(AP file photo)

The Colorado attorney general is investigating whether law firms specializing in foreclosures regularly inflate the fees that homeowners must reimburse them in order to avoid losing their house, according to court records detailing the scope of the inquiry.

Law firms pay as little as $25 for someone to post official notices on a property advising homeowners of their rights, but some then charge as much as $150 in the bills they file with the public trustee overseeing the foreclosure case, according to details contained in four lawsuits the attorney general's office filed against the law firms.

In two cases, the law firms hired companies, known as process servers, owned by family members and friends, investigators say.

The fees are allowed by law but are limited to the amount a lawyer actually paid or was billed for a service or expense such as mailing costs, property inspections, title searches and court docketing charges. The charges are tacked on to the overall cost of a foreclosure and the unpaid mortgage amount, then paid by the homeowner facing foreclosure, the foreclosing bank or investors who buy the property at public auction.

Oversized fees

Law firms that are under scrutiny by Attorney General John Suthers allegedly even increased the amount they say they paid the state for a district court hearing to auction a property, a fixed cost set by statute, investigators say in court papers. And in at least one case, investigators say a law firm regularly charged the inflated fee even though its client was a state agency that by law doesn't pay it.

In the worst-case scenario, the amount law firms overcharged taxpayers and homeowners statewide in the past decade would reach into the tens of millions of dollars. Potential penalties are unclear because no charges have been filed.

The lawsuits, all filed in Denver District Court, seek a judge's order forcing the lawyers to comply with investigative subpoenas. Judges agreed with state attorneys in two of the cases, although one is on appeal. Two others are pending.

A fifth case has been suppressed from public view, and details are unavailable.

One law firm "misrepresented its costs and charged more than twice what it paid for posting services," the attorney general's office wrote in one of the lawsuits.

Posting service costs

In another, investigators said the law firm "performed postings in-house and then represented that its actual costs were $150 each to post two notices to a homeowner's door during the foreclosure, even though the market rate for such postings is $25."

Investigators say a process server hired by one of the law firms generated two sets of bills — one showing the amount the firm says in court papers it paid and another privately reducing the charge by half.

The extent of the investigation by the Colorado attorney general's consumer-protection division appears to reach at least a half-dozen law firms that filed foreclosures in a handful of counties along the Front Range, according to documents and interviews with people familiar with the inquiry.

A review of public records shows that some law firms charge $125 to $150 for posting each of two notices required by law — one telling homeowners they have the right to appear at a court hearing known as a Rule 120 and the other informing them that they might qualify for a 90-day deferral while they seek relief from their lender.

Foreclosure records show that one law firm in Boulder — Frascona, Joiner, Goodman and Greenstein — charges what investigators say is closer to the going rate: $35.

"Ours is because we just charge our actual costs," partner Jon Goodman said. "I don't know why others are more."

Three law offices — Vaden Law Firm; Medved, Dale, Decker & Deere; and the Hopp Law Firm — refused to comply with the attorney general's subpoena, saying the information was either protected by attorney-client privilege or outside the bounds of investigators' authority.

The attorney general filed lawsuits against all three.

A fourth law firm — Aronowitz & Mecklenburg, one of the state's busiest foreclosure firms — sued Suthers, but a Denver District Court judge has suppressed that case from public view at the law firm's request.

Investigators said the law firms' paperwork is necessary because it could prove whether any overcharges were refunded or billed in error.

Lawyers who were subpoenaed in the investigation, Suthers and the investigators behind the inquiry either refused to comment when reached by The Denver Post or did not respond to efforts to reach them.

A group of process servers hired by the Vaden Law Firm — including James Vaden Jr., whom investigators said is a relative of Vaden Law Firm owner Wayne Vaden — similarly refused to provide investigators with subpoenaed documents. Suthers' office sued them, as well.

Law firms are allowed by law to recoup their actual costs in a foreclosure. That can happen at the "cure" stage, when a homeowner pays what they owe to stop the foreclosure — including the lawyer's costs — or at the "bid" stage, when the bank makes an offer to buy the property back at auction, a figure that also includes attorney fees.

If a bank is unsuccessful at the auction, the winning bidder — typically an investor — pays the costs.

If the bank is successful, it often passes the costs of the defaulted mortgage, including the lawyer costs, to the entity that insured the mortgage, most likely Fannie Mae or Freddie Mac.

Colorado at one time led the nation in the number of foreclosures filed. The volume of foreclosures has been receding each year. There were about 23,000 foreclosure cases filed in Colorado last year, according to data from the Colorado Division of Housing. About 4,600 were filed statewide in the first quarter of this year.

The AG's office says paying one price for a service and intentionally representing that it cost more violates the Consumer Protection Act.

Billing discrepancies

The attorney general's interest in lawyers' billing practices emerged last year when several county public trustees were asked to provide copies of bills various firms submitted in foreclosure cases. Officials at the time refused to discuss the case or even acknowledge its existence.

The current lawsuits outline a number of discrepancies in the lawyers' billings.

Hopp, for instance, paid Absolute Enterprises $40 to post a deferment notice and paid ESQ Service $30 to post the notice of a Rule 120 hearing, investigators said in court papers.

However, bid records Hopp filed in the foreclosure cases show his reimbursement cost was $125 for both.

Using relatives' businesses

In the case of Michael Medved, his sister, Beth Maloney, owns Wise Posts, a process service that works only for Medved and Dale & Decker. The law firms merged late last year.

Investigators said in court papers that Maloney told them she paid process servers $20 to post one of the required notices, then invoiced Dale & Decker $120 for the job, which then listed that cost in its billing.

But Wise later generated a second invoice that credited the law firm $60, investigators said.

Sometimes the law firm charged $240 for posting two notices even though servers made just one trip, investigators said.

Wayne Vaden has challenged Denver District Court Judge Edward Bronfin's order to comply with the attorney general's investigation in an appeal to the state Court of Appeals. In it, Vaden argues that lawyers submit statements "on behalf of his client" rather than as actual bills.

Wayne Vaden also said in his appeal notice that these are "past practices" that have "already changed" since the investigation began.

David Migoya: 303-954-1506, dmigoya@denverpost.com or twitter.com/davidmigoya