Predictions that 2010 will bring one to two million more foreclosures are gloomy news for most homeowners and housing professionals.
But to a small group of legal professionals who have figured out how to made foreclosures their pot of gold, the Foreclosure Era continues to be a time of prosperity and profit.
Over the past four years a handful of law firms that have thrived by servicing a lion's share of the nation's foreclosure procedures. They conduct the legal research, file the paperwork, issue the default notices, staff the hearings and take possession of the properties at the conclusion of the process. Known as "foreclosure mills," these companies have turned the job into a factory-like process, with standard procedures that paralegals and clerical staff can undertake quickly and low costs that allow them to underbid traditional law firms and dominate the business. They are often paid by lenders on volume, as little as $1,000 to $1200 a case.
In Tampa, mortgage servicers have been filing about 2,000 initial foreclosure documents every month in Hillsborough County Circuit Court, according to the Tampa Tribune. To handle the overwhelming caseload, an army of lawyers, paralegals and clerks at big foreclosure law firms have streamlined the art of separating homeowners from their homes. One firm, the Florida Default Law Group, processes at least 300 new foreclosure suits a month in Hillsborough County. Along with Florida Default, other big firms dominating the foreclosure business are the law offices of David J. Stern in Plantation, the law offices of Marshall C. Watson in Fort Lauderdale and Shapiro & Fishman in Boca Raton.
To handle the workload, foreclosure mills have developed a common model: use lower-paid paralegals and support staff for much of the routine legwork, and hire young lawyers to sign off on the lawsuits and handle complications.
Generally, there were six to 10 paralegals and support staff for every lawyer, in one firm. One group handled the title documents, another group prepared the foreclosure lawsuit, another was responsible for the delivery of legal documents to the affected parties and so on, he said.
Helping the foreclosure mills make a profit is the law itself. "In a mortgage foreclosure proceeding, when a default judgment has been entered against the mortgagor and the note or mortgage provides for the award of reasonable attorney's fees, it is not necessary for the court to hold a hearing or adjudge the requested attorney's fees to be reasonable if the fees do not exceed 3 percent of the principal amount owed at the time of filing the complaint," says Florida state law. By keeping fees low, foreclosure mills in Florida can avoid an expensive hearing—as long as the homeowners don't object.
Incredibly, few do. Many, if not most, foreclosure cases go to summary judgment uncontested. Many homeowners in foreclosure believe that legal representation is unaffordable. Unable to make monthly mortgage payments, they conclude that they have no means to hire a lawyer.