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A new law passed by the New York state legislature, which allows homeowners who win foreclosure proceedings to recover their lawyers' fees from the lenders, is expected to erode confidence of big banks that are being railed for lax handling of mortgage documents.
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The "Access to Justice in Lending Act" (A.1239/S.2614), which was passed by both houses of the state legislature in June and became a law this week when it was signed by the governor, is seen as balancing an "unfair practice" of lenders who put a clause in the mortgage contracts that allows them to recoup their legal expenses from homeowners in case of successful foreclosures.
According to State Assemblyman Rory I. Lancman (D-Queens), who co-sponsored the bill with State Senator and Deputy Majority Leader Jeffrey D. Klein (D-Bronx/Westchester), virtually all mortgage contracts require homeowners to pay lawyers' fees to lenders who foreclose on their mortgage, but homeowners don't have the same contractual right.
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Lancman said he was concerned that though many homeowners have valid defenses to foreclosure and can save their homes with adequate legal representation, most homeowners lose foreclosure proceedings as few of them can afford to retain lawyers while most default or try to represent themselves.
Lancman was also concerned that the homeowners who lose foreclosure proceedings are also forced to have the lenders' lawyers' fees tacked on to the overall amount they owe the lenders, pushing desperate homeowners further into debt.
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This bill, Lancman said, creates a reciprocal right to lawyers' fees for homeowners who successful defend against foreclosure while the mortgage contract gives such a right to lenders.
"We cannot let people with valid defenses to foreclosure lose their homes merely for lack of legal representation, particularly when the mortgage agreement written by the bank tilts the legal playing field in the bank's favor," Lancman said. "If homeowners had the money to pay for a lawyer to represent them in foreclosure, they probably wouldn't be in foreclosure in the first place."
Lancman said generally the winning party in certain types of lawsuits, such as employment or civil rights, are allowed to recover lawyers' fees from the losing party but foreclosure lawsuits has been an exception.
But now the new law, which is modeled on an existing provision of the law which give tenants the same reciprocal rights to lawyers' fees in residential leases, will not give lenders an upper-hand and rather will tip the scale in favor of homeowners as many lenders, even in cases in which a settlement is reached, will be more than willing to negotiate the lawyers' fees with homeowners as they know they will have to bear the entire fees if they lose a judgment.
Agrees Klein. "We know that many of the families that we see being foreclosed upon today entered into their mortgages due to predatory lending. These are the very people who should have the best defenses to foreclosure, but lose their homes simply because they could not secure counsel to defend them."
The new law, Klein said puts "homeowners on even playing ground with the lenders that are foreclosing on them, and [gives] them a fighting chance to stay in their homes."
The new law is also expected to encourage more lawyers with private practice to represent homeowners in foreclosure cases and ease the burden on pro bono lawyers.
"This legislation will allow lawyers to take on meritorious foreclosure cases with the fair and reasonable expectation that they will be compensated if they succeed," Lancman said.
