Counsel Fees in Foreclosure Cases- Getting Around the Imposed Limit

By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Real Estate Foreclosure Attorney

In one of my earlier blogs, I talked about the limited ability you have to recover counsel fees in legal action(s) you may start.  This rule is called the “American rule” and it provides that unless allowed by statute or rule, a prevailing party in a lawsuit cannot recover the fees he or she incurs in litigating the case from the other party.  This rule is different than in places like England, where the loser is usually required to pay the winner’s counsel fees.

The reason for this rule lies in what the courts deem “equitable”.  Imagine wanting to bring a lawsuit, but being fearful that because the case wasn’t a slam dunk, you could be on the hook for the other party’s counsel fees.  You probably wouldn’t bring the case, unless cost wasn’t a factor in your decision to sue.  With American law not being black and white, and the courts being given a lot of discretion to make rulings that can affect the outcome of the case, the law has evolved to provide that everybody pays their own court costs and legal fees, win, lose, or draw.  Of course, because people do not fear having to pay the other side’s counsel fees, it also means that there are increases in litigation in this country versus others, which also means a rise in unnecessary and/or inappropriate litigation.

However there are also times when counsel fees are appropriate to “make someone whole” because they shouldn’t have had to file a lawsuit in the first place.  In these two situations, the law has recognized exceptions to the rule that everybody pays their own legal and court costs. Today, I will address legal fees in foreclosure cases.

Awarding legal fees in foreclosure cases is intended to make a plaintiff whole.  Consider that a borrower agrees to take out a mortgage, and the borrower fails to pay it.  This forces the lender to go through an extensive process to collect the money it is owed under the mortgage, including obtaining a notice of default, judgment of foreclosure, judgment of possession, and the costs of a sheriff’s sale.  Attorney’s fees are appropriate to the aggrieved lender.  However, the law also recognizes that the borrower is losing their home or their investment and attempts to not add insult to injury by instituting a limit on the amount of attorney’s fees that can be awarded.  A percentage of the amount foreclosed is used to calculate counsel fees, and the amount of fees a lender can be awarded can be no greater than $7,500.  Under this scheme, a court can award less than the calculated amount, but not more.

There is one exception to this rule.  As I mentioned earlier, counsel fees are awarded on an equitable basis.  We had a foreclosure case come through our office where we instituted a foreclosure action, and the borrower made a defense and counterclaim that we believed was frivolous.  The counsel fee we would have been awarded did not cover defending against the frivolous counterclaim suit, so the question was whether we could get more in legal frees and costs.  It turns out that the court will allow for additional fees to defend against a frivolous pleading, even if it is beyond the calculated cap amount.

In another case we tried to see if the courts would allow counsel fees beyond the cap before a foreclosure complaint was filed to cover the costs of trying to settle the case so that an action could be avoided.  Unfortunately, there, the court held firm and that limited us to of the cap, determining that fees become available only when litigation is initiated, even if there are attempts to settle a case pre-litigation. As a matter of opinion I think it would be more equitable if courts rewarded efforts to settle outside of court instead of tying the parties’ hands under the statute.

To discuss your NJ foreclosure matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at fniemann@hnlawfirm.com.  Please ask us about our video conferencing consultations if you are unable to come to our office.

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