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Colorado Whacks Foreclosure Attorneys, Hard

DENVER (CN) - Two of the biggest foreclosure law firms in Colorado overcharged clients and homebuyers millions of dollars, the Colorado Attorney General claims in two lawsuits.

Attorney General John Suthers on Monday sued Aronowitz & Mecklenburg LLP, law firm owners Stacey L. Aronowitz, Joel T. Mecklenburg and Robert J. Aronowitz, and the Assured Title Agency, Denver County Court.

In a virtually identical lawsuit, Colorado sued Aronowitz's top competitor, The Castle Law Group LLC, Lawrence A. Castle, Caren A. Castle, its other owners and affiliates.

Citations in this article are from the Aronowitz complaint.

Suthers claims an investigation showed that Aronowitz and Castle inflated foreclosure costs to enormous profits.

"This action is the result of the state's extensive two-year civil law enforcement investigation of foreclosure law firms, including Aronowitz & Mecklenburg ('Aronowitz' or 'the law firm'), that have performed the vast majority of the roughly 275,000 residential foreclosures in Colorado since 2006," according to the complaint.

"This investigation revealed that these law firms, including Aronowitz, unlawfully exploit the foreclosure process by misrepresenting and inflating the costs they incur for foreclosure-related services to fraudulently obtain tens of millions of dollars in unlawful proceeds. Although the law firms agreed to perform these routine foreclosures for a flat attorney fee, they viewed this fee as insufficient and devised a scheme to generate additional millions by inflating foreclosure costs. Homeowners, purchasers, investors and taxpayers paid for and continue to pay for these fraudulent charges."

Colorado claims that Aronowitz and Castle got away with it because there was no one around to enforce fair prices.

"Defendants get away with this extensive fraud by taking advantage of the inherent lack of oversight in the foreclosure process. The mortgage servicers that hire the law firm on behalf of the loan's investor rely upon the law firm to perform all the legal work in the foreclosure for an agreed-upon flat attorney fee (the 'maximum allowable fee') and to pass through only its actual, necessary and reasonable costs. Servicers do not conduct market analyses of these foreclosure reasonable costs. Servicers do not conduct market analyses of these foreclosure costs; rather, they rely on the law firm to comply with the law and investor guidelines by charging costs that are actual, reasonable and the market rate," the 35-page complaint states.

"Defendants also get away with charging excessive, unauthorized and unlawful costs because no homeowner, purchaser or taxpayer can challenge the law firm's claimed costs. Nor may the public trustees, which administer the foreclosure process, or the courts, which authorize the foreclosure sale, challenge these costs. Thus, a homeowner seeking to save his home from foreclosure or a person purchasing a property at auction must pay whatever costs the law firm claims to have incurred in performing the foreclosure. If the property returns to the lender, the mortgage servicer assesses these costs to the investor or insurer, which are often borne by taxpayers."

Although the defendant firms are competitors, Suthers claims that they worked together.

"For example, in early 2009 when the Colorado Legislature began considering a bill to allow for a brief foreclosure deferment that would require posting a notice similar to an eviction notice, Stacey Aronowitz began working with Caren Castle of The Castle Law Group ('Castle'), Aronowitz's largest competitor, on what they could get away with charging. Stacey Aronowitz emailed a foreclosure lawyer in another state that also required a foreclosure posting and asked: 'I am curious how much you get away with charging ...' She later emailed Caren Castle: 'I just wanted our offices to try and get on the same page on what we are charging for all of this.' They agreed that Caren Castle would try to seek approval from Fannie Mae, the dominant investor in the foreclosure industry, to charge $125 for this new posting, not the $25 charged for similar eviction postings.

"Accordingly, these two competitors, who handle 75 percent of Colorado foreclosure filings, coordinated to set the minimum price for posting at $125 - an amount unrelated to the actual cost for such postings or the market rate charged by unaffiliated vendors. Once the bill requiring the foreclosure posting passed, Aronowitz and Castle secured financial interests in posting companies and claimed fraudulent and inflated costs of at least $125 per posting. This amount multiplied by tens of thousands of foreclosures resulted in multimillion-dollar windfall to the posting companies and, directly or indirectly, to the law firm, Stacey Aronowitz, Robert Aronowitz and Joel Mecklenburg (collectively 'Aronowitz defendants') and to Castle," according to the complaint.

Suthers estimates both firms charged an extra $350 to $750 for each foreclosure.

Fannie Mae suspended Aronowitz and Castle from handling any its foreclosures due to the high cost, the attorney general says. He claims the foreclosure investor also informed the firms that overcharging could cause problems for a large amount of loans.

Colorado seeks disgorgement, an injunction and civil penalties for unjust enrichment, conspiracy, deceptive trade, and consumer law, debt-collection and antitrust violations.

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