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2.10.6 Attorney Fees

Most standard mortgage contracts require that the borrower pay the lender’s attorney fees in any action to enforce or collect sums due under the note. Generally, however, these fees must be reasonable and must be actually incurred by the lender.193 In some cases, the lender will charge a flat fee for attorney fees as soon as a case is referred to an attorney for foreclosure, even if the foreclosure is not completed or even commenced.194 In other cases, foreclosure firms will bill for projected costs before incurring them. When borrowers seek to bring their accounts current, the arrearage amount often includes a not yet accrued portion of attorney fees.

In general, foreclosure fees and costs are highly inflated. The mortgage holder and its servicer have little incentive to minimize them, because they can be passed on to the borrower. Many foreclosure attorneys and law firms use in-house paralegals or outsourced default-service providers (which may be affiliated with the law firm) to generate form documents that may take as little as fifteen minutes of time on a computer. In some cases, the borrower may be charged a fee for this work even though it may not involve the provision of legal services.195 The borrower may contest such a fee as unreasonable or not authorized by the underlying loan documents.196 When the attorney has been paid a retainer but a cure takes place before the foreclosure is completed, the unexpended fees should be returned by the attorney and credited to the account. If not, the fees passed on are not bona fide and can be challenged on that basis. A refusal to credit an account for unexpended attorney fees can also be challenged under many state unfair trade practice statutes.197 Some states specifically limit attorney fees in the event of foreclosure.198


  • 193 {188} See Korea First Bank v. Lee, 14 F. Supp. 2d 530 (S.D.N.Y. 1998) (lender was not entitled to recover more than it paid its attorney or more than was reasonable); In re Beach, 2011 WL 4963003 (Bankr. D. Idaho 2011) (under state law, attorney fee awards must be reasonable); In re Watson, 384 B.R. 697 (Bankr. D. Del. 2008) (rejecting lender’s argument that fees did not have to be reasonable); In re Riser, 289 B.R. 201 (Bankr. M.D. Fla. 2003) (attorney fee assessment to debtors’ mortgage account when no lender attorney ever appeared in case was “both illegal and fraudulent”). See also In re Coates, 292 B.R. 894 (Bankr. C.D. Ill. 2003) (creditor required to disclose agreement between itself and law firm so that court can determine exactly how much creditor is actually being charged for services); In re 1095 Commonwealth Ave. Corp., 204 B.R. 284 (Bankr. D. Mass. 1997) (secured creditor fraudulently overstated its claim for legal fees by failing to disclose two-tiered fee arrangement with its attorneys in which attorneys granted bank a discount but bank billed debtors at full standard rate), aff’d in relevant part, modified in part on other grounds, 236 B.R. 530 (D. Mass. 1999).

  • 194 {189} In re McMullen, 273 B.R. 558 (Bankr. C.D. Ill. 2001) (flat fee covering attorney fees for entire foreclosure proceeding found excessive when not prorated to cover only services actually performed prior to bankruptcy filing). See also In re Hight, 393 B.R. 484 (Bankr. S.D. Tex. 2008) (disallowing creditor’s prepetition attorney fees for preparation of foreclosure sale when creditor failed to provide evidence pertaining to what work was done, who did the work, hourly rate, and time spent).

  • 195 {190} See, e.g., Declaration of Stephanie Jeffries, In re Crowder, Case No. 06-36030-H4-13 (Bankr. S.D. Tex. filed June 8, 2009) (Exhibit A to Moss Codilis’ Response to Oder to Show Cause) (declaration stating that law firm affiliate provides several “non-legal functions” for servicers, including preparing foreclosure notices and bankruptcy proofs of claims and reviewing bankruptcy plans, and that it “did not provide legal services” to the servicer in the case and did not have an “attorney-client relationship with the servicer”).

  • 196 {191} See In re Taal, 540 B.R. 24 (Bankr. D.N.H. 2015) (reducing mortgagee’s claimed prepetition attorney fees of $11,399 to $4818); National Consumer Law Center, Collection Actions § 6.2 (5th ed. 2020), updated at

  • 197 {192} See § 5.3, infra.

  • 198 {193} See, e.g., Mont. Code Ann. § 71-1-320 (limiting trustees’ fees and attorney fees in nonjudicial foreclosure to 5% of obligation); 41 Pa. Stat. and Cons. Stat. Ann. § 406 (West) (limiting attorney fees to $50 prior to commencement of foreclosure or other legal action; no legal fees may be charged for expenses incurred during thirty-day period provided for in the notice of intent to foreclose).