Colorado Judge: Castle and his law firm did not defraud consumers during the foreclosure crisis

By David Migoya

Colorado’s largest foreclosure law firm has landed a major victory in its five-year legal battle against state investigators who tried to prove attorney Larry Castle and his law-partner wife, Caren, headed a money-hungry outfit that for years preyed on a foreclosure system gone wild.

In a 92-page opinion issued Tuesday, Denver District Judge Morris Hoffman ruled mostly in favor of the Castles, their now-closed firm, The Castle Law Group, and other foreclosure-related companies with whom they did business. Hoffman ruled that the Castles and other defendants did not, as the state claimed, conspire to pad billings and reap millions in illegitimate profits on the backs of the banks they represented, the affected homeowners and real estate investors who later bought the houses at auction.

Hoffman did determine, however, that the Castles failed to tell federal mortgage insurers Fannie Mae and Freddie Mac — two of their biggest clients — about their indirect financial interest in a summons-posting company and for that must pay a civil penalty of $119,500.

The state had sought $16 million to $26 million from the Castles and other defendants in the case. The trial lasted three weeks.

In essence, Hoffman determined the state tried to prove a conspiracy where one did not exist, and that the fees charged by Castle and the other companies with which they did business were merely an entrepreneurial spirit that capitalized on a foreclosure process that didn’t prohibit it. Although the Castles had an obligation to report their profit-sharing to federal mortgage authorities, the larger costs were what the market would actually allow.

“We received the decision yesterday. We are looking it over and evaluating our options,” said Annie Skinner, communications director for Attorney General Cynthia Coffman.

Castle’s lead defense attorney, Larry Pozner, did not immediately respond to a request for comment.

The civil penalty dwarfs a $10 million settlement state prosecutors made in July 2014 with Castle’s biggest competitor, Aronowitz & Mecklenburg, who they sued at the same time for much of the same alleged infractions. The Aronowitz firm closed and later agreed to pay about $2.5 million more to affected homeowners who sued in a separate class-action case.

It also runs against several other settlements the AG’s office made with six other foreclosure law firms, though not as pricey, with each accused of padding billings and profiteering from a foreclosure system that logged unprecedented volume from about 2005 to about 2014.

The crux of the state’s case hinged on a theory that Castle intentionally manipulated and beefed-up the side costs associated with foreclosures, from the posting of notices about court hearings at homeowners’ doors, to the real estate title work and insurance needed to complete the process. Because the firm handled thousands of foreclosures a month at the height of the nation’s foreclosure calamity, the Castles made millions of extra dollars state prosecutors claimed were unjustly earned.

The state sued the Castles, their firm, Absolute Posting & Process Services, its owners Kathleen Benton and Ryan O’Connell, Colorado American Title and RE Real Estate Records Research.

In his ruling, Hoffman described the lawsuit as the state trying to prove those defendants “in taking advantage of the extraordinary entrepreneurial opportunity presented by the economic crisis, crossed the line from lawful self-interest into deception or anti-competitive collusion.”

Noting that the foreclosure crisis was so devastating to the economy and so many banks were failing as a result, Hoffman wrote that “speed (in foreclosing) was not only important, it was existential.”

The Castle Law Group represented up to 100 mortgage clients, but their biggest were Bank of America, Chase and Wells Fargo. And in nearly every case, Hoffman noted, the rules law firms hired by the banks were required to follow were onerous and often forced them to indemnify the banks for any damages that came from bad legal work.

“The tsunami of the subprime mortgage collapse created unique entrepreneurial opportunities,” Hoffman wrote. “The Castles, like many others, began to expand their law firm regionally.”

Hoffman noted that Colorado’s unique public-trustee-based system has a critical flaw, in that homeowners looking to stop a foreclosure are forced to pay whatever the banks say is owed — even attorney costs that can be proved to be false. If they don’t pay, the home can be sold at public auction.

“Short of commencing a separate (lawsuit) to enjoin the sale (of a foreclosed home) and then litigate disputes over the amount needed to cure (the foreclosure),” Hoffman wrote, “the borrower is at the mercy of the foreclosing creditor’s cure statement.”

Coffman’s team tried to prove that the $125 charged for the posting of a foreclosure notice was unreasonable considering the going market rate for other similar postings was about $50. Then, by having a financial interest in the company that did the postings, Castle profited handsomely and never told Fannie Mae or Freddie Mac about that association.

Benton’s work on pushing to make her posting company succeed and corner a part of the foreclosure market “was Benton doing what she had always done — recognizing an opportunity and seizing on it, with foresight and determination.”

And inference that it was part “of the vast Castle-driven conspiracy of deception” the state alleged were misguided, Hoffman wrote. That O’Connell, Castle’s accountant, was a co-owner was not “the unseen manipulating hands of the Castles” at work.

“Sometimes a cigar is just a cigar,” Hoffman wrote, noting that in a few years the work from Castle would represent about 90 percent of Absolute’s total revenue.

The state tried to prove a series of emails from Stacey Aronowitz to Caren Castle regarding the eventual charge for a posting — specifically about a homeowner’s right to seek a foreclosure deferment — was evidence of an anti-trust conspiracy between the competing law firms, and pointed to Aronowitz’s refusal to testify under her Fifth Amendment right against self-incrimination.

The email “shows that Aronowitz may have been attempting to reach an agreement on the deferment posting price with Ms. Castle,” Hoffman wrote. “But (the state has) failed to prove any such agreement was in fact ever reached.”

Caren Castle testified that she found the email strange and did not respond to Aronowitz’s overture, noting she was insulted by the inference.

He added: “The Aronowitz firm charged its clients $150 for the deferment postings, not $125 (as Castle had). It is a strange price-fixing agreement indeed if one of the two alleged conspirators never complies with the agreement. … I am not willing to infer from Aronowitz’s silence that she and Ms. Castle actually entered into an agreement to fix the deferment posting price…”

5 Responses

  1. This is not surprising. I just hope things continue, as they have in New York apparentlly, where the judge ruled that lenders must finally come to the table with copies of actual documents and proof.
    I hope the Trump Administration will take advise from so many on making this a nationwide requirement for consistency and to finally help, just maybe, help level the playing filed against terrible lenders like nasy old Bank of America (and others) who spare nothing to provide fabricated, forged, false, and “robo-signed” documents in their intimidation and continuing racketeering scam as set forth in the most recent 10th Circuit Court Ruling in Colorado that includes Urban Settlement Services who acted as alleged “attorney in fact” in completing pony, “in-house” modifications for nasty old B of A at the same high interest rates and merely extending loans out to nearly 50 years.

    Ths only bad thing is that our very own crooked government is involved and part of the scam making claim they are the “owner/investor” (no mention of being the “holder in due course” which they are NOT. Unfortunately with Munuchin in charge I don’t think things will change when it comes to the crooked lenders and government agencies- just my humble opinion!!!

  2. I live in Colorado…I went up against Aronowitz and the judge favored them as well. But this was after they were shut down. Maybe he felt sorry for them!!!! I was even directed by Aronowitz to file a “probate” action in district court…just to make a payment on my mortgage!!!! No one was dead, dying, or lacking in capacity. Yes, mine was a fraudulent attempted foreclosure. I won my case and a lien release. They were after the historical mineral rights on this property.

    Castle, ha, they had an attorney to whom ” flipped sides” and was out do nothing but one worthless modification after another. I made a phone call to the servicer to inform them I was retaining a lawyer….Get this, they directed me to this very attorney because I had refused to give them the attorney’s name at that point! Just a little conflict of interest I would say! And by circumstance, it was the same Castle attorney. This verdict was a sham for sure.

  3. where is the opinion?

  4. Actually judge does say there’s something wrong with process when homeowners are liable for everything when they contest. He’s more of a financial crisis is business opportunity guy. Sounds familiar! In strange way showing hypocrisy of gov’t, pretender menders. Alot of issues here but in the end actual fraud against homeowners lost in the shuffle.

  5. Jeez, the judge is obviously a ‘Rocket Docket’ kind of guy. No mention of the homeowner at all.

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