New Law Allows Homeowners to Recoup Legal Fees in Foreclosure Cases

[Reprinted from the New York Times]

By JOHN ELIGON

Published: October 21, 2010

A new state law signed in Albany this week will allow homeowners who win foreclosure proceedings to have the lender pay their lawyers’ fees.

Supporters say the law balances what they see as the long unfair practice of lenders writing provisions in mortgage contracts that allow them to collect lawyers’ fees from homeowners when the lender successfully forecloses. Some also say that the new law may give homeowners a better chance in court because they will more easily be able to get representation.

The law comes at a time when big banks are coming under increasing scrutiny for lax handling of mortgage documents.

“We have thousands of foreclosures in New York State where homeowners” have valid defenses, said Assemblyman Rory I. Lancman, a Democrat of Queens who co-sponsored the bill. “But they are unable to assert those defenses because they don’t have a lawyer.”

In some other types of litigation, like employment or civil rights, lawyers’ fees have long been awarded to the winning party, Mr. Lancman said. But foreclosure litigation has been an exception.

“There’s been a major problem as this foreclosure crisis has exploded in getting representation for people who need counsel,” said Andrew Scherer, the former president of Legal Services NYC, an agency that provides counsel to people who cannot afford lawyers in civil cases.

“This is going to provide a pretty reasonable incentive for private attorneys to take on these cases,” Mr. Scherer added.

In general, homeowners are considered to have won foreclosure proceedings when they are able to get a judgment from the court allowing them to keep their homes. With recent revelations that banks have cut corners in documenting mortgages during the boom, lawyers say, chances are better than ever to raise legitimate defenses to get a bank’s foreclosure action thrown out.

Even in cases in which a settlement is reached, Mr. Lancman said, lenders may be more willing to negotiate the lawyers’ fees, knowing that they may have to pay those fees if they lose a judgment.

Michael J. Wrubel, a Florida lawyer who represents homeowners, said he did not believe the new law would substantially tip the scale in favor of homeowners.