Fannie Mae, the nation’s mortgage-finance giant, unexpectedly cut ties with Colorado’s two largest foreclosure law firms — Castle Law Group and Aronowitz Mecklenburg — immediately transferring hundreds of cases to other attorneys.
Freddie Mac, the government’s other mortgage-finance enterprise, said it was determining whether to do the same.
“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,” Fannie Mae spokeswoman Keosha Burns said in a statement. “We will have no further comment.”
The law firms for years had been on Fannie Mae’s “retained attorney list” of those allowed to handle its foreclosure work in Colorado.
It was unclear whether the move was initiated by Fannie Mae or, as can happen, by any number of banks, called servicers, that handle Fannie Mae-owned mortgages, who received the agency’s approval.
The rare move comes amid an ongoing Colorado attorney general investigation into the conduct of several foreclosure law firms. The inquiry began last year and is centered on five law firms, focused primarily on bill padding.
The firms allegedly charged more for the posting of legal notices on foreclosed homes, largely through process-service companies to which the lawyers had a financial tie or owned outright.
The Denver Post last year also revealed how the firms charged for nonexistent lawsuits tied to a foreclosure, forcing homeowners to pay up or lose their house.
It is unclear whether Fannie Mae’s action, which came late Thursday, is in response to evidence in the attorney general’s inquiry, but the mortgage company would be aware of any findings since it had shared records with investigators.
Freddie Mac — the Federal Home Loan Mortgage Corporation — was having a look, too.
“We’re aware of (Fannie Mae’s) action, and we are reviewing the need for us to take similar action,” Freddie Mac spokesman Brad German said Friday.
Details of the state’s investigation have surfaced in courtroom battles between Attorney General John Suthers’ efforts to obtain records and the law firms’ fight to prevent it by citing attorney-client confidentiality.
What has emerged are allegations that the two firms appeared to have manipulated and influenced the state’s foreclosure process in a way that guaranteed themselves millions of dollars in profits at the expense of homeowners and taxpayers.
Aronowitz Mecklenburg is headed by Robert Aronowitz, his daughter, Stacey, and his son-in-law, Joel Mecklenburg. Castle Law Group, which has operated under different names and partners, is headed by Lawrence Castle.
Neither firm immediately responded to efforts to reach them Friday. Both firms have consistently denied any allegations in the Suthers investigation.
It is unclear what the financial impact would be on the firms from losing work from Fannie Mae — the Federal National Mortgage Association. A former Castle associate who left the firm about three years ago said he estimated it was about 40 percent of its workload.
The two law firms have handled the lion’s share of foreclosures in Colorado, with estimates as high as 90 percent, although that has tapered in the past couple of years. Colorado at one time led the nation in the number of foreclosures filed.
“For this kind of immediate termination, it’s pretty serious,” said Keith Gantenbein, an attorney who worked at Castle for several years. “Fannie and Freddie have very strict guidelines for the conduct of the attorneys representing them.”
Castle had also handled Fannie Mae foreclosures in Nevada, Utah and New Mexico as Cooper Castle Law.
The other law firms under the state attorney general’s inquiry are The Hopp Law Firm, which went bankrupt; Vaden Law Firm, run by Denver’s former public trustee Wayne Vaden; and Medved, Dale, Decker Deere.
All except Vaden were on Fannie Mae’s preferred list of retained attorneys. Created in 2008, the list was discontinued in June, and servicers were required to choose firms to represent foreclosures. Most stayed with firms that had been on the list.
Fannie Mae suspensions are rare and usually come with severe consequences. Only a handful of law firms have been terminated since the mortgage scandal broke in 2008 — Fannie Mae will not say how many — all while under investigation for alleged misdeeds.
The most-noted one was the 2011 termination of Steve Baum in Florida, whose law firm was embroiled in the nation’s robo-signing foreclosure scandal. Baum’s law firm closed within a week of Fannie Mae’s termination, and he paid about $4 million a year later to settle state allegations of foreclosure abuse.
Similarly, Fannie Mae terminated the David Stern law firm in Florida that year, and the lawyer was disbarred in January and the firm shuttered.
David Migoya: 303-954-1506, dmigoya@ denverpost.com or twitter.com/davidmigoya
Firms in Colorado probe
Law firms under investigation by the attorney general’s office:
Castle Law Group
The Hopp Law Firm
Vaden Law Firm
Medved, Dale, Decker Deere