NY Law Sticking Banks w/ Homeowners Legal Fee Tab In Successful F'closure Defense To Level Playing Field, Prod More Pro Bono Lawyers To Jump Into Fray

The New York Law Journal reports:

• Going against state bankers, New York Gov. David A. Paterson has signed into law a measure that will allow prevailing homeowners in many foreclosure actions to claim attorney fees from lenders.

• The Access to Justice in Lending Act, A1239/S2614, will put defendants in foreclosure proceedings on the same footing as lenders, who often include in mortgage documents the right to recoup reasonable attorney fees if they bring a successful action.(1)

• Supporters of the new requirement say that it will encourage attorneys to volunteer their services to homeowners facing foreclosure, many of them who cannot afford to hire their own lawyers.(2) At the same time, they say the measure will give the homeowners leverage to negotiate concessions from lenders seeking to avoid the potential costs of litigation.

• "At a time when not-for-profits and counselors are flooded with these cases, this is an important step in bringing parity for homeowners," the governor's office said in an e-mailed statement.

• The new law, Real Property Law §282, provides that all mortgage agreements giving prevailing lenders the right to attorney fees, must be read to grant that right to borrowers as well. Although it goes into effect 60 days after its signing, it applies to all mortgages in effect on or after Oct. 20 and all proceedings begun on or after that date.(3)

For more, see New York Grants Right to Claim Attorney Fees to Prevailing Homeowners in Foreclosures.

(1) According to the story, the new law is modeled after Real Property Law §234, a 1966 law that gave prevailing tenants the right to recoup attorney's fees whenever landlords include a fee provision in the lease. A 1995 Court of Appeals decision upheld the application of the law to leases signed before it became effective, Duell v. Condon, 84 NY 2d 773, which describes the purpose of the earlier fees provision as "to level the playing field between landlords and residential tenants, creating a mutual obligation that provides an incentive to resolve disputes quickly and without undue expense" the story states. Moreover, it said that the law tended to discourage landlords from engaging in frivolous litigation aimed at harassing tenants, the story states.

(2) For those attorneys, law students, paralegals and other fans of the law who find something counterintuitive about being able to score attorney fees in pro bono cases, there's really nothing new about it, believe me. See Another Law Firm Seeks Big Fees From Lawsuit Loser In Pro Bono Case. See also this legal fee 'rate sheet', appearing on the website of one non-profit law firm, which discloses the hourly fees charged in connection with some of their pro bono cases (unadjusted, of course, for any applicable "contingency fee risk multiplier" - see The Yale Law Jounal: The Contingency Factor In Attorney Fee Awards).

(3) Florida has a similar statute, except that the mandating of an award of prevailing party attorney's fees to the winning party under the reciprocity provisions of section 57.105(7), Florida Statutes applies to all contracts containing one-sided, legal fee provisions, not merely to mortgage loan agreements containing the one-sided, legal fee clauses. See also Landry v. Countrywide Home Loans, Inc., 731 So. 2d 137 (Fla. 1st DCA 1999).

Those in states that don't have similar statutes and want to recover attorney fees for successful foreclosure defenses may need to continue to rely on bringing suits/counterclaims under the federal Truth in Lending Act, 15 USC §1640, and the federal Fair Debt Collection Practices Act, 15 USC §1692k, which already allow for the recovery of attorney's fees to a prevailing claimant, as was ably pointed out in this memorandum filed on behalf of the New York Bankers Association arguing against the passage of the recently-enacted New York law.

Given all the unfair and deceptive conduct engaged in by foreclosing lenders in the robosigning scandal, I suppose lawsuits and counterclaims could possibly also be brought/raised under state consumer protection laws that may be applicable, which typically also provide for the granting of court-ordered attorney fee awards to a prevailing party. For a survey of state consumer protection laws, see National Consumer Law Center: CONSUMER PROTECTION IN THE STATES: A 50-State Report on Unfair and Deceptive Acts and Practices Statutes.