Judge rips Colo. AG’s case against foreclosure giant

The Colorado attorney general’s office was so haphazard and reckless in its failed pursuit to prove former foreclosure king Larry Castle and his law firm had defrauded thousands of consumers that a judge has ordered it to pay his attorneys’ tab — an amount that easily could toll into the millions of dollars.

Denver District Judge Morris Hoffman on Tuesday said Attorney General Cynthia Coffman “was wrong to bring and pursue most of this case” against Castle, his former law firm, The Castle Law Group, and two other associated businesses caught up in the investigation. He said the civil lawsuit the state filed was “substantially groundless and substantially frivolous” enough to merit the award of the defendants’ attorneys’ fees.

“The evidence, or lack of evidence, at trial was nothing short of breathtaking, especially compared to the investigative build-up and the serious and pervasive allegations in the complaint,” Hoffman wrote in a far-ranging, 20-page

opinion. “The case (the state) put on wasn’t even a sick relative of the robust allegations they made. … Their 40-page, 217-paragraph complaint reads more like a press release than a complaint.”

Coffman’s office did not comment on Hoffman’s ruling, saying the state is still pursuing appeals.

A hearing to determine the amount the state must pay is to be held in February. It could reach into the millions of dollars since it includes several attorneys over several years.

“It appears that all (of the) defendants made a substantial amount of money providing their services, and have since gone out of business and lost a substantial part, if not all, of their investments,” Hoffman wrote.

The AG’s office was so intent on taking the case to trial – a process that took five years from the beginning of its investigation under former AG John Suthers to the first day of trial – it turned down a $698,000 settlement offer Castle made just before testimony began. A $200,000 settlement offer from Absolute Posting & Process Services, one of the other two businesses named in the lawsuit, also was rejected, Hoffman’s opinion notes.

Hoffman in April ruled against the state following a three-week trial, saying it had not proved its case that Castle and his law-partner wife, Caren, headed a money-hungry outfit that for years preyed on a foreclosure system gone wild.

Though AG attorneys proved the Castles failed to tell federal mortgage insurers Fannie Mae and Freddie Mac about their indirect financial interest in a summons-posting company — a win that netted a $119,500 penalty — they lost on other allegations.

Hoffman called the government’s case amateurish, despite the “massive undertaking” of a two-year investigation that culled through more than 95,000 Colorado foreclosures, more than a million pages of documents and dozens of depositions.

Despite “the feeble trial they put on, and despite the minimal results they achieved, I do not believe (the state) acted in bad faith,” Hoffman wrote.

The trial’s outcome was unexpected in light of a $10 million settlement state prosecutors made in July 2014 with Castle’s biggest competitor, Aronowitz & Mecklenburg, whom they sued at the same time for similar alleged infractions. The Aronowitz firm closed and later agreed to pay about $2.5 million more to affected homeowners who sued in a separate class-action case.

The crux of the state’s case hinged on a theory that Castle intentionally manipulated and beefed-up the side costs associated with foreclosures, from the posting of notices about court hearings at homeowners’ doors, to the real estate title work and insurance needed to complete the process. Because the firm handled thousands of foreclosures a month at the height of the nation’s foreclosure calamity, the Castles made millions of extra dollars that state prosecutors claimed were unjustly earned.