Crisis brings out the lawyers

NEW YORK – The lawyers are starting to circle.

The latest twist in the national foreclosure crisis has created an uncertain atmosphere ripe for exploitation.

At issue is whether banks improperly evicted borrowers from their homes by rubber-stamping reams of unchecked foreclosure documents. GMAC halted foreclosures in the 23 states that require the verification of those forms. JPMorgan Chase on Wednesday expanded its foreclosure freeze to 41 states and Bank of America last week widened its freeze to all 50 states.

Now federal and state regulators are investigating the matter across the industry.

It’s a glimmer of hope for anyone on the brink of eviction and a troubling development for new owners of recently foreclosed homes. In this time of confusion, here are some key points to remember about working with a lawyer:

Spotting bad actors: Scam artists materialize after any major crisis – think bogus charities and other schemes. These opportunists can also be lawyers, or at least present themselves as such to adopt an air of legitimacy.

That was the case in at least a quarter of loan modification scams reported in the past year to NeighborWorks America, a nonprofit housing group. Victims said they were approached by a lawyer or someone posing as a lawyer. In other cases, the scam artists turned out to be lawyers who had been disbarred or had an expired license.

“This is only going to become more widespread with the foreclosure mess,” said Douglas Robinson, a spokesman for NeighborWorks.

These scams typically lure victims with promises of legal settlements or big payouts. But any pre-emptive guarantee of a favorable outcome should be a red flag that you’re not dealing with a reputable lawyer. In fact, the prevailing wisdom of the moment is that the unfolding saga will only delay the foreclosures in question.

Another warning sign is if you get an unsolicited phone call from a lawyer. To prevent lawyers from going on fishing expeditions for lawsuits, the American Bar Association’s guidelines prohibit lawyers from cold calling prospective clients.

Written solicitations and prerecorded calls are OK, but they need to be marked as advertisements.

Enlisting the right help: There are times of crisis when a lawyer is clearly needed. But depending on your goal in light of the foreclosure freeze, an attorney may not be necessary.

A nonprofit housing counselor may be able to provide all the help you need. NeighborWorks maintains a national database of foreclosure counseling agencies that provide free help at www.findaforeclosurecounselor.org.

If you want to sue your bank or otherwise feel your case demands a lawyer, be sure to look for one with the right experience. For example, a foreclosure lawyer may specialize in helping borrowers modify mortgages, yet have no experience taking lenders to court. One way to get a deeper sense of a lawyer’s expertise is to ask what type of settlements their other foreclosure clients are seeking.

Then there are those on the other side of the equation – owners of foreclosed properties who fear their homes could be taken back. It’s probably preliminary to hire a lawyer if no one has made a claim on the house. But it’s a good idea to call the title insurer and ask about what’s protected. Experts say it’s unlikely that evicted homeowners will try to lay claim to the house.

“A lot of those people have moved on and put this behind them,” said Shari Olefson, a partner at Fowler White Boggs in Fort Lauderdale, Fla., and author of “Foreclosure Nation: Mortgaging the American Dream.”

Understanding the costs: Fees are always a concern when lawyers are involved.

One reason is that most lawyers charge hourly rates rather than flat fees. Rates vary between about $150 to $1,000 or more per hour, depending on factors such as the size of the firm and its level of expertise, said Olefson.

Some lawyers set a cap on charges to allay fears that costs could stack up indefinitely. Even if a cap isn’t offered, it’s a good idea to request a cost estimate in writing at the start of the process.

For borrowers suing their lenders, a lawyer may work for a hybrid payment of a fee or hourly rate, and a percentage of the settlement.

The exception on fees is if the lawyer thinks a case has class-action potential; then the lawyer is paid only if a settlement is reached.