HomeBanc Deal with Lawyers Approved

When HomeBanc declared bankruptcy on August 9, it left about $20 million of bad checks with real estate attorneys across the state. A judge on Monday approved a deal to help attorneys that were left funding those loans.

A little background on how home buying works from the closing attorney's perspective: the buyer and seller come to the table with a deal; the buyer's lender gives the attorney a check for the buyer. The attorney deposits this check into their special escrow account and then issues a check to the buyer. State Bar rules do not allow a lawyer to bounce a check out of this escrow account. So what happens when a lender deposits a check and then it bounces a few days later? The attorney has to cover this money out of their own funds. This left many of the smaller firms mortgaging their own personal residences to prevent those checks from bouncing.

On Monday, Judge Kevin J. Carey, U.S. Bankruptcy Court, Wilmington, approved a deal where HomeBanc would turn over the mortgages that the attorneys had to fund. This means 1) that mortgage payments will now go to the attorneys that funded the mortgage; 2) the payments will not go to HomeBanc; 3) the attorneys that now hold the mortgage can sell them to other mortgage companies that are in the business of handling mortgage payments and administration.

If HomeBanc would have been able to keep the mortgages, then they would have collected the payments on a mortgage they did not fund. The attorneys that did fund the mortgages would have no way to recoup their money. Thus, the reason that the Georgia attorneys were in a near panic and threatening to sue HomeBanc for fraud and other intentional torts.