As if the foreclosure crisis hadn't generated enough distrust of the real estate industry, now comes another scandal. A complaint filed with the Oregon State Bar accuses an executive of Bellevue-based Northwest Trustee Services--a huge operation that has implemented a quarter million foreclosures--with over-billing clients.
The complaint to the bar was filed by Oregon lawyer Michael Dillard. Obtained by Seattle Weekly, the complaint runs 23 pages and details Dillard's investigation on behalf of Western Communications, a company that publishes a number of small papers in Oregon and California. By law, lenders must alert the public to upcoming foreclosures. And so, foreclosure trustees like Northwest, acting on behalf of their lender clients to carry out foreclosures, commonly buy newspaper ads--or "notices"--that satisfy this requirement.
Northwest Trustee, along with related company Foreclosure Expeditor/Initiators, was in at least three cases paying one price to newspapers and charging another to its clients, according to the complaint. The difference was relatively small, at $178. But Dillard suggests that the deception--and ill-gained profit--reaches far beyond the cases he has yet been able to document.
We suspect the dishonest overcharging of publications costs is widespread. If it is, NTS's and FEI'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.
According to the complaint, Western Communications asked Dillard to do some digging after the company was approached by FEI staff about a possible discount rate that would not be passed on to clients. Dillard says he got the proof he was looking for when he obtained invoices sent by Northwest Trustee to three banks.
Fennell has not yet returned a request for comment. But Stephen Routh, Northwest Trustee's CEO, told The Oregonian that "the markup was fully disclosed" to clients.
Fennell's history doesn't encourage trust. His 2004 suspension followed a Washington State Bar Association investigation into a company he and a partner set up to post notices of foreclosure on the unlucky parties' properties. According to the bar association, Fennell's company, which subcontracted the work, charged up to twice as much as the service actually cost.
The charges, then and now, undermine the image of a foreclosure trustee, which is supposed to act as an honest, disinterested party that carries out its unpleasant task without favoring either homeowners or lenders. And the scandal reminds us that some people are not only profiting from the foreclosure mess, but building an empire upon it.
Coincidentally, another recent Oregonian article called attention to Northwest Trustee's expansive business model. The company's CEO has founded a new company called Rim Publications that is busy buying up newspapers, including Seattle's Capitol Hill Times. That way, Northwest Trustee can run foreclosure notices in affiliated papers--and, presumably, charge whatever it likes.
Update: Fenell writes in this comment: "I was blindsided by the allegations and the assault on my character by the attorney for The Redmond Spokesman, Bend Bulletin and Wescom Communications. I'll work in full cooperation with the Oregon State Bar and I trust it will manage the process with the highest degree of fairness and professionalism. In the meantime we've called for an independent audit of FEI to ensure all actions of the company were consistent with its strict policies and in accordance with both ownership's expectations and state and federal laws."