“At the risk of losing their homes if they didn’t, scores of Colorado homeowners struggling to avoid foreclosure in the past year were each forced to pay hundreds of dollars in lawyer charges for phantom court cases against them, a Denver Post investigation has found.” In 126 of the episodes, the paper reports, no foreclosure lawsuit was actually filed. Related reporting on allegations against Colorado foreclosure law firms here, here, etc.

Along with the Colorado attorney general, various other law enforcers both state and federal are scrutinizing the billing practices of creditors’ law firms looking for evidence that they’ve been evading the fee and cost reimbursement limits for foreclosures that Fannie Mae, Freddie Mac and FHA prescribe on loans they own, guarantee or insure. [Paul Jackson, Housing Wire via Funnell]

Here’s why: it turns out that many of the major law firms responsible for managing foreclosures for the GSEs also have a controlling interest in the ancillary service firms that generate the variable fees that appear as “costs” on the lawyer’s bill. Many law firms either outright own, or their partners have a significant interest in, the company that is posting and publishing notices; or they may own or have an interest in the company that manages process of service, as well.

Such arrangements are not illegal, but could land the firms and mortgage servicers in hot water if it develops that they have connived at fee padding by the ancillary firms. (& welcome Above the Law readers). More: Heather Draper, Denver Business Journal (and thanks for quote).

Filed under: attorneys' fees, Colorado, mortgages