James R. Balmforth: How Much Does It Cost To Stop Foreclosure?

One of the considerations in deciding whether or not you should hire a lawyer to help you fight your foreclosure is the cost. It’s important to understand how legal fees work to make sure that you don’t end up paying more than you can afford.

Foreclosure Defense

Most foreclosure defense attorneys structure their fee agreements with homeowners in one of three ways:
• by charging the homeowner an hourly rate
• collecting a flat fee from the homeowner, or
• Charging a monthly rate.

Fees and Costs

Defaulting homeowners usually are charged late fees on every missed mortgage payment right up until their home’s foreclosure sale. Depending on the size of the mortgage loan, accumulated late fees for missed payments can add hundreds of dollars to a borrower’s mortgage bill. While properties in default move toward foreclosure, lenders may add charges for default-related services. During the foreclosure period, lenders’ attorney fees, property title searches, and costs for serving homeowners with foreclosure notices also accumulate.

What Factors cause Foreclosure Costs to Vary?

How much a lawyer charges will certainly be a factor in the cost of a foreclosure? However, there are many other considerations ultimately determine how expensive the process will be. Below is a general lay out of the costs typically associated with home foreclosure.

• Type of Foreclosure – The cost of a foreclosure can vary largely on whether the mortgage loan has just recently fallen into default and the homeowners are willing to surrender the property, or if they are going to attempt to reinstate the home loan or otherwise defend against the foreclosure process.

• Costs – It is not uncommon for a loan servicer to assess additional charges against a borrower in default. Default-related fees include:

o Property inspection and preservation costs

o Foreclosure costs and fees, including: Filing fees notice and certified mailing costs, where a loan is reinstated, and potentially the lender’s attorney’s fees.

o Corporate advances

• Attorney’s Fees – Generally, each party will be responsible for their own costs. However, there are some instances where the lender may seek to have the borrower pay for a portion or all of their foreclosure fees. Moreover, these fees may vary depending on how complicated the defense will be and how long the foreclosure will take.

What Goes into Determining a Lawyer’s Fees?

The primary reasons for the large disparity in the cost of a foreclosure are:

• The type of foreclosure defense strategy

• The lawyer’s fee structure

Generally, foreclosure lawyers either bill through a flat fee or by the hour. If a lawyer charges a flat fee, expect to pay $1,000-$4,000. There is a common misconception that a lower fee may indicate a low quality legal representation; however nothing could be further from the truth. A lower fee is simply an assessment of what work the lawyer expects to do with respect to the difficulty of the case.

Thus, if a foreclosure is going to be quick and relatively straight forward, a lawyer will likely charge a lower flat fee. By contrast, if the borrower is adamant about continuing to live in the house, or is otherwise putting forth difficult foreclosure defenses, the fee will likely be higher.

Hourly Rate

Some foreclosure defense attorneys charge an hourly rate for their services. The rate can range from around $100 per hour to several hundred dollars per hour. With this type of fee arrangement, the lawyer generally collects an initial retainer—an advance payment to the attorney before he or she starts to work on your case—of several thousand dollars. The retainer amount and hourly rate varies widely, depending on the attorney’s experience and the customary rates in the area.

How an hourly rate works. Say you give your foreclosure defense attorney a $2,000 retainer. She charges $200 per hour. First, she reviews all of the documents in your case. Then, she prepares and files an answer and affirmative defenses to the foreclosure action. All of this takes five hours. The attorney also spends time preparing for and attending a foreclosure mediation with you. You’ll also get billed for the time it takes to make phone calls and emails related to your case. This too adds up to five hours. The retainer is now gone and the attorney hasn’t even attended any foreclosure hearings yet. Because the attorney must do more work, you’ll have to make further payments.

Pros and cons. The benefit to this type of fee arrangement is you’ll only pay the attorney for the amount of time he or she actually works on your case. The downside is that while the attorney will probably be able to give you a likely range of what you’ll pay in total, you won’t get an exact price as far as what the total cost of the foreclosure defense will be—and hourly fees can add up quickly.

Flat Fee

Some attorneys charge a flat fee to represent homeowners in a foreclosure. Generally speaking, the fee can range from $1,500 to $4,000 depending on the complexity of the case.

Pros and cons. The benefit to paying a flat fee is that you know ahead of time exactly what the total cost of your foreclosure defense will be. Whether it takes five months or two years to dismiss the foreclosure—or for the lender to complete the process—you know that this is all you’ll pay. The downside is that not all foreclosure attorneys offer this option and you’ll have to pay the fee upfront, which is difficult for many distressed homeowners.

Some foreclosure attorneys charge an upfront retainer ranging from several hundred to several thousand dollars, and then a monthly fee (like $500) for each month that the foreclosure is pending. In addition, attorneys have been known to charge an extra fee on top of this—called a contingent fee—if the case is dismissed as a result of the firm’s efforts.

You Must Also Pay Costs

Foreclosure defense attorneys will also charge for costs, like mailing, travel expenses, and court costs, on top of their fee.

When the financial crisis occurred, it became difficult for many people, including attorneys, to find work. As a result, many attorneys became foreclosure defense “experts” overnight marketing their services to homeowners in distress. In some cases, the fees that attorneys charge for services related to foreclosure are not reasonable. This means you need to be careful and do your research when hiring an attorney to fight your foreclosure. Ultimately, when trying to decide if a foreclosure defense fee is reasonable, ask yourself whether the attorney is charging a fair amount considering the services provided or is he or she trying to get a windfall from your situation.

Be aware, as well, that many scammers prey upon homeowners in foreclosure. Take steps to avoid foreclosure rescue scams.

An overview of total fees

The cost of preventing a foreclosure is not easily categorized. We assume that it includes the staff costs of talking to the borrower, collecting financial documents (a task we have noted seems unreasonably difficult for the borrower) reviewing the documents, ordering and reviewing the appraisal, the cost of that appraisal (more likely to be a less expensive brokers price opinion or BPO) and the preparation of a justification to decision makers for any workout plan.

We have seen figures from non-profits that the cost of averting a foreclosure through the use of credit counseling from a non-profit agency approved by the Department of Housing and Urban Development can range from a bit under $1,000 to $14,000 and we don’t quite know what to do with that large and disparate range. We do know that counseling programs vary greatly and we assume that those on the high side include programs that provide emergency funds to homeowners to bring loans current while those on the low side are primarily advising and educating their clients.

But the ,293 cost to foreclosure figure seems fairly easy to document and, compared to others that are widely bandied about ‘ from ,000 to 30 percent of the pre-foreclosure value of the house ‘ seems reasonable.
First of all, the cost does not accrue totally to the lender. The homeowner has a typical loss of $7,200 which includes loss of equity in the property, moving expenses, and perhaps some legal fees.

Those neighbors living in close proximity to the foreclosed house suffer $1,508 in losses from the decrease in the value of their own home as the neighborhood begins to deteriorate.

The local government loses $19,227 through diminished taxes and fees and a shrinking tax base as home prices decrease. This is a hard number to justify. First of all, only a portion of the declining tax base is due to foreclosures. A big chunk of it is based on falling prices community wide. And we’ll bet that even as we talk about it local governments are busy adjusting assessments and mill-levies to keep total revenues close to pre-housing crisis levels. This means that the neighbor’s share of the costs should be higher as they absorb increased tax levels.

Also, while the cities and towns are permanently losing some income from fees such as trash pick-up and water and sewer charges, if and when the house is sold they will collect back property taxes or, if they remain unpaid, they will become the owners of the property through tax title. (That opens a whole new area of concern, but one for discussion on a different day.)

That leaves us with total costs of $50,000 for the lender under the numbers produced by the Joint Economic Committee of Congress. The Committee does not break out these figures but a new study from Standard & Poor’s (S&P) does. While there is not a total match between the two sets of data, they are close enough.

The Committee includes the following in its list of pre-and post-foreclosure expenses:

Loss on property/loan

Property maintenance

Appraisal

Legal fees

lost revenue

Insurance

Marketing

Clean-up

And S&P breaks them down as follows:

The largest component of the $50,000 is cash loss on the property. S&P pegs this number at $40,000 for a typical loan of $210,000. Investors who buy short sales tell us that the big lenders are unwilling to sell property or take payoffs for more than a 15 to 20 percent discount so these numbers are closely in sync. S&P however includes only the actual decline in property values in that 19 percent loss figure.

S&P assigns a staggering 26 percent of the loan amount for the costs of foreclosure. This category wraps up the remainder of the list above and include paying property taxes (3 percent, although many ignore this obligation, hoping to pass accrued taxes on to the eventual buyer), maintaining hazard insurance, legal fees (1 percent), an appraisal (although most lenders are choosing the far less expensive alternative of a brokers price opinion or windshield appraisal,) lost revenue (an estimated 13.6 percent of the loan amount) 6 percent marketing fees (broker’s commission) and 3 percent spent on home maintenance.

There is a figure that is usually not taken into account ‘ cash reserves. Bank regulations require that lenders put aside a percentage of their capital to cover potential losses. That amount, whether $100,000 or $500,000 is that much less that the bank has to loan to others and means more lost revenue.

It is obvious that no one is a winner in the foreclosure game. But we wonder if lenders and their real estate agents are not exacerbating the situation for all involved through their property management and marketing policies. A look at that later in the week.

The best fee structure is the one that best suit your needs, and foreclosure lawyers understand that. It is always a good practice to learn more about what you are paying for, and having a better idea of what a foreclosure will cost you when you go in for an initial consultation will better situate you to start a dialogue with your lawyer about their fee structure and why they use the one they do.

Foreclosure Attorney Free Consultation

When you need legal help to stop a foreclosure, call Ascent Law LLC (801) 676-5506 for your Free Consultation. We regularly work on real estate law cases that involve foreclosure. We want to help you.