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To most Connecticut foreclosure attorneys, it's known as "the list."
Inclusion is supposed to guarantee not only prestige in the legal community but, more importantly, a massive flow of foreclosure cases at a time when there's money to be made in volume work.
Mortgage giant Fannie Mae maintains the primary list, called the retained attorney network, and it includes about 140 select law firms in 31 states. Many of those chosen firms also comprise the Freddie Mac designated counsel list of about 50 members.
So what's the big deal?
Fannie Mae and Freddie Mac are government-sponsored entities and the largest buyers of home loans in the nation, holding about $5 trillion worth of mortgages. And based on their rules, any lender whose loan is linked to Fannie Mae or Freddie Mac must refer all of foreclosure and post-foreclosure cases to a law firm on the list.
"My frustration has always been that our firm is not on the Fannie Mae or Freddie Mac list," said Kevin Burns of the West Hartford firm Cohen, Burns, Hard and Paul. "All the banks we've approached indicated that they had no [foreclosure] work or they said, 'Sorry, you're not on the list.' That was the biggest wall we hit.
"I think being on the list would be a good way to get your foot in the door."
Burns certainly is not the only stonewalled practitioner. There are only three state firms on the Fannie Mae list and two on the Freddie Mac list.
West Hartford attorney Martha Croog said she has tried for many years to become part of Fannie Mae's elite team, but she's been denied every time.
The two main Connecticut law firms recognized by Fannie Mae and Freddie Mac are powerhouse foreclosure law firms Hunt Leibert Jacobson in Hartford and Bendett & McHugh in Farmington. Together, those firms dominate the foreclosure docket throughout the state with about two-thirds of the total foreclosure filings.
"It's been this way for a long time," Croog said. "We would like to be able to enjoy the prestige that comes with that distinction" of being on the Fannie Mae list.
Lawyers interviewed for this story, including Croog, said they have no ill will against the entrenched foreclosure firms and don't see anything unfair about the system.
"They've managed to succeed," Burns said of the two preferred firms. "Good for them."
INVESTIGATION
But Connecticut Attorney General Richard Blumenthal doesn't see it that way. Earlier this month, he launched an investigation into the state's foreclosure business, in part to find out how law firms in the state obtain foreclosure work from loan servicers.
"My office is investigating to ensure that competition is preserved, and consumers protected," Blumenthal said in a prepared statement.
He specifically targeted Fannie Mae, Freddie Mac and a nationwide company called Lender Processing Services Inc. after discovering that Hunt Leibert Jacobson and Bendett & McHugh handle the large majority of cases in the state.
Among his inquiries, Blumenthal wants to know which law firms provide foreclosure services for the lenders, how the law firms were selected, and how much money exchanged hands between law firms and lenders.
"Fannie Mae, Freddie Mac and LPS have all responded to my letters and have indicated a willingness to cooperate with us on an ongoing basis," Blumenthal said last week in a written statement to the Connecticut Law Tribune.
Fannie Mae officials did not return phone calls seeking comment last week.
Blumenthal also is investigating links between the law firms and a select group of state marshals that seem to dominate the foreclosure servicing industry in the state.
It's not the first time the two firms have been in Blumenthal's crosshairs.
Hunt Leibert Jacobson created a formal working relationship with marshals who paid to participate in the Connecticut Service Network. That network dissolved in 2007 following Blumenthal's investigation into the legalities of the business arrangement, but many of the program's marshals continue to receive work.
In December 2007, Bendett & McHugh's legacy firm -- Reiner, Reiner & Bendett -- joined an East Hartford mortgage company and a Wethersfield real estate broker in paying $700,000 in fines, forfeitures and restitution to settle allegations that they participated in an illegal kickback scheme. The law firm was accused of charging closing fees that consumers already had paid to the mortgage company while the mortgage company allegedly steered title insurance business to the law firm, which paid for referrals in violation of state laws.
Managing partners at both Hunt Leibert Jacobson and Bendett & McHugh declined comment for this story.
FANNIE MAE GUIDELINES
To be part of the Fannie Mae network, lawyers must agree to do business as outlined by the company. That means meeting certain deadlines within the foreclosure process and accepting its attorneys fee structure. In Connecticut, that's typically $1,250 for a foreclosure case with the ability to earn as much as $1,500 depending on the circumstances.
Attorneys in Connecticut typically could get $2,500 for an uncontested foreclosure case, said Norwalk attorney Kenneth Gruder, chair of the real estate practice group at Goldman, Gruder & Woods. "You're guaranteed a steady flow of work for charging lower rates," Gruder said of the advantages of being on the list. Fannie Mae solicited Gruder to apply, but his firm was denied.
Gruder, who practices in more specialized post-foreclosure work, said there are diminishing ways to earn money in foreclosures because fewer entities are gaining more control and dictating prices. "The entire industry has been consolidated," Gruder said.
Because of Fannie Mae's control over such a wide swath of the market, "the profitability has been wrung out" of the foreclosure practice, said veteran foreclosure attorney Thomas W. Witherspoon Jr.
"I'm earning a third of what I earned in 1988 in fees," he noted. "If you want to make a lot of money, this is a volume business."
Witherspoon said he had the largest foreclosure business in the state in the 1970s and 1980s. When Fannie Mae launched its preferred counsel program in the mid-1990s, Witherspoon didn't seek inclusion because he didn't agree with their fee structure. Since then, his impressive client base, which once included CitiCorp, has eroded through consolidation and Fannie Mae controlling more foreclosures.
'FROZEN OUT'
Last October, Witherspoon actually earned a coveted spot on the Fannie Mae list -- but not Freddie Mac's -- after hiring former Reiner, Reiner & Bendett partner Samuel Chester to help him with the application, which was "a long, arduous process."
But now Witherspoon is learning that being on the list isn't all it's cracked up to be.
"The problem is the [loan] servicers already have their networks set up with those two law firms," Witherspoon said. "They have no motivation to shift to me, so they haven't. I've been frozen out of handling these cases."
Because Fannie Mae is responsible for the quality of its preferred counsel's legal work, lenders have no reason to rearrange their internal systems to accommodate another firm. Fannie Mae dictates that lenders must spread their matters "among two or more law firms in each jurisdiction," and Witherspoon has been left out of the mix.
At least Witherspoon got on the list.
Burns, the West Hartford attorney, put his time and effort into the application, got denied and then contacted Fannie Mae to find out why. He never received a reply.
"I'm only frustrated that we didn't make it," he said. "I assume the application process was fair. It was just a little unnerving that we didn't get a response.
"It is what it is, as they say."
