Borrowers who are facing a foreclosure lawsuit and can't afford an attorney to fight their mortgage lenders in court have limited options -- unless their lawyers get creative.
Late last year, Florida foreclosure defense attorney Peter Ticktin thought he was being creative when he explained to a reporter from The New York Times the method of payment he offered his clients. But his creativity came under scrutiny after the Times published the article.
The story, "Taking on a Second Mortgage to Pay the Foreclosure Lawyer," caused the Florida Bar to open an investigation of Ticktin.
Ticktin offers struggling borrowers what he calls a "contingency fee" agreement, in which homeowners are required to pay Ticktin's firm 40 percent of the equity recovered if the firm is able to win their case and reduce the balance on their mortgage. Since most borrowers don't have the cash to pay the "contingency fee" when the case is closed, borrowers are given the option to sign a mortgage with Ticktin's firm for the amount they owe the firm.
The method sounded questionable to many consumer advocates when it first came to light. But it appears the Florida Bar has found no issues with borrowers being asked to take out a mortgage to pay for the legal costs of foreclosure defense. Last week, the Florida Bar sent Ticktin's attorney a letter stating the committee "found insufficient evidence to determine probable cause for disciplinary proceedings" in Ticktin's case.
Ticktin says he didn't stop offering the contingency agreements to clients while the Bar investigated the matter and plans to continue to offer them.
"We knew we weren't doing anything wrong," he says. "We only get the 40 percent if we win the case."
How often does that happen? So far, in about 200 of the 3,000 cases his firm is handling.
But some of these cases are quite lucrative. For example, Ticktin talks about a recent case he "won" involving a $1.3 million mortgage. The lender couldn't prove it was the owner of the mortgage note and lost the case at trial. The lender can file another foreclosure suit in the future but is unlikely to, Ticktin says. In that case, instead of paying the lender the $1.3 million mortgage, the borrower pays Ticktin a $520,000 mortgage, which represents 40 percent of the equity recovered, Ticktin explains. If the lender files to foreclose again and eventually wins, Ticktin's mortgage on the property is automatically canceled.
In addition to signing the contingency agreement, borrowers also are required to pay Ticktin a $100 administrative fee and a monthly fee that varies from $330 to $650, depending on the size of the mortgage, while the case is pending.
What do you think of Ticktin's method of payment?