The Challenges Facing Financial Services Firms

Editor's Note: This piece originally appeared in the May issue of DS News magazine, out now.

Formerly a Deputy Attorney General in charge of the Harrisburg office of the Pennsylvania Bureau of Consumer Protection, Stephen Hladik brings a broad range of experience to his mortgage foreclosure, bankruptcy, tax sale, and UDAP legal practice. A graduate of the Pennsylvania State University, Hladik obtained his law degree from Widener University, with honors, where he served as Internal Managing Editor of the Law Review.

Hladik gained significant expertise in lending law enforcement while serving in the Pennsylvania Attorney General's Bureau of Consumer Protection, handling UDAP, FDCPA, RESPA, and TILA cases. Before joining Hladik, Onorato & Federman, LLP, Hladik was the Pennsylvania managing attorney for one of the nation's largest creditor's rights firms, practicing mortgage foreclosure and bankruptcy law.

Hladik also serves the mortgage servicing industry by chairing the Government Affairs Committee of the Legal League 100.

What have been the challenges for firms that had a focus on foreclosure law as the market has evolved?

As the percentage of loans in default reaches lows that haven't been seen in years, it has been necessary for default law firms to evolve and adapt to the changing marketplace. Our firm has been very fortunate in that we handle a wide variety of legal matters related to the mortgage industry, including defense of servicers, lenders, and investors in legal matters brought by borrowers, as well as capabilities in regulatory matters and land development and zoning actions. In the future, law firms will have to have a more broad range of practice, from default to litigation, to regulatory and to other related areas.

How do you think that market landscape is likely to change in 2018?

In 2018, I expect that the percent of loans in default will continue to decrease, though the percentage will stabilize. While the number of loans in default and foreclosure may decrease, other areas will increase. I expect to see more regulatory actions brought by state agencies, including state attorneys general. While the Consumer Financial Protection Bureau (CFPB) may bring fewer actions, the state attorneys general will step into any perceived void and step up legal enforcement actions. I also expect to see more contested foreclosures and a higher number of actions brought by borrowers. Firms that are poised to handle complex contested work, as well as defense work, will do well.

As we go forward into 2019 and 2020, I estimate that an uptick in loan defaults will begin. Interest rates will be rising, and borrowers will begin looking once again for more exotic lending products, which may lead ultimately to an increase in defaults down the road.

What are some of the other major challenges your firm is looking to address in this year?

Our complex litigation has been growing quickly, and we are expanding our litigation department. Seasoned trial attorneys will be part of our firm's growth plan. Our defense practice will be able to handle all areas that impact the mortgage industry, including FDCPA, TILA, UDAP defense, insurance claims, property preservation matters, regulatory actions, and licensing issues. Our firm will be looking to expand our geographic footprint, including expansion in New Jersey, Arizona, and elsewhere. As for other challenges, there is the neverending burden of keeping up with changing technology and increasing audit obligations.

What are some pending cases you think could have a major impact or set precedents for the industry going forward?

In Pennsylvania, our Supreme Court has agreed to take a case dealing with notice of intent to foreclose requirements. This is an important issue in this state that needs to be decided. Our Supreme Court will also be deciding an Unfair and Deceptive Acts or Practices (UDAP) case involving the state attorney general and that office's right to seek consumer restitution. I also expect we will see decisions coming regarding borrowers seeking to enforce various CFPB servicing rules in defense of foreclosures. There are always Fair Debt issues that arise every year, and 2018 will be no exception. Nationwide, cases will continue to refine the issues of standing, statutes of limitations, and enforcement of lost notes.

What are some of the primary challenges you see for servivers in 2018?

The continuing burden of compliance will be the major challenge for servicers. Law firms can be a major help to clients by being proactive and keeping clients advised of any regulatory, statutory, or case law decisions that impact lenders. It is a major task for any lender or servicer to be on top of every statute or judicial decision in all 50 states. By providing clients with this information, it can be a major benefit. Law firms can also assist clients with on-site training in best practices and the latest issues affecting bankruptcy and foreclosures. Law firms can assist servicers by engaging the servicers' trial witnesses in mock cross-examination and other techniques to succeed in getting key information into evidence.

As obvious as it may sound, law firms can also assist servicers by simply keeping them informed of issues in general legal matters. Sometimes a firm can get so focused on actions relating solely to lending that issues of importance get overlooked, such as key evidentiary rulings, UDAP decisions in other industries that have a spillover effect on lenders, and contractual or Uniform Commercial Code matters.

While training and staying on top of statutory changes are critical, law firms can do the best service to the industry by providing exceptional service and maintaining the utmost ethical standards of practice. For many borrowers, the first contact that they will have with the legal system is when they receive a notice of foreclosure from a law firm. As such, it is vital to the well-being and the perception of the industry that matters are being handled in the most professional manner.

What is one thing you wish more people understood about your job?

I wish more people understood how challenging it is today to maintain a law practice in this default sector. The regulatory and technological costs imposed on law firms is staggering. It takes a lot to maintain a successful practice these days. That being said, I hope people also understand that I relish having a challenge and overcoming any obstacles. We continue to see growth at our firm, and that is a tribute to the dedication our staff has.

The main thing that I wish people understood about our industry is that our firm, the legal community representing the industry, and the industry itself care. We care that a borrower deserving of a loan modification gets one. We care that a borrower seeking an amicable exit solution to a property receives that assistance. We care that any borrower is afforded decency and professionalism in a default matter. We care that a vacant and dilapidated property moves efficiently through the system so that property can be restored to a positive factor in the neighborhood rather than a drag on that community's value. Quality of legal services, commitment to ethical representation, and dedication to professionalism are as important to us as the number of foreclosures completed in any given month.