DENVER (AP) — Colorado's two largest foreclosure law firms were accused Tuesday of defrauding homeowners, banks and investors.
The Castle Law Group and Aronowitz & Mecklenburg were sued Tuesday by the state attorney general's office, The Denver Post reported (http://dpo.st/1slM6ry).
The newspaper says that the Aronowitz firm immediately agreed to pay $10 million to settle the case. The firm will either sell or close its Denver-based law practice in the next six months.
Castle is expected to fight what is likely to be a long court battle over an investigation that lasted more than two years.
Combined, the law firms handled more than 150,000 foreclosures in Colorado since 2006.
The scope of the allegations in Tuesday's complaints range from collusion between law firms to set the price on process services fees associated with foreclosure cases, to the inflation of fees charged to homeowners trying to save their house from seizure.
The 40-page lawsuits lay out a well-developed scheme that exploited nearly every facet of the foreclosure process. The law firms left virtually nothing out of their profit center: from title searches and title commitments, to the posting of legal notices and costs to file a foreclosure.
The lawsuits allege that the total of illegitimate profits could easily have reached $97 million in less than a decade.
Colorado Attorney General John Suthers said he was disturbed by what investigators uncovered, fostered largely by how the state's foreclosure system carried little oversight.
"These inflated costs were passed on to homeowners trying to save their homes from foreclosure, successful bidders for properties at foreclosure sales, and to investors (banks) and taxpayers," Suthers said. "The facts uncovered by our investigation are very disturbing and, frankly, reflect poorly on the legal profession."
Attorneys for Castle did not immediately respond to requests for comment.
Attorneys for Aronowitz & Mecklenburg, owned by Robert Aronowitz, his daughter Stacey and her husband Joel Mecklenburg, said the lawyers made no admission of guilt in settling.
"They don't believe they engaged in any violations, there are no admissions, and it would have been one heck of a fight," attorney Richard Benenson said Tuesday. "But it was not in their best interest to let that happen. It was better to address the issues and move forward."
The Aronowitzes and Mecklenburg are allowed to continue working on foreclosure matters, but cannot have an ownership interest in any law firm or other business with ties to the foreclosure industry.
The lawsuits allege violations of Colorado's Consumer Protection Act, its Anti-trust Act, and its Fair Debt Collection Practices Act.
The investigation began in May 2012, when attorney general investigators gathered foreclosure documents from public trustees in four counties showing what the law firms charged consumers. Investigators say Castle and Aronowitz controlled more than 75 percent of foreclosure cases filed in Colorado — a state that at one time led the nation in the number of foreclosures — and funneled the work to companies they owned or controlled.
The inquiry came after a number of Denver Post stories probing the foreclosure process, the conduct of several public trustees and the law firms.
Information from: The Denver Post, http://www.denverpost.com