Auction ad fees OK'd by judge

But percentage charged for foreclosure notices must be disclosed

February 02, 2000|By Walter F. Roche Jr. | Walter F. Roche Jr.,SUN STAFF

For decades auctioneers presiding over foreclosure sales in Baltimore have been collecting undisclosed commissions amounting to millions of dollars for placing the legal notices announcing their sales.

But the questionable practice has ended amid charges of kickbacks, which in turn triggered a court review and two conflicting decrees from the administrative judge of the Baltimore City Circuit Court.

Under the latter of those two edicts, Judge Ellen M. Heller has ordered full public disclosure of the commissions and other details of the role being played by auctioneers. But Heller, after several months of meetings with the auctioneers and their lawyers, has rescinded an earlier order which would likely have outlawed the commissions altogether.

The kickback issue was raised by Baltimore Press publisher Mark Adams, who was seeking some of the legal notice advertising to keep his community newspaper afloat. Adams discovered a decades-old, off-the-books practice.

Auctioneers have been collecting more for advertising costs than they were actually paying newspapers like The Sun and Daily Record to place the ads. They viewed the difference -- usually 15 to 25 percent, according to auctioneers and lawyers -- as a commission. But the commissions were not included in reports filed routinely in foreclosure proceedings in Baltimore City Circuit Court.

In a typical case, the court record would indicate a fee of $1,400 had been paid for three required legal notices, when in fact the fee was only $1,125. The $375 balance would go to the auctioneer -- which Adams charged was a kickback.

The number of foreclosure cases has been climbing rapidly for the past five years, reaching 5,040 in 1999 and generating considerable commission income for auctioneers.

"It's a big sum of money," said Alexander Gordon 4th, an attorney and the author of a frequently noted treatise on Maryland foreclosure statutes. "You're talking millions of dollars."

The failure to disclose the practice in court records nearly caused Heller to end it.

In a letter to Heller dated Nov. 4, Robert N. McDonald of the state Attorney General's office, noting the kickback allegations, wrote, "Whatever the label is attached to this practice, the current situation is undesirable. Even if auctioneers are providing services that justify additional compensation, the expenses associated with the foreclosure process should be reported in an above board fashion."

The auctioneers and their attorney insist that there was never any attempt to hide or disguise the payments and they contend it was their idea to mandate disclosure.

Paul Cooper of Alex Cooper Auctioneers Inc. said the auctioneers deserve the payments because of the services they provide in foreclosure sales.

"We place the ads. We collect the money and pay the bills within two weeks. Basically we provide advertising services," said Cooper. "Nobody's trying to hide anything."

Financing arm

Cooper said the auctioneers in fact serve as a financing arm for the trustees, who represent the mortgage holders, because they often end up paying for the advertisements long before being reimbursed for those costs from the auction proceeds.

Heller said that after several meetings with the auctioneers, their attorneys and Gordon, she became convinced the auctioneers are providing a service and deserve compensation. She concluded the kickback allegations were unfounded.

The auctioneers are in a sense working as a bank for the newspapers, said Heller, who concluded, however, that the commissions ought to be disclosed.

Heller's Jan. 27 memorandum states that any commission or discount provided to an auctioneer "shall be prominently disclosed." In addition, attorneys and trustees in foreclosure actions will be required to have written contracts or agreements with auctioneers disclosing the advertising services to be performed and the rates of payment.

"We support the judge's decision," said Christopher A. Eddings, publisher of the Daily Record.

Lenora N. Howze, an advertising official for The Sun, said the paper provides auctioneers with weekly and monthly bills for the legal notices. The monthly bills list the gross price, which includes the commission, and the discount or net price, which is the amount actually paid by the auctioneer. The weekly bills list only the gross price.

She said the paper "absolutely" would change its billing procedure if necessary to comply with the order.

As for the kickback allegations, she said the payments were "absolutely legitimate commissions."

David Fishman, an attorney who represented the auctioneers in the discussions with Heller, angrily dismisses Adams' kickback charges.

Auctioneers pleased

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