Two of New Jersey’s busiest firms for mortgage lenders are defending themselves against charges that they submitted inflated bills to homeowners trying to avoid foreclosure.

And the federal suits against the firms, Zucker, Goldberg & Ackerman in Mountainside and Fein, Such, Kahn & Shepard in Parsippany, could morph into class actions on behalf of debtors, the plaintiffs’ lawyer says.

Mortgage holders are permitted by law to pass their legal fees to debtors in foreclosure proceedings or to the purchasers of foreclosed property, but the suits allege that statements received by two homeowners threatened with foreclosure included fees and costs not authorized by law or court rules.

That constitutes breach of duty, unjust enrichment and a violation of the Federal Fair Debt Collection Practices Act, the plaintiffs charge, naming as defendants the firms and the lenders that hired them.

The complaints don’t specify what the alleged overcharges were, and the total amounts were relatively small. Even so, they would add up to significant sums for the firms because of the high volume of work, says plaintiffs’ lawyer Lewis Adler of Woodbury.

The suits are potential vehicles for a broad inquiry into lenders’ fees at a time when foreclosure work for lawyers is booming. The national rate of foreclosures per households is higher than it has been since 1979, according to RealtyTrac, which collects data from state courts. In New Jersey, the average number of foreclosures is running about 400 higher this year than in the last six months of 2006, according to the Administrative Office of the Courts.

“We are concerned that these practices are pervasive and that they are targeting the most vulnerable members of society,” Adler says. “People that are in the process of losing their homes and trying to save them are being charged extra money when they can least afford it.”

The suits were filed in U.S. District Court in Camden as putative class actions, but no pleadings to seek certification have been submitted.

Zucker, Goldberg isn’t commenting, but the firm has denied the allegations in pleadings. What’s more, it has won summary dismissal of nine of the 14 counts in the complaint, Whittingham v. Mortgage Electronic Services, Inc., 06-3016, which also names the lender and the mortgage servicing company.

The suit says plaintiff Deborah Whittingham of Woodbury Heights received a mortgage payoff calculation in a foreclosure against her in June 2005 that called for a payment of $18,000, plus $2,193 in legal fees. The suit doesn’t say what the overcharges were.

Whittingham passed the first test on May 4, when U.S. District Court Judge Robert Kugler denied Zucker, Goldberg’s motions to dismiss the entire suit for failure to state a claim.

Kugler dismissed claims that the firm violated the Consumer Fraud Act, the Fair Foreclosure Act and the rules of court, but he permitted Adler to pursue claims that the firm violated the federal Fair Debt Collection Practices Act. Also still in the case are claims for unjust enrichment, negligence and breach of duty.

Under New Jersey law, attorneys are liable to nonclients for negligence and breach of duty if the nonclients have reason to rely on the attorneys’ representations.

Zucker, Goldberg name partner Michael Ackerman and the firm’s counsel, Karen Randall of Connell Foley in Roseland, did not return calls last week.

Before it was removed to federal court by Adler, the case involving Fein, Such, LaSalle Bank v. Allen, 07-cv-03489, was a standard foreclosure complaint in Superior Court. Fein, Such filed it for the bank when Dorothy Allen of Deptford didn’t make the final monthly payment on a 30-year mortgage, the suit says.

Allen was told she would have to remit $3,425 to pay off the mortgage and $1,242 in legal fees and costs, which according to the suit exceeds the amounts authorized by New Jersey court rules and the New Jersey Fair Foreclosure Act.

The suit doesn’t say which fees on a Fein, Such schedule attached to the suit are too high or unauthorized. Because the firm isn’t commenting and hasn’t filed defense pleadings, it is hard to tell whether some lines on the schedule combine two authorized costs under one heading.

For example, the list sent to Allen includes a $75 cost for a lis pendens, the formal notice that starts the foreclosure proceeding. The court rule says the maximum charge for a lis pendens is $50.

Court rules don’t cover some charges on the schedule, such as the $45 cost of “occupancy search.”

The list ends with a disclaimer that the tallies are estimates pending “continuing audit and verification by our firm.”

Who Reviews the Fee Charges?

The suits raise an intriguing question: Who, if anyone, is checking foreclosure bills to make sure the charges conform to what is allowed in the court rule?

If a foreclosure proceeds to judgment and the property is heading to a sheriff’s sale, the AOC’s foreclosure unit does the checking.

Under reforms instituted last year, a standard certification of amount due is consulted and AOC workers make sure the right amounts have been put down by the lender’s attorney.

When it comes to the lawyer’s fee, which depends on the amount owed, if the certification calls for, say, a $10,000 fee and the lawyer is entitled to $2,500, the AOC “crosses out $10,000 and puts in $2,500,” says Kevin Wolfe, the AOC’s assistant director for civil practice.

As for costs, besides the $50 for a lis pendens filing, the schedule allows $200 to cover the foreclosure filing fee, $10 for a writ of execution and $35 per defendant for service of process.

Wolfe says sometimes a cost seems out of line with the rules. “If the office thought it was high, they would either strike it or seek clarification,” Wolfe says.

But the court has no role in checking the fees and costs that are charged to property owners – like the ones in the federal suits – who pay or redeem mortgages before the foreclosure goes to judgment.

Lawyers who represent debtors seeking protection from foreclosure in bankruptcy court suggest there are limits to how much scrutiny they can give to lender’s legal fees for foreclosure and for creditors’ bankruptcy filings such as proofs of claim. The test is whether the amounts seem reasonable.

“There’s a fairly standard amount for costs and a fairly standard amount for fees,” says Steven Kartzman of Mellinger, Sanders & Kartzman in Morris Plains. He objects when something is clearly out of line.

But when it comes to mistakes in charges set by law or rule, “I never found a case where I could say ‘these guys did it on purpose,’” Kartzman says.

Virginia Fortunato, an associate in the office of Mark Goldman in East Orange, says it’s often difficult to tell from filings by lenders’ lawyers in Chapter 13s whether fees and costs are for bankruptcy or foreclosure.

Sometimes, firms will charge seemingly large amounts for inspections to ensure that the debtor is occupying a home that is subject to foreclosure, Fortunato says.

The charge can range from $10 to $125 for what is simply a “drive-by” inspection, she says. “What I tell attorneys for the mortgage company is, ‘Sign me up because I want the job of doing drive-bys for $100,’” she jokes.

Debtor’s attorneys must do a cost-benefit analysis before getting crazed about lenders’ legal fees, she says.

“One of the things we have to look at before we object to the foreclosure fees and nickel and dime them is whether it is beneficial to the debtor to pay us anywhere from $275 an hour to $325 an hour to object to a $25 fee,” she says.

Finally, there are foreclosure defendants who have no attorneys. These defendants are concentrating on keeping their homes, not on whether the legal fees are a few dollars too high, Adler says.

“If it’s two or three thousand and they get their house back, they’re happy,” he says.