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Trials & Litigation

State AG sues 2 foreclosure law firms; one agrees to pay $10M and sell or close down

Posted Jul 16, 2014 3:06 PM CDT
By Martha Neil

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The Colorado attorney general filed suit Tuesday against the state's biggest foreclosure law firms and two related companies. He alleges they racked up millions of dollars in profits by charging excessive fees to all parties involved in the cases, in violation of antitrust, consumer protection and debt-collection statutes.

One of the two law firms, Aronowitz & Mecklenburg, has agreed to pay $10 million and sell or close down the firm, but has not admitted wrongdoing. Its principals may continue handling foreclosure cases, although they cannot have an ownership interest in a foreclosure law firm or related business, the Denver Post reports.

The other firm, Castle Law Group, is expected to defend the Denver district court suit. Its counsel did not immediately reply to the newspaper's messages.

The government says the two law firms not only charged inflated fees for services such as posting legally required notices that were considerably in excess of actual costs but determined together, in emails between a partner of each firm, what their fees should be. Because the two firms filed nearly three-quarters of the foreclosure cases in the state and operated affiliated businesses, they had considerable influence on what fees were charged.

Together, the firms filed 150,000 cases since 2006 and allegedly overcharged by some $650 in fees on each.

That adversely impacted homeowners trying to save their property, bidders at foreclosure sales, banks that owned the mortgages and taxpayers who cover default shortfalls on government-backed mortgages, said attorney general John Suthers. "The facts uncovered by our investigation are very disturbing and, frankly, reflect poorly on the legal profession."

Over a 10-year period, the fees at issue could have added up to as much as $97 million, the newspaper says, and a lawyer for one of the firms tells the Post that other law firms throughout the country are involved in similar practices.

Many foreclosure law firms, especially those of any size across the United States, are likely at risk for these very same issues," attorney Richard Benenson told the newspaper.

An investigation of other Colorado law firms by Suthers' office is ongoing.

See also:

ABAJournal.com: "Attorney-client privilege prevents associate from aiding AG’s law firm billing probe, partner argues"

Denver Post: "AG: Lawyer e-mails indicate collusion to control foreclosure billing"

Denver Post: "AG Suthers investigates prices charged for foreclosure posts"

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