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Law firms gear up for work on cases involving faulty foreclosures

MIAMI - OCTOBER 14: A bank owned sign hangs on the door of a foreclosed home on October 14, 2010 in Miami, Florida. Bank repossessions rose to their highest level in September, exceeding 100,000 in a month for the first time, according to foreclosure tracker RealtyTrac. (Photo by Joe Raedle/Getty Images)
MIAMI - OCTOBER 14: A bank owned sign hangs on the door of a foreclosed home on October 14, 2010 in Miami, Florida. Bank repossessions rose to their highest level in September, exceeding 100,000 in a month for the first time, according to foreclosure tracker RealtyTrac. (Photo by Joe Raedle/Getty Images) (Joe Raedle - Getty Images)

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By Amanda Becker
Monday, October 25, 2010

Area law firms are reshuffling attorneys and drafting advisories to assist clients as multiple federal agencies and all 50 state attorneys general conduct probes into faulty foreclosure documents that have landed mortgage servicers and banks -- and even law firms that counseled them -- in hot water.

Though foreclosures and the investigation of foreclosure fraud is typically handled at the state or local level, news last week that the Department of Housing and Urban Development, the Securities and Exchange Commission and the Obama administration's multi-agency Financial Fraud Task Force were in the process of reviewing flawed foreclosure documents propelled the issue onto the national stage. Several large firms with a strong presence in the District quickly formed multi-disciplinary teams of attorneys to help clients respond to the multi-pronged inquiries.

"We found that there's almost a gotcha mentality right now, with everybody coming out of the woodwork to attack [mortgage] servicers," said District-based mortgage banking partner Laurence E. Platt, head of K&L Gates' financial services practice.

Formal efforts to address issues raised by the probe were undertaken last week by K&L Gates and the international law firm Dechert. Both firms retooled teams of attorneys to provide across-the-board advice to clients responding to the sometimes competing interests of investors, state attorneys general, federal prosecutors and state and federal banking agencies. Other firms in the area, including SNR Denton, fielded phone calls and prepared Webinars and client advisories.

Dechert is in the midst of building a cross-disciplinary group of attorneys from its financial services, regulatory, real estate and litigation practices. Richard D. Jones, co-chair of the finance and real estate practice group, estimates that 15 attorneys at the senior-partner level are on deck and the firm could "easily double or triple" that number as the investigations proceed. District-based colleague Thomas P. Vartanian likened the multi-front preparations to the legal defense of former Freddie Mac executives over accounting irregularities.

"There were five federal regulators, there were state regulators and there were class action lawsuits as well as an investigation by the federal prosecutors," Vartanian said. "All of those had to be settled one by one and piece by piece."

K&L Gates' task force is prepared to put as few as one or as many as 50 attorneys on foreclosure-related matters from inception to resolution. Mortgage banking attorneys will handle compliance counseling, litigators will defend lenders in class action lawsuits, government enforcement experts are prepared to respond to inquiries and lobbyists will shape public policy.

"Every action has a reaction by all of these entities," Platt said. The key is to "try and spot all the potential claims that could come from third parties because that might influence what action is taken and how that action is taken."

At SNR Denton, several clients have already received letters from attorney general offices in Texas and Arizona. In the near-term, capital markets partner Stephen F.J. Ornstein said, servicers will be reviewing procedures and policies looking for any irregularities identified by the state attorneys general. The firm will assist them with "not only corrective steps but protective steps in the event that they are subject to a lawsuit or targeted investigation," he said.

Though the firm has not formed a formal task force, SNR Denton is prepared to pull attorneys from various practice groups to meet clients' needs in responding to the probes. A Webinar is in the works for sometime within the next week.

"We've been doing nothing but having calls with clients and investors" about this, Ornstein said.


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