Castle law firm cheated the foreclosure system, AG says in trial’s last day

Defense says state hasn’t proved a thing, that charges were

legitimate

David Zalubowski, AP File

A foreclosure sign tops a sale sign outside an existing home on the market in northwest Denver
on Aug. 29, 2007.
By David Migoya | dmigoya@denverpost.com | The Denver Post
PUBLISHED: January 27, 2017 at 7:54 pm | UPDATED: January 27, 2017 at 7:55 pm

Colorado’s largest foreclosure law firm, run by Larry Castle and his wife, Caren, was so good at
its job that it had little trouble ginning up creative ways to pad its billings and reap millions in
illegitimate profits on the backs of the banks it represented, the affected homeowners, and real
estate investors who later bought the houses, the attorney general’s office said.

Painting a picture of a money-hungry legal outfit that preyed on a foreclosure system gone wild,
nickel and diming tens of thousands of cases it handled in Colorado, state attorneys suing Castle
said the law firm bulldozed through the mortgage-failure crisis and came out $12 million richer.

It did so by inflating the costs of posting legal notices on homes facing foreclosure and, the state
alleges, conspiring with companies that did the work and its own competitors to fix the price at
far more than what it actually cost.

“Foreclosures are a legitimate and necessary part of our system. If the borrower can’t pay, the
lender has the right to foreclose,” assistant Attorney General Erik Neusch argued to Denver
District Judge Morris Hoffman at the close of three-week trial Friday. “But a law firm should not
be able to cheat the system, claim false and misleading costs, and profit against investors,
homeowners, and their banking clients.”

The state alleges in a civil suit filed in July 2014 that Castle conspired with his competitor,
Aronowitz & Mecklenburg, to fix the price of postings at $125 when they ordinarily cost about
$30. The state says the law firm profited from the plot by controlling and owning an interest in
Absolute Posting, a company run by Kathleen Benton and Ryan O’Connell, Castle’s personal
accountant.

They also formed Colorado American Title to capitalize on the title searches needed in
foreclosure work, and profited from charging for title policies that were never actually issued, the
state says. The firm also separately charged for other work the state says should have been part
of the fee that banks and government agencies already paid for a foreclosure.

The lawsuit is the end of a massive state investigation of law firms that controlled the bulk of
Colorado’s foreclosure industry. All of the other cases brought by the AG have settled.

Despite questions about the case that Hoffman peppered them with, the state didn’t budge from
its theory that Castle ran a law firm that was little more than a foreclosure slaughterhouse,
dissecting every part of the process in order to profit from each piece.

“They should not manipulate our market system by conspiring with other law firms to maximize
their profits with amounts they believe they can get away with,” Neusch said. “This isn’t about
whether high prices violate the law. It’s about deception and misrepresentation. And they did it
at the height of the foreclosure crisis in Colorado.”

But Castle’s lawyer, Larry Pozner, argued it was a “parasitic relationship” between banks and
law firms that caused the frenzy to get the job done, and that any heft in the cost of doing
business was happily paid by the banks who hired Castle. Banks wanted clear title and they
wanted it quickly. That costs.

“The work isn’t demeaning, it’s exacting. You’re either a firm who can do an enormous number
of foreclosures correctly or you’re not in the game,” Pozner reasoned, saying Castle strained to
keep up under the strain. “If we look for bankers to do what’s in the best interest of the law firm,
their shelf life is about as long as yogurt.”

Defense lawyers argued the state’s theories were soft, that it had not proven any conspiracy, that
the fees were determined independently and appropriately, and that any effort to game the
foreclosure system was a concoction of the state’s own making.

“The state has a lot of theories, but it has done nothing to prove them,” Benton’s attorney, Billy-
George Hertzke said.

Hoffman, who is deciding the case without a jury, isn’t expected to make a ruling for at least a
month.
David Migoya

David is a member of the Investigations Team and has been at The Denver Post since 1999. He
was a founding member of the team before writing about banking, finance, human services,
consumer affairs, and business investigations. He has also worked at newspapers in New York,
St. Louis and Detroit over a 35-year career that began at The Post.