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Attorneys Seek Increase in Fees

Attorneys who specialize in providing foreclosure work for the mortgage industry are lobbying the Department of Veterans Affairs to raise its proposed reimbursement schedule, but the head of an association of attorneys says the problem runs much deeper than just the VA.

Brian Spero, a Rhode Island-based attorney who is also president of the USFN, told Mortgage Servicing News that the landscape for foreclosure-related legal work is much different than it was 10 years ago. And the changes that have occurred in recent years have increased costs associated with processing foreclosures.

"It is a problem across the board," Mr. Spero said. "There are firms that are starting to turn away business because of the fee structure involved."

One of the big changes involves the Fair Debt Collection Practices Act, he said. In the past, it was widely assumed that attorneys were exempt from its regulations governing collection practices, but recent litigation and court decisions have changed that.

Law firms have added staff, changed procedures and introduced new notifications to comply with the FDCPA, but compliance remains complicated and unclear in some respects, leaving the firms vulnerable to lawsuits.

Many "highly technical" FDCPA lawsuits have been filed against foreclosure attorneys in recent years, Mr. Spero said. In addition, the litigation has resulted in "huge increases" in the cost of liability insurance for law firms that conduct foreclosure work.

In addition to those FDCPA compliance issues, attorneys are under pressure to complete foreclosures quickly under timeframe requirements established by the secondary market agencies. In addition, many clients now use scorecards to track the progress attorneys are making in foreclosure cases.

And increasing use of outsourcing, both by law firms and servicers that rely on national default management vendors, has added costs to the process as well.

This confluence of events has made it more expensive for law firms to process foreclosures, according to the USFN.

Attorneys have also had to bear the cost of administering and paying for default reporting systems that have become a major expense for the industry. The USFN estimates that between the cost of labor to update the systems and the charges made on a per-file basis, the attorney spends about $65 per file to keep these systems updated.

Billing systems have also added to the costs that have to be borne by the attorneys, the association said. The estimated cost for labor to input data into these systems, combined with the fees charged by the billing system vendor, equates to the attorney of $35 per file, the USFN said.

All told, the USFN estimates that the cost of new billing and reporting systems adds between $250 and $300 of expenses per file they work on.

In addition, in recent years attorneys have had to take on responsibilities that were once the domain of loan servicers. Attorneys are now routinely asked to prepare and send Form 567 to the VA in the case of foreclosures, and to order the VA sale appraisal and monitor its preparation. This adds greater liability for the law firm as well as labor expense to the cost of the file, the USFN said.

In this context, foreclosure attorneys are working hard to persuade the VA to revise its proposed fee schedule. A task force of the USFN is urging the VA to raise its proposed fee schedule by 30%.

"The VA has not changed its fee schedule and cap since 1994," Mr. Spero said in a USFN news release. "The proposed fee schedule is basically the Fannie Mae/HUD schedule which was adopted in 2001. That means the new '2005' schedule would already be four years old if it is adopted as proposed. It's unrealistic for VA or any other entity to proceed as if costs have not changed for the law firms in four years, and even more unrealistic to assume that costs will be contained going forward."

The USFN says that a number of conditions and issues that have changed the landscape of the foreclosure process during the last five years warrant an increase beyond the current Fannie Mae/HUD schedule.

"The GSEs really drive the fee schedule for the entire industry," Mr. Spero said, noting that the last major overhaul in the GSE fee schedule was in 2001, when Fannie Mae increased its reimbursement schedule. Both GSEs are believed to be reviewing their reimbursement schedules currently.

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