Foreclosure law these days is the legal equivalent of a blood sport.

After the housing bubble burst six years ago, an army of attorneys gathered to represent homeowners facing foreclosure. The battle has taken place against a backdrop of unscrupulous "robo-signers," delayed short sales and a backlog of tens of thousands of foreclosures.

Banks now assert some homeowner lawyers are trying to manipulate consumer protection laws to buttress their legal fees and needlessly clog federal and state court dockets.

Lawyers for homeowners counter that mortgage lenders and servicers are breaking federal law by failing to inform distressed homeowners about who owns their mortgage so they can renegotiate the terms. The ostensible reason is financial: the money stream received by servicers for loans in default ends when homeowners obtain a loan modification or do a short sale.

But U.S. District Judge Kenneth Ryskamp in West Palm Beach said in a March 11 ruling that the Plantation law firm Loan Lawyers misused a 2009 provision in the Truth in Lending Act in a sham lawsuit on behalf of Delray Beach homeowners Wilner and Rachel Guillaume to obtain attorney fees and damages while in foreclosure in state court. Ryskamp granted a defense motion to dismiss their TILA lawsuit.

The defendants argued "this lawsuit is a sham and should be dismissed as such because plaintiffs (through Loan Lawyers) manufactured TILA claims to obtain statutory damages and attorneys’ fees and gain leverage in the pending foreclosure proceedings. For the reasons discussed below, this court agrees," the judge wrote in an eight-page ruling. "The court finds that plaintiffs claims are contrary to Congress’s intent and at odds with the purpose and spirit of the law."

Other judges in the Southern District of Florida, such as Judge William P. Dimitrouleas, have ruled in favor of homeowners on the same issue.

The Guillaumes sued Wells Fargo as their servicer and the Federal National Mortgage Association, or Fannie Mae, as their mortgage holder. Their attorneys said Ryskamp’s ruling is a sea change.

"This is the first decision of its kind in the United States," said Alan Rosenthal, a partner with Carlton Fields who represented the defendants along with Tenikka Lanai Cunningham.

Reconsideration

Attorney Yechezkel Rodal, a Loan lawyers associate who represented the Guillaumes, said the firm will file a motion for reconsideration. He said Ryskamp did not have all the evidence in front of him, notably Wells Fargo’s alleged failure to disclose to the Guillaumes that Fannie Mae owned their loan. Wells Fargo sued them for foreclosure in 2008. The federal suit was filed in 2012.

The lawsuit before Ryskamp was one of dozens filed against Wells Fargo by Loan Lawyers seeking attorney fees and statutory damages for the bank’s alleged failure to fully respond to homeowner requests for the name, address and phone number of the servicers and true owners of mortgages.

The requirement became mandatory under a TILA amendment adopted after the financial crisis hit. When mortgages were sold, resold and packaged as mortgage-backed securities for Wall Street trading, they helped pump up real estate values. The collapse of the housing market left many homeowners owing more than their houses were worth, and foreclosures skyrocketed.

Ryskamp, though, said in his order that homeowner attorneys have taken advantage of TILA.

"Instead of being used as a shield, however, plaintiffs’ lawyers have used TILA to spawn a cottage industry of lawsuit farming by sending requests for information and, without further inquiry, suing creditors and servicers for technical violations of the statute."

Foreclosure Leverage

Ryskamp said these lawyers believe loan servicers would rather settle TILA claims than engage in costly litigation.

"They use the statute’s statutory damages and mandatory attorneys’ fees as leveraging blocks to do so," he said. "Such strategies are particularly effective when the same lawyers bringing suit under TILA are also defending their clients in parallel foreclosure proceedings, as a creditor faced with such claims may opt to discontinue foreclosure and modify a loan in exchange for dismissal of the TILA actions."

Wells Fargo & Co. also is not one to capitulate. Rosenthal is defending the San Francisco-based bank in about 20 cases brought by Loan lawyers.

Critics of these lawsuits agree with Ryskamp’s conclusion that many are being filed for technical violations. For example, the bank may provide the name and address of the mortgage owner but not the phone number as the law requires.

Attorney Matthew Bavaro, a partner at Loan Lawyers, said Wells Fargo never responded in the Guillaumes’ case.

"We anticipate this ruling would have been different if Judge Ryskamp had all the facts at his disposal," Bavaro said.

He said other judges, such as Dimitrouleas, have decided they were "not going to punish consumers for exercising rights given to them by Congress."

There may be a strategy by servicers to hide mortgage owners to keep homeowners from renegotiating their loans, Bavaro said.

On the state court side, foreclosure cases have generated a heavy backlog, and judges are trying once again to clear the cases. Palm Beach County is trying to dispose of as many as 9,000 cases filed before 2010 under a new case management plan.

Best estimates have Broward County with more than 60,000 pending foreclosure cases, Palm Beach County with 52,000 and Miami-Dade County with 47,000.