This action is the result of the State’s extensive two-year civil law enforcement investigation of foreclosure law firms, including Aronowitz & Mecklenburg (“Aronowitz” or “the law firm”), that have performed the vast majority of the roughly 275,000 residential foreclosures in Colorado since 2006. This investigation revealed that these law firms, including Aronowitz, unlawfully exploit the foreclosure process by misrepresenting and inflating the costs they incur for foreclosure-related services to fraudulently obtain tens of millions of dollars in unlawful proceeds. Although the law firms agreed to perform these routine foreclosures for a flat attorney fee, they viewed this fee as insufficient and devised a scheme to generate additional millions by inflating foreclosure costs. Homeowners, purchasers, investors, and taxpayers paid for and continue to pay for these fraudulent charges.
2. Defendants systematically and intentionally misrepresent, inflate, and charge unreasonable, unauthorized, unlawful, and deceptive costs for posting foreclosure notices, obtaining title products, preparing documents, and providing other foreclosure-related services. They do this primarily through affiliated vendors, which create invoices for foreclosure services at costs grossly inflated above the actual costs and above what unaffiliated vendors charge for the same services.
3. Defendants get away with this extensive fraud by taking advantage of the inherent lack of oversight in the foreclosure process. The mortgage servicers that hire the law firm on behalf of the loan’s investor rely upon the law firm to perform all the legal work in the foreclosure for an agreed-upon flat attorney fee (the “maximum allowable fee”) and to pass through only its actual, necessary, and reasonable costs. Servicers do not conduct market analyses of these foreclosure costs; rather, they rely on the law firm to comply with the law and investor guidelines by charging costs that are actual, reasonable, and the market rate.
4. Defendants also get away with charging excessive, unauthorized, and unlawful costs because no homeowner, purchaser, or taxpayer can challenge the law firm’s claimed costs. Nor may the public trustees, which administer the foreclosure process, or the courts, which authorize the foreclosure sale, challenge these costs. Thus, a homeowner seeking to save his home from foreclosure or a person purchasing a property at auction must pay whatever costs the law firm claims to have incurred in performing the foreclosure. If the property returns to the lender, the mortgage servicer assesses these costs to the investor or insurer, which are often borne by taxpayers.
5. The law firm abuses this system, which it knows is devoid of administrative or judicial oversight, to charge whatever costs it can get away with in order to generate significant revenue beyond the maximum allowable fee.
6. For example, in early 2009 when the Colorado legislature began considering a bill to allow for a brief foreclosure deferment that would require posting a notice similar to an eviction notice, Stacey Aronowitz began working with Caren Castle of The Castle Law Group (“Castle”), Aronowitz’s largest competitor, on what they could get away with charging. Stacey Aronowitz emailed a foreclosure lawyer in another state that also required a foreclosure posting and asked: “I am curious how much you get away with charging . . . .” She later emailed Caren Castle: “I just wanted our offices to try and get on the same page on what we are charging for all of this.” They agreed that Caren Castle would try to seek approval from Fannie Mae, the dominant investor in the foreclosure industry, to charge $125 for this new posting, not the $25 charged for similar eviction postings.
7. Accordingly, these two competitors, who handle 75 percent of Colorado foreclosure filings, coordinated to set the minimum price for posting at $125—an amount unrelated to the actual cost for such postings or the market rate charged by unaffiliated vendors. Once the bill requiring the foreclosure posting passed, Aronowitz and Castle secured financial interests in posting companies and claimed fraudulent and inflated costs of at least $125 per posting. This amount multiplied by tens of thousands of foreclosures resulted in a multimillion-dollar windfall to the posting companies and, directly or indirectly, to the law firm, Stacey Aronowitz, Robert Aronowitz and Joel Mecklenburg (collectively “Aronowitz Defendants”) and to Castle.
8. Operating with no checks and unrestrained by market principles by selling foreclosure services to themselves, the Aronowitz Defendants charge around $350 to $750 in unlawful costs per foreclosure by making false, misleading, and deceptive statements of costs to homeowners, servicers, investors, and the public on reinstatements, cures, bids, and invoices, as follows:
● $125 to $150 for each of the two required foreclosure postings for a total of $250 to $275 per foreclosure when the market rate for each posting is $25;
● $250 to $275 for title search reports when the market rate is $100;
● $400 to $500 in “cancellation fees” for foreclosure title commitments ordered by the law firm during the foreclosure;
● $100 for a one-page form document that can be completed in secondsand is already compensated in the allowable foreclosure fee;
● $35 for a tax search/tax certification when the actual cost is $10 or less;
● $25 for a bankruptcy search that costs $3 or less; and
● $10 to $25 for a military status search that is free.
9. Defendants’ multimillion-dollar unjust enrichment came at a tremendous expense to the public. Not only does it harm desperate homeowners facing foreclosure and persons buying properties at auction, it reverberates to the public at large, as servicers hiring the law firm pass along these costs to taxpayer-funded investors or insurers. As Fannie Mae informed Aronowitz and other Colorado foreclosure law firms during a 2010 training, its credit losses are taxpayer-funded and every effort should be taken to reduce foreclosure costs because every dollar reduction in costs is significant when multiplied by a large volume of loans.
10. These inflated foreclosure costs also negatively impact housing and loan costs outside the foreclosure industry. Moreover, the law firm’s use of affiliated businesses charging inflated costs has adversely affected competition from businesses that could provide foreclosure services at a much lower market rate.
11. The increased cost of foreclosures and negative impact on competition wrought by Aronowitz’s and Castle’s use of affiliated vendors charging above the market rate for foreclosure services was recently highlighted when Fannie Mae suspended Aronowitz and Castle from handling any Fannie Mae foreclosures. Fannie Mae began referring its files to new law firms using unaffiliated vendors, which provide postings at $25, not $125, and title searches at $85 to $105, not $275. This development has already significantly reduced the costs per foreclosure. These unaffiliated vendors—which were effectively cut out of the foreclosure market by Aronowitz’s and Castle’s affiliated vendors—have since substantially increased their volume of work by providing services to new law firms at actual market prices.
12. Defendants’ conduct violates the Colorado Consumer Protection Act, the Colorado Antitrust Act of 1992, and the Colorado Fair Debt Collection Practices Act and harms homeowners and the public.