Suing May Be Viable Option For Some Homeowners Facing Foreclosures

An article by The Associated Press appearing in the Naples Daily News provides a list of what financially strapped homeowners can do to try and stave off a foreclosure. Of the number of options a homeowner can consider, one route is to take the offensive and bring a contingent legal fee-based lawsuit. According to the story:

• A growing number of private lawyers, with help from consumer-rights groups and legal-aid lawyers, are pursuing legal relief for borrowers who got loans they had little chance of repaying and, the lawyers argue, shouldn't have been granted.

• Taking cases on a contingency-fee basis, these lawyers are giving borrowers the chance not only to stop foreclosure and rescind the loan, but also to seek damages for abuses in some cases. The aim is to prove that lenders granted fraudulent or "unconscionable" loans with terms skewed heavily in their favor, or to fight abuses by servicers such as phony fees that cause homeowners to default.

• The number of lawyers specializing in this area is still small, and many already have packed caseloads. Melissa Huelsman, a Seattle lawyer who has focused on wrongful-foreclosure litigation since 2001, says her caseload has doubled in the past year to 50 active cases. She is mentoring several local lawyers.

• Bill Purdy, a Soquel, Calif., lawyer, first looks for violations of federal statutes such as the Truth in Lending Act, a 1968 law that requires disclosure of key terms of the loan and its costs. "There are tons of illegal loans out there, but nobody's looking," Mr. Purdy says. Most cases settle out of court. But courts in states such as West Virginia and California have been most receptive to suits against lenders and servicers, says Margot Saunders of the National Consumer Law Center, which assists attorneys in such suits.

• A possible downside to suing: in extremely rare instances, borrowers who lose a suit may get saddled with attorneys' fees for the lenders. For a list of attorneys specializing in lender/servicer abuses, check http://www.naca.net, the Web site of the National Association of Consumer Advocates, or call your local legal-aid office or bar association.

This approach is currently being used by homeowners caught up in foreclosure rescue scams. For the rest of the story, see What people can do if foreclosure looms.

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