the valuation of the house correctly marked to market. Further, since they’d get paid after the bank in the event of a future foreclosure, they have an interest in seeing their mortgage plus the bank mortgage total nothing more than the fair market value of the house.

      Let’s say you bought a house for $1MM a couple of years ago and took out a 700K loan. So you’re paying somewhere between $3800 and $4000 per month in principal and interest. Now today, the house is actually only worth 500K. If everyone still thought the house was worth 1MM, you’d “own” about 35% of the house, and the bank would have 65%. The bank says “we don’t care about the house value, you still owe us 650K”, but the lawyer helps you settle with the bank so that you still own 35% of the new value — so that the bank rewrites your loan for 310K. Ticklin would then issue you a second mortgage for 40% of the savings (136K). The result is that you have a 450K mortgage on a house that’s really worth 500K, and your payments drop to $2500 per month (including the legal fees).

      In theory this is all good. the ‘ethical question’ we need to answer is whether the contingency fee structure is appropriate rather than billing hourly rates or fixed fees. This work is mostly filing and negotiating over the phone. The one argument in favor of contingency is that it keeps the lawyers focused on properties and owners where the owners had some claim to a sizable equity share. If you put 3% down on a Miami condo that’s now worth 10% of the original price, there is no way the lawyer can help you and have any hope of his second mortgage coming in below the new fair market value.

      It’s an interesting idea — I just think the contingency pricing has the feel of ambulance chasing…

  9. Snowblind says:

    Why not?

    Their clients are provably stupid, might as well soak them.

  10. ndonahue says:

    There are two ideas here — one great, one really bad

    The great idea is the mortgage for fees. It allows the homeowner to pay over time and it gives the lawyers a bit higher positioning in the debt stack if the client files for bankruptcy.

    The really bad idea is that Ticklin is looking for contingency fees. He, like all attorneys, should assess each client on a case-by-case basis and decide if the chance of winning is worth the risk. He can bill hourly or fixed fee and still roll those fees into a second mortgage.

    Contingency fees are great when the client is getting a payout and the lawyers take a cut of the payout — think getting $1mm for a botched boob job (the insurance company paid $1.5MM, but the lawyers took 1/3rd) In this case, the big payout is just a paper reduction in debt, with no actual money changing hands. There will be a lot more resistance from smart clients, and it’s going to look like he’s preying on the clients who aren’t smart enough to question that payment scheme.

    Once again — caveat emptor.

    • mythago says:

      I agree with all of your post except the last sentence. It’s really tiresome that “caveat emptor” has come to be translated as “if somebody preys on your trust or ignorance and cons you, screw you, loser.”

      This isn’t a simple business transaction, but representation by an attorney. I’d like to think we should be held to a higher standard there than what would apply to a door-to-door salesperson.

  11. Oranges w/ Cheese says:

    Next thing you know, we’ll have the lawyer bubble, with all these overpriced and over-mortgaged lawyers. What will we do when this bubble bursts?

    There will be too many lawyers on the market – they’ll be all over the streets in differing stages of abandon.

    Not looking forward to *that*.

  12. golddog says:

    I’m guessing Florida isn’t one of the 13 or so states where mortgage holders can’t pursue you to the ends of the Earth if you walk away from your house? Otherwise why would the lawyers be any better equipped to deal with the walkaways than the banks? Didn’t see that in the article. Although I *did* see the one lawyer w/500 clients paying $500 a month…not too shabby.

  13. Me - now with more humidity says:

    Bankruptcy attorneys require their fees be paid up front. Period. Some, however, will start handling calls from creditors with a deposit. Adding mortgage debt — in a 2nd or 3rd position, no less — to an unpayable debt doesn’t make sense.

  14. BuddhaLite says:

    If you’re paying that much for a lawyer to handle your foreclosure it’s pretty hard core. I paid my lawyer $1500 to handle mine and that’s just for him to file motions against their poorly prepared documents. For a $10k retainer he would do forensic analysis and try to get the ownership turned over by proving the bank didn’t own the property.

  15. Intheknow says:

    Leave it to the professionals to figure out a way to get paid for “service” even if you can’t afford to feed your family or pay your bills – kind of like the dentists who won’t help you unless you take out a healthcare credit card with 12% interest or can write a check for $2000 for dental care.

  16. Dukebruno says:

    I read this article in the Sunday Times while in a public place and could hardly keep from bursting out laughing as I kept thinking about the attorney’s name: Ticktin…as in Tick-Tin.

    Tick = blood sucker. Oh, the irony.