Are Foreclosure fees reasonable?

Tuesday, February 07, 2012

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Are Foreclosure fees reasonable?

Top News

Tuesday, 31 August 2010 21:48

By Elizabeth Martinez

Miami, FL- There are companies that are dedicated to manage foreclosure procedures for investors and banks. These companies handle different processes and charge fees for these services. For example, law firms that manage and process foreclosures charge a legal fee and court filing fee, among others.The question then becomes: How much money should it really cost to process a foreclosure?

In addition, the foreclosure process usually involves other associated fees, such as title searches, potential property insurance, homeowner’s association dues, property maintenance and repair, and much more.

What happens with most of these fees, is that they are ultimately added to the “past due” amounts tied to the delinquent borrower. Borrowers looking to catch up on their delinquent mortgage payments must also catch up on these additional fees.
Law firms that specialize on handling foreclosure filings do not charge hourly like most legal firms do. Instead, they are paid on a flat-fee basis, using pre-determined fee schedules.

The GSE’s, Fannie Mae and Freddie Mac largely determine who gets foreclosure work. Both Fannie and Freddie have a networks of law firms called “designated counsel” or "approved counsel" in states marked with significant foreclosure volume — and they either strongly suggest or require that any servicers managing a Fannie or Freddie loan in foreclosure refer any needed legal work to their approved legal counsel.

Furthermore, Fannie Mae and Freddie Mac have published allowable fee schedules for every imaginable legal filing and processes in a foreclosure. The majority of the foreclosure process has been reduced to a set of flat fees.

“For us, it doesn’t matter who the client is, even if it isn’t Fannie or Freddie,” said one attorney. “We know we’re only going to be able to claim whatever that flat fee schedule they set says we can claim, since other investors tend to employ whatever the GSE fee caps are.”

“The GSEs can force a servicer to use their designated counsel, especially if timeline performance in foreclosure management is out of some set boundary,” said one servicing executive at a large bank, who asked to remain anonymous. “It’s usually easiest to simply use their counsel on their loans, even if we don’t see that firm as best-in-class.”

This discussion for the validity of foreclosure fees has been going on for a long time for the law firms that specialize in creditor’s rights, default industry service providers, and various private equity interests, and especially for Fannie Mae and Freddie Mac.

This is a fight that many say will ultimately shape the way U.S. mortgages are dealt with for the next decade or so. It’s also a debate that promises to spill over into how loans are originated and priced.

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