How to Pay Your Foreclosure Lawyer

The collapse of the housing bubble and consequent explosion in foreclosures has coincided with another interesting trend: a surge in the number of borrowers fighting foreclosure in court. However, this presents an obvious contradiction: if borrowers can’t afford to pay their lender, how can they possible afford to hire a foreclosure attorney?!

According to legal analysts (and even lawyers themselves), fighting foreclosure was considered taboo only a few years ago. “Until recently, foreclosure defense would have been considered the lowest of the low — below the divorce guys, below ambulance chasers. The idea was inconceivable that you might have legitimate defenses when your client did not pay the bank that had lent them a sum of money.” This started to change a couple years ago, and received a big boost when allegations of lender dishonesty and outright fraud surfaced recently.

Foreclosure attorneys (the honest ones, at least) are quick to tell you that only a small minority of borrowers have legitimate cases against their lenders. In short, the majority of borrowers are being foreclosed upon because they stopped paying their mortgages. In these cases, lenders might be guilty of sloppy paperwork, but this is not grounds for a lawsuit. Unfortunately, it looks like the foreclosure scandal has brought many opportunists out of the woodwork. Having heard the story of the maverick New York judge that canceled a 0,000 mortgage, many borrowers are now hoping to achieve a similar outcome.

Such an attitude is unrealistic, if not dishonest and unfair. While I’m not here to preach, bear in mind that this kind of result is extremely rare. Unless the foreclosing lender engaged in fraud and/or cannot prove that it owns your mortgage, your best hope is to achieve a loan modification. Still, if you are determined to stay in your home and your lender has rebuffed your requests to make your mortgage more affordable, suing him might be your only remaining option.

So how should you pay your foreclosure attorney? Except in extenuating circumstances, all attorneys will require that you pay a monthly retainer, perhaps 0 or so. This you have no choice but to pay out of pocket. If your case has strong merits, your attorney might allow to pay contingent on receiving a positive outcome. So-called contingency fees have long been common in other kinds of lawsuits.

However, foreclosure judgments are special, because they don’t usually involve any exchange of cash. The lender might be required to pay the borrower’s legal fees, but otherwise will merely reduce or eliminate the borrower’s mortgage debt. Some foreclosure attorneys have circumvented this problem by placing a lien on the borrower’s property in the form of a second mortgage, in the event of victory. In this way, the borrower doesn’t have to pay the attorney in cash, and may not have to pay (much) at all unless the court rules in his favor. On the other hand, the actual reduction in mortgage debt is now less than expected, and the borrower now has two obligations instead of one.