With More Loan Defaults, 2 Conn. Firms Reap Millions
By MATTHEW KAUFFMAN And DAVE ALTIMARI | Courant Staff Writers
June 22, 2008
The foreclosure attorneys who crowd into Judge Samuel Freed's courtroom in Hartford each Monday typically come with only a file or two tucked under their arms as they line up for the orderly process of stripping away homeownership.
Not Gregory W. Staron, a young associate with the firm of Reiner, Reiner and Bendett in Farmington.
"Are there any other cases that are not with Reiner, Reiner that are ready?" a clerk calls out an hour into the docket.
With the small-time players out of the way, Staron steps up to a well-worn table and, with a thud, deposits a foot-high stack of files — targeting homeowners in Bloomfield, East Windsor, Wethersfield, Hartford, Manchester and elsewhere — that will consume the rest of the court day.
A similar drama plays out two floors below in Judge Robert Satter's courtroom, where a single foreclosure lawyer for Hunt Leibert Jacobson in Hartford is using three plastic crates to hold dozens of his cases, which will account for the vast majority of motions Satter will hear.
These are busy days in Connecticut's foreclosure courtrooms, and for no one more than the growing stable of lawyers at Hunt Leibert and Reiner, Reiner. A record 18,000 foreclosure suits were filed in Connecticut last year, and two out of every three were brought by lawyers from those two firms.
On their busiest day last year, Hunt Leibert and Reiner, Reiner filed suit against 108 property owners around the state.
Fueled in part by loose mortgage standards and high-interest loans, the number of foreclosure lawsuits in the state leaped by more than 30 percent in 2006, and grew even faster in 2007. And as the business has grown, so has the dominance of Hunt Leibert and Reiner, Reiner, which have doubled their share of the foreclosure cases in the past 10 years.
That growth has meant millions of dollars in new revenue for the firms, but has also brought criticism that they are overly aggressive, unnecessarily taking homes and rushing through foreclosures for bank clients concerned with speed above all else.
An analysis of cases closed in 2007 shows that foreclosure suits brought by Hunt Leibert and Reiner, Reiner moved through the courts at nearly twice the speed of suits brought by other firms and were nearly twice as likely to result in a judgment of foreclosure.
"I usually find that they process [foreclosure cases] to a judgment as quickly as they can," said Theodore Lubinsky, a Hartford lawyer familiar with both firms. "I think that they just do what they have to do. They're the lawyers. And their clients expect some results."
Both law offices also have run afoul of the attorney general's office, which continues to investigate complaints from homeowners who say they were mistreated by the firms.
Size And Speed
Every week in courtrooms around the state, a small army of lawyers with Hunt Leibert and Reiner, Reiner occupies the front lines of Connecticut's mortgage mess.
From 1998 to 2005, the state's courts saw an even stream of about 10,000 to 11,000 new foreclosures cases a year. But in 2006, the number jumped to more than 13,700; last year, new cases topped 18,000.
Of those 18,000 suits, nearly 8,000 came from Hunt Leibert and nearly 4,000 from Reiner, Reiner, making them the two most active law firms of any kind in the state last year. Their closest competitor in foreclosures filed about 500 suits last year.
The two dominate the foreclosure courts, in part, because they are the only Connecticut law firms approved as "designated counsel" by the main government-sponsored mortgage lenders and guarantors, known as Freddie Mac and Fannie Mae. Large lenders with mortgages backed by those agencies have a financial incentive to use designated law firms when foreclosing on loans, and some smaller lenders are required to use the designated firms.
The designation has been a boon to Hunt Leibert and Reiner, Reiner. From 2004 to 2007, the number of foreclosure cases filed by each firm more than doubled, while business for the other 1,200 firms that filed cases those years rose just 29 percent.
And as they grew busier, their cases moved faster. With home prices falling, banks began moving aggressively to foreclose on houses with delinquent mortgages; with little or no equity in the homes, every day meant lost interest the lenders might never recover.
As a result, banks closely track how quickly their law firms move cases forward, with benchmarks for each step of the process. Even with their huge caseloads, Hunt Leibert and Reiner, Reiner developed reputations for speed.
Among foreclosure lawsuits completed in 2007, a typical case brought by Reiner, Reiner went to judgment in about three months, while Hunt Leibert cases took a median of 4 1/2 months. Both are significantly faster than the median of 7 1/2 months for suits brought by all other firms.
Pleading For Time
That speed can take homeowners by surprise, and most of the motions in the Hartford courtrooms are granted with no one in court to oppose them. Matthew K. Beatman, a partner with Zeisler & Zeisler in Bridgeport, said homeowners typically don't understand how quickly the foreclosure process can work against them.
"Many people get the foreclosure complaint and just sit on it, and end up losing their house without ever really putting up a fight," he said.
But Michelle Jeter of Bloomfield came to court and pleaded with Judge Freed to help her save her house after a lawyer with Reiner, Reiner filed a foreclosure suit against her and asked for title to the house 32 days later.
She said she wanted to find out what she owed and try to pay up, but her lender, CitiMortgage, "won't do anything," and repeated calls to Reiner, Reiner have been no help either, she said.
"We'll take care of that. They will talk to you," Freed promised.
"Banks seem to ignore someone's call," Freed said from the bench. "We hear this every day of the week."
So he told Staron, the Reiner, Reiner lawyer, to contact CitiMortgage. They don't have to cut her a deal, he said, but "what they have to do is give her consideration."
There was no deal, though, and Jeter's house was scheduled to be sold at auction next month. But Jeter was back in court last week, telling Freed she had a contract to sell the house and pay off the debt, although the closing had been delayed while the buyer awaited financing.
"I'm just asking for more time, your honor," Jeter said.
A lawyer for Reiner, Reiner objected, but Freed pushed the auction back a month to give Jeter more time to sell the house.
Adam L. Bendett, managing partner of Reiner, Reiner, said his firm and its banking clients try to help homeowners avoid foreclosure. But he added, "When a foreclosure cannot be prevented, it is our clients' expectation, and our responsibility, to attempt to move our clients' cases efficiently through the judicial system."
Olusegun Agesin of Farmington said he couldn't get his phone calls returned after a lawyer with Hunt Leibert brought a foreclosure action against him last December. Agesin said he fell several months behind on his $400,000 mortgage after losing a tenant in a rental property and being relocated to England.
By year's end, Agesin said he had $12,000 cash to catch up. But he said no one would take his money. Finally, he filed a letter with the court, asking a judge for help.
"All attempt[s] to speak to Hunt Leibert Jacobson, PC Attorney (Mr. Andrew Barsom) about the re-instatement was null and void, as my phone calls to him was never returned," Agesin wrote. "Sir, I am appealing to you to please stop Wells Fargo ... from taking over my house AT ALL COST."
In a telephone interview from England, Agesin said his bill from the bank has nearly doubled since December, and he isn't sure he can save the house, even though he believes it is worth more than he owes.
He said that in a criminal case, the state would make sure the defendant had a lawyer. "There's nothing like that in foreclosure," Agesin said. "And so they just pounce on you."
Richard Leibert, founder and managing attorney with Hunt Leibert, said the firm fields hundreds of calls a week from homeowners and is often able to resolve a foreclosure action without borrowers losing their homes.
An Adversarial System
In an interview in his chambers, Freed said he was surprised how few homeowners show up to fight foreclosure, even when there seems to be some value in their houses. In some cases, he said, he will tap a list of attorneys who have volunteered to help track down homeowners who seem to be abandoning homes with equity.
"I've got kind of a philosophy," he said. "I try to be fair to both sides. However, if you can save a house for somebody, you do it."
But Hunt Leibert and Reiner, Reiner have been exceptionally good at taking homes. Most foreclosure suits are resolved without a judge ordering a home foreclosed. But among cases completed in 2007, judges approved foreclosures in 35 percent of Hunt Leibert cases and 32 percent of Reiner, Reiner cases. That compares with 18 percent for all other law firms.
"What they do for a living is foreclose," said Tim Pletter, a Stratford bankruptcy and housing lawyer who represented 49 clients whose homes faced foreclosure suits filed last year by Hunt Leibert and Reiner, Reiner. Homeowners may not like the firms, he said, but banks love them.
"It's an adversarial system," said Pletter, who added he has a good working relationship with the lawyers and paralegals at the firms.
Although a far higher portion of their cases result in judgment of foreclosure, Bendett and Leibert both said the majority of their cases are still resolved without a foreclosure order. And Bendett noted that even after a judgment is entered, many foreclosures ordered are vacated after lenders and borrowers agree on a settlement.
The lawyers also both said the court system assures fairness for all parties. "Judges in foreclosure cases are there to make sure that the results in any foreclosure are equitable," Leibert said, "and Connecticut's judges are very good at what they do."
Afoul Of Regulators
While the firms may be merely aggressive in court, state regulators say they have crossed the line in side businesses.
A lawsuit filed last year by state Attorney General Richard Blumenthal and Insurance Commissioner Thomas R. Sullivan charged that Reiner, Reiner created bogus business arrangements that paid more than $140,000 to Absolute Mortgage Solutions of East Hartford and Century 21 Access America, a real estate firm in Wethersfield. The state alleged that the firms performed no substantial work in exchange for the payments, and that the agreements were merely a cover for kickbacks made by Reiner, Reiner in exchange for referrals.
At the time, Michael Reiner disputed that characterization, saying the arrangements were "no different than those developed by nationally acclaimed real estate lawyers."
Nevertheless, the three firms agreed last December to settle the suit for $700,000.
Two months earlier, Blumenthal took action against Connecticut Service Network, a corporation set up in late 2006 by principals of Hunt Leibert and Reiner, Reiner. The lawyers proposed charging state marshals a fee — $1,000 a year and about $40 for each set of papers delivered for the firms — in exchange for computerized billing and other clerical services. But some marshals complained that the company was merely a conduit for paying kickbacks to the firms, and both Blumenthal and the State Marshal Commission declared the idea illegal.
Leibert said that Connecticut Service Network is no longer in operation, but that when it was running, "its intention was to provide valuable tools to the marshals and law firms that used it."
The firms are still on Blumenthal's radar. Some homeowners whose foreclosures were handled by Hunt Leibert and Reiner, Reiner have complained to the attorney general's office about the process. Blumenthal said he has subpoenaed contracts and fee schedules from several lenders that have hired the two firms.
"We have a very active, ongoing investigation," Blumenthal said. "We have had citizens claim overbilling or inadequate records to support fees charged."
Among the banks that have been subpoenaed are Chase, Countrywide and Citibank, all of which have given hundreds of foreclosure cases to Hunt Leibert and Reiner, Reiner.
Richard Leibert said that with the volume of foreclosures, it is not surprising that some borrowers have complained about the process and the fees.
No Slowdown In Business
Back in foreclosure court, some see a changing attitude among banks — a greater willingness to work with borrowers and cut deals to avoid taking over houses.
State and local agencies also are debating plans to help borrowers by freezing interest rates or taking over loans in default. And the Federal Reserve has responded to the mortgage mess and its impact on the larger economy by lowering a key benchmark rate seven times in the last two years, from 5.25 percent to 2 percent.
But no one's predicting a slowdown in business for Hunt Leibert and Reiner, Reiner.
Even as interest rates drop, many subprime adjustable-rate loans are still resetting to more than 10 percent — far higher than the average 6 percent fixed rate available to new buyers with good credit. Those high-interest loans, coupled with falling home values, are keeping the foreclosure train rolling.
Freed said his weekly dockets are only getting longer. And many lawyers are predicting rough months — and years — ahead.
"The most difficult thing that I have to do is look a homeowner in the eye and say that I can't save their house. And I have to do that a lot," said Daniel S. Blinn, an attorney with the Consumer Law Group in Rocky Hill.
"2008 is going to be worse than 2007. And 2009 is also going to be really bad," he said. "It's not going to be until 2010 that things begin to level off."
Leibert said he was not qualified to comment on economic trends, but said the pace of his law firm's business was a reflection of the times.
"When corporate mergers are up, corporate lawyers are busier. When bankruptcies increase, bankruptcy lawyers are busier. When more people refinance their homes, real estate lawyers are busier," Leibert said. "The same is true for firms that handle foreclosures."
Reprinted with permission of the Hartford Courant.
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