Daily Development for
Tuesday, September 2, 1997

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

MORTGAGES; FORECLOSURE; ATTORNEY'S FEES: Mortgagor is entitled to return of attorney's fees assessed in foreclosure action in excess of amount actually paid by mortgagee to attorney.

Ex Parte General Jackson Apartments, 686 So.2d 1112 (Ala. 1996).

The mortgagee had reached an informal agreement with its foreclosure counsel that the attorney's fee would be 15% of the foreclosure price, which in this case amounted to a fee of some $97,000, and the foreclosing lawyer included this amount as part of the credit claimed by the mortgagee at the foreclosure sale. In fact, however, the foreclosure counsel had a "side agreement" with the lender that provided that the fee would be substantially less ($3,345) unless the property sold for the bid amount following the end of the mortgagor's statutory redemption period (assuming no redemption). The court noted that the "real" fee under this formula could not have been ascertained until some time after the sale, when it was clear whether mortgagor would redeem, but it also pointed out that the foreclosure counsel did bill the mortgagee for the $3,345amount immediately after the foreclosure. The court holds that only this amount of fee was truly "incurred" within the meaning of the statute authorizing crediting of attorney's fees as part of the foreclosure bid.

Two dissenters contended that a 15% fee is perfectly reasonable and that, if the result obtains, the foreclosure counsel ought to have an action against the mortgagor for its "reasonable" fee.

Comment 1: The dissenters do not point to any provision of Alabama law that would give the foreclosure counsel an independent right against the mortgagors, and this comment by the dissenters appears to be unfortunate hyperbole.

Comment 2: Why should a mortgagor be required to reimburse for attorney's fees based upon a percentage of the amount for which the property is sold? This method of ascertaining attorney's fees may be appropriate in some circumstances, but it is a measure that is quite unsuited for a case in which the fees are passed along to an unwilling payor - the mortgagor. These percentage fee arrangements in commercial matters often reflect long term relationships in which the attorney recovers on one deal what it loses in another. There is no clear relationship between the attorney's effort on the foreclosure at hand and the amount of fee, and it seems inappropriate to saddle the mortgagor with a fee based upon this measure.

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