When he graduated from the University of Georgia School of Law 21 years ago, Richard Alembik traded his love of motorcycle racing for another kind of adrenaline rush in the courtroom. He built a litigation practice around commercial real estate development and title work.
All that changed five years ago when the economy — starting with the real estate market — crashed and burned. Now, only one of his big developer clients from the old days is still in business. “They had too many assets to declare bankruptcy, so I’m still representing them,” he said somberly.
To survive, Alembik had to reinvent himself, turning from big clients and big deals in real estate to small clients in danger of losing their homes.
He talked about it over lunch at Farm Burger near his downtown Decatur office on West Ponce de Leon Avenue last week.
“I retooled,” he said. “Now I do foreclosure defense and consumer protection.”
His business is smaller now. So is his firm, Richard S. Alembik, PC. (Alembik & Alembik was started by his uncle. His father, an estate and tax lawyer who passed away in 1992, had another firm with Alembik in the name.) Since the recession, he’s scaled back from six employees to three. The firm once was himself, an associate and four support staffers. Now, it’s only himself, a paralegal and an office administrator. Revenue is down, but so are expenses.”My profitability is not based on exploiting an associate, but on providing a service that no one else can provide,” he said.
In the process, Alembik has developed a body of knowledge in an area in which few lawyers have expertise, and those that do usually work for the other side — the banks, mortgage companies and loan servicers who carry out foreclosures at the rate of thousands every month in metro Atlanta counties. Marietta plaintiffs lawyer Matthew Flournoy said Alembik is one of the most knowledgeable lawyers in Atlanta in the area of foreclosure defense. “He’s represented a lot of people against banks,” Flournoy said.
Asked why he took this direction with his practice, Alembik replied, “I always wanted to represent the good guy.”
“I don’t want to sound shrill,” he hastened to add, offering that he sometimes represents lenders on a small scale. “Sometimes the good guy can be the lender.”
He has filed more than 100 wrongful foreclosure lawsuits around metro Atlanta during the past five years. All but one settled before making it to a jury. And he did win that one.
“If the bank doesn’t win on summary judgment, the bank is going to settle,” he said. “Banks do not want to be in front of juries right now.”
Still it’s difficult to reach a good outcome for a borrower in this market. If homeowners are underwater on their mortgage, which many are, they have no equity to claim in a wrongful foreclosure action — unless they win some type of loan forgiveness, which is rare, he said. Alembik said he can’t always help people hang onto their homes, although that is his goal.
Alembik does cringe at the standard company line that no bank wants to foreclose on a customer, and that the best outcome for both is for the borrower to keep their home, business or other property.
The deregulated market of recent years and the securitization process that has developed have turned conventional wisdom upside down, he said. Since the local banks now sell the loans to other mortgage companies, the banks get their money and the loans get sold repeatedly to financial companies or servicers. If a customer is late on a payment or misses one, the servicers still must make the payments to the investors — unless the loan goes into default and the foreclosure process begins. Then the financial companies can cash in on their insurance, or credit default swaps. So foreclosure is no longer so undesirable for the financial industry. Of course, that means trouble not only for the individual buyers but for the big companies that financed the mortgage-backed securities, such as AIG.
“In this era of mortgage-backed securities the majority of loan servicers are contractually obliged to pay their lenders the stream of revenue generated by the loans they service — whether or not they actually receive a mortgage payment. Servicers are thus foreclosing purely out of self interest. This is because once a loan has been foreclosed, the servicer is no longer obligated to make payments back up the securitization ‘conduit’ to the owner of the debt (often a securitized trust holding a pool of mortgage loans),” Alembik said in a recent letter to the Daily Report. “This dynamic represents one of the biggest roadblocks to returning the real estate and financial markets to some equilibrium.”
He paints a bleak picture and he doesn’t foresee it improving any time soon. “I think it’s going to get worse after the election, no matter who wins,” Alembik said. “I think a lot of people are holding up actions until then.”
Alembik has also noticed a change in the types of cases he’s taking during the years of the economic crisis. At first, he said, he was representing a lot of people with relatively small mortgages living close to the margins of what they could manage. They were the first to go under. Now, he said, he is representing more formerly high net worth individuals with million-dollar mortgages that they’re having trouble paying. “They’ve held on as long as they could,” he said.
Despite his love for litigating, Alembik has had to learn to take satisfaction in helping people stay out of court. His website says his “most satisfying professional accomplishments, however, have been those that did not get into the courts or the headlines: Negotiated resolutions that avoided litigation and preserved constructive business relationships.”
If a foreclosure has already taken place, there is little he can do, he said. If he can step in early, he can give a client a chance to renegotiate the terms of the loan, a process that is difficult in the current climate. Still, he fears, too many people are just delaying the inevitable when they renegotiate a loan to a longer term or even a lower interest rate.
“People can’t keep paying on a loan for 40 years when the property is worth less than half of what they owe,” he said. “I don’t think things are going to change until we can start modifying the principal.”
It’s a difficult proposition, he acknowledged, to even consider bringing the lenders back to the table to assume a part of the risk the buyer took on the price of a home or other property. Yet he believes it’s an idea that will have to be considered to solve the crisis.
Otherwise, he said, even bigger losses will follow as more people decide their only choice is to walk away from their mortgages.
As he rose from the table to get back to work, Alembik said the change in direction of his practice has made him cynical about the economy. “It’s like the Great Depression out there.”