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SPECIAL REPORT: FORECLOSURE FALLOUT | Second of 3 parts


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Lawyer with isle ties is subject of inquiry

The Oregon attorney linked to a Hawaii firm that works on foreclosures allegedly hid inflated publication fees

By Allison Schaefers

POSTED:
LAST UPDATED: 08:00 p.m. HST, Aug 06, 2012



RCO Hawaii LLLC, a law firm that successfully lobbied to loosen Hawaii's foreclosure notice publication requirements last legislative session, has ties to a mainland attorney accused of inflating the cost of foreclosure notices.

The Oregon State Bar is investigating attorney David Fennell for allegedly inflating the foreclosure notice publishing costs that get passed on to lenders and homeowners trying to save their homes. Fennell co-owns Northwest Trustee Services Inc., whose company website profile says is associated with sister law firm RCO Hawaii, which conducts foreclosures in Hawaii and is the retained counsel for Fannie Mae in Hawaii. He also co-owns Foreclosure Expeditors/Initiators LLC, a Washington-based foreclosure support vendor that does business in Hawaii and nine other states.

Michael Dillard, an Oregon attorney with the firm Karnopp Petersen, made the complaint, alleging that Fennell knew Northwest Trustee and FEI were marking up publication costs for nonjudicial foreclosure sales notices printed in newspapers owned by Western Communications Inc. without disclosing the additional fees to clients. Fennell could face sanctions ranging from public reprimand to suspension of his legal license for a period from 30 days to five years or disbarment, said Oregon State Bar spokeswoman Kateri Walsh.

"It's still under investigation," Walsh said.

Fennell's attorney Brad Tellam declined a request for an interview. "The Oregon State Bar proceedings are in the investigation stage, and the bar has not communicated whether it will take any action on the complaint," Tellam said. "Out of respect to the pending process, neither Mr. Fennell nor I are in a position to publicly comment."

In Hawaii, FEI handles advertising for many of the state's foreclosures. Fennell also has multiple business ties to Stephen D. Routh, CEO of Northwest Trustee and of RIM Publications LLC, which owns the Hono­lulu-based The Island Sun Weekly and six other newspapers in Idaho, Oregon and Washington. RIM Publications' Washington-issued business license lists Fennell as one of its "governing people."

Routh, who did not respond to multiple requests for an interview with the Star-Advertiser, has been in the news himself recently for RIM Publications' newspaper-buying spree. Publication purchases have enabled Routh and Fennell to build one-stop foreclosure shops with in-house access to affiliated lawyers, escrow officers, title companies, process servers, property managers, auctioneers and, in some states, publications to advertise foreclosures.

Routh was quoted earlier this year inThe Oregonian as saying that the company could buy as many as 50 more weekly newspapers in western states. "I don't claim to be a journalist; I'm a businessman providing a service," Routh told the Portland newspaper. "We have to publish. It makes sense to control the process."

RCO Hawaii, which is owned by Hawaii attorney Brett Ryan but has ties to several of the companies owned by Routh and Fennell, was the main supporter of auction notice publication changes. Act 182 changed a requirement mandating that foreclosure notices must be published in the largest daily newspaper of general circulation in the county where the home was located. Now, foreclosure notices may run in a weekly newspaper of general circulation that reaches 3 percent of the state's population.

Critics of the changes contend that the new law will result in far fewer people seeing those notices, which will lead to fewer bids at auction and lower sales prices.

KEY INDIVIDUALS

Stephen D. Routh
» Home: Alaska
» University of Hawaii graduate
» CEO of Realty in Motion LLC; co-owner of Northwest Trustee Services Inc. and of Foreclosure Expeditors/Initiators LLC; shareholder and founding partner of mortgage banking law firm Routh Crabtree Olsen P.S.
» Listed as one of the "governing people" on the business license for RIM Publications LLC, Northwest Title Co., NexTitle, Northwest Trustee Services Inc., Paccorp Center LLC, USA-Foreclosure.com LLC, USAF.com, Realty in Motion LLC, Routh Crabtree Olsen P.S.

David Edward Fennell
» Home: Washington
» Co-owner of Northwest Trustee Services Inc. and of Foreclosure Expeditors/Initiators LLC
» Listed as one of the "governing people" on the business license for RIM Publications LLC, Northwest Title Co., NexTitle, Northwest Trustee Services Inc., Paccorp Center LLC, USA-Foreclosure.com LLC, USAF.com
» Former RCO senior counsel, but has not been affiliated with it since January

 

KEY COMPANIES

RCO Hawaii LLLC
A Hawaii-based law firm owned by attorney Brett Ryan that represents the mortgage banking and the default serving industry

Routh Crabtree Olsen P.S.
A Washington-based law firm with offices in many western states but not Hawaii. RCO does not have an ownership interest in RCO Hawaii; however, it provides support, licenses software and shares best practices with the Hawaii firm, which shares its business model. RCO has overlapping ownership with NWTS and FEI but is not involved in their business operations.

Realty in Motion LLC
A Washington-based family of companies, including title companies, newspapers (RIM Publications LLC) and other businesses

RIM Publications LLC
An Alaska company that owns and publishes newspapers in Washington, Oregon, Idaho and Hawaii. It is the parent company of The Island Sun Weekly.

The Island Sun Weekly
A RIM Publications weekly newspaper that is printed in Hawaii and delivered to a direct-mailing company.

Northwest Trustee Services Inc.
A Washington-based corporation that provides default services, including nonjudicial foreclosure services, to mortgage lenders in the western U.S. The company does not practice law; however, its website profile says it is associated with "sister" law firm RCO Hawaii. It also says it is "in alliance with" RCO, FEI, Alaska Trustee LLC, Standard Trust Deed, Northwest Title Co., USA-Foreclosure.com, Washington Legal Journal and Oregon Legal Journal.

Foreclosure Expeditors/Initiators LLC
A Washington-based foreclosure support vendor that does business in Hawaii and nine other states. FEI does not practice law; however, its website posts a disclaimer saying that one or more principals of RCO has an ownership interest in it. Vendor for NWTS.

 

State Sen. Rosalyn Baker (D, West Maui-South Maui), one of the primary architects of the new legislation, canceled a face-to-face interview with the Star-Advertiser, missed a scheduled phone interview and did not return multiple calls.

However, state Rep. Bob Herkes (D, Puna<B>), who also helped craft the new law, said he was unaware of the Oregon foreclosure billing investigation and the ties to Hawaii. "Of all of the questions that we've had coming out of either bill, this never came up," said Herkes, who now thinks that conflict-of-interest language should be added to Act 182.

Mike Wong, the RCO Hawaii attorney who lobbied for the rule changes in Hawaii, did not return a call from the Star-Advertiser seeking comment.

RIM Publications and its one-stop foreclosure shop model hit a stumbling block in another western state. The Newspaper Association of Idaho pushed back when RIM Publications bought the Kuna Melba News and then attempted to change Idaho's definition of a newspaper of public record, said Roger Plothow, publisher of the Post Register in Idaho Falls and NAI past president.

"They want to be able to fire up a newspaper and not meet any of the protective requirements that are in place," Plothow said.

Instead, the Idaho state Legislature passed a law prohibiting foreclosure trustees from having an ownership stake in the newspapers in which foreclosure notices are published, Plothow said.

"Our Legislature is quite conservative. They saw a need for this law, and it passed quite easily," he said. "It's terrible public policy to allow (a foreclosure company) to get in on both ends of the transaction. It lacks checks and balances."

Hawaii attorneys John Paer and Gary Dubin, who represent homeowners facing foreclosure, expressed concern about the one-stop foreclosure shop model and said inflating the cost of public notices could pile on fees for homeowners, who are already struggling to pull their homes out of default. Such behavior also could open the door for foreclosure attorneys to challenge the process, they said.

They, and critics in other states, have raised conflict-of-interest concerns when one organization oversees every step of the foreclosure process from the escrow officers to the auctioneers.

Foreclosure trustees, who work with the lender and the borrower, are supposed to remain neutral, Dubin said. However, in some cases they have become part of what has become a fees market, he said.

"It's a feeding frenzy," Dubin said. "At the end of the day, a borrower is like a pig on a stick at an old-fashioned Hawaiian luau. Everyone is taking their piece."

Dillard, the Oregon attorney, said in his complaint that overbilling diminishes public trust in the integrity of the nonjudicial foreclosure system.

In his written response to the Oregon State Bar, Fennell's lawyer Tellam denied the allegations anddiscounted Dillard's complaint, calling it "a disingenuous attack by a business against a part owner of one of its largest customers who is also a part owner of what may soon become its largest competitor."

This is not the first time that Fennell has been accused of overbilling for foreclosure notices. He was suspended in 2004 from practicing law for one year in Oregon and Washington, according to Oregon Supreme Court records.

"The violations arose from Fennell's practice of marking up invoices received from outside vendors who provided notice-posting services in non-judicial foreclosures initiated by Fennell's law firm," according to a disciplinary order signed by then-Chief Justice Wallace P. Carson Jr.

Similarly, Dillard's current complaint cites three examples in Oregon where bank clients were billed $1,185.85 each to publish nonjudicial foreclosure notices, while in each instance Northwest Trustee or FEI only incurred costs of $1,007.97.

"Given the large volume of (Northwest Trustee) and FEI's foreclosure servicing business, we suspect that the dishonest overcharging of publication costs is widespread," Dillard wrote in the complaint. "If it is, (Northwest Trustee's) overcharge of approximately $180 on each foreclosure sale they handle could add up to hundreds of thousands of dollars of secret profits in Central Oregon, and perhaps millions of dollars elsewhere."

Mark Journey, one of the FEI employees named in Dillard's Oregon complaint, made similar billing requests to the Honolulu Star-Advertiser, said Patrick Klein, the newspaper's director of classified advertising.

"They negotiated a discount but were asking us to send them a statement that reflected a higher price and rebate back the difference," Klein said.

The 12 percent discount that FEI sought would have amounted to about $500,000 in extra profits for the company when their Star-Advertiser advertising volume was at its highest, Klein said.

Since the 2011 law known as Act 48 virtually stopped nonjudicial closures in Hawaii, Klein said FEI's discussions about billing arrangements with the Star-Advertiser stalled as business dried up.

"We never sent them any rebates," he said.






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