Mortgage meltdown: offers lessons for all.

• Author: Childs, Larry B.
• Position: LEGAL ISSUES - Report

As the U.S. economy struggles to recover from the collapse of the sub-prime mortgage market, falling real estate prices and rising energy costs, plaintiffs' lawyers are gearing up.

Make no mistake: their actions will not help American businesses recover. Lawsuits will likely hit some companies at the same time more stringent government regulation increases their cost of doing business. The plaintiffs' bar is doing its best to subvert the nation's businesses as they attempt to regain their economic footing.

One positive result of these suits, however, is that they provide lessons for businesses on how to protect themselves from aggressive plaintiffs' lawyers. And though it may be too late to avoid litigation this time around, executives who pay attention to recent events will be better positioned when the next round of lawsuits hits.

Starting late last year, plaintiffs' lawyers began filing what will likely be a plethora of suits seeking to profit from the mortgage meltdown, blaming various types of businesses for the fallout. Citing figures from Cornerstone Research (which compiled the figures in cooperation with Stanford Law School), The New York Times reported earlier this year that class-action filings spiked in the early 2000s, with 497 filed in 2001, up from 215 the previous year. As those cases were resolved, new filings fell to a low of 118 in 2006. But there were about 170 filed last year, over 30 of which were related to the mortgage crisis.

"American homeowners are suing mortgage lenders. Mortgage lenders are suing Wall Street Banks. Wall Street Banks are suing loan specialists. And investors are suing everyone," the Times noted. Analysts warn that there is no end to the list of potential legal targets because so many players share a piece of the blame for the mortgage meltdown.

Though subprime-related lawsuits are not all the same, some trends have emerged in the types of suits filed and defendants targeted. A recent study by Navigant Consulting Inc. found that while "virtually every participant in the subprime collapse is being sued ... mortgage bankers and loan correspondents represent the highest percentage of defendants (32 percent)." Other defendants named by the study include mortgage brokers, lenders, appraisers, title companies, homebuilders, underwriting firms, bond insurers, money managers, accounting firms and company directors/officers.

Kevin M. LaCroix, an attorney who maintains a running list of subprime lending...