Fannie Mae stops working with two Colorado law firms

Negative headlines included claims of foreclosure fee-padding

Fannie Mae is not going to send its foreclosure business to two specific law firms in Colorado, effective immediately, the government-sponsored enterprise can confirm.

"Fannie Mae has instructed servicers to cease referrals of new foreclosure cases to Aronowitz & Mecklenburg and the Castle Law Group and to transfer existing cases at those law firms to other firms," said Fannie Mae spokesperson Keosha Burns.

The GSE would not comment on why it so suddenly terminated its relationship with both firms.

Both the Castle and Aronowitz law firms regularly ranked as the two largest law firms managing foreclosures in Colorado over the past few years, according to industry sources. Both managed a large part of Fannie Mae's foreclosure work in the state.

The GSE's decision apparently caught more than a few servicers off-guard this week, and some were scrambling yesterday and today to find additional available legal counsel in the state, HousingWire was told by sources that wished to remain anonymous.

Both law firms were embroiled last year in a highly-publicized Colorado state Attorney General investigation of alleged excessive fee-charging in serving foreclosure notices to delinquent homeowners, known as process of service.

The story largely went unoticed in the trade press, but HousingWire covered the case.

According to coverage in the Denver Post at the time, the AG's office claimed one of the law firms "misrepresented its costs and charged more than twice what it paid for posting services," among other claims of collusion and price fixing among some industry law firms in the state.

The state AG originally began investigating alleged billing discrepancies involving both the Castle and Aronowitz law firms when a separate investigation at the state AG's office found that several county trustees in Colorado had overcharged their foreclosure costs and then passed the overpayments onto banks.

Those discrepancies have since led Colorado's state legislature to push forward with new legislation designed to refund overpayments to distressed homeowners. The bill, HB 14-1130, is called the "Foreclosure Cure Remit Unpaid Fees to Borrower Act," the full text of which can be read here.

HB 14-1130 passed a full House vote on February 11. It currently awaits the Colorado state Senate's approval before being signed into law.

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