HomeBanc to seek court OK to settle with Georgia lawyers

<p>HomeBanc Corp. will ask a judge Monday to approve a settlement that will aid worried Georgia lawyers who have dug into their own pockets to fund mortgage deals caught in the pipeline when the lender collapsed.</p><p>About $28 million worth of Georgia home loans were headed to closing when Atlanta-based HomeBanc filed for Chapter 11 Aug. 10.</p><p>About 134 deals closed, however, HomeBanc's checks began bouncing in the escrow accounts of lawyers who handled HomeBanc's real-estate business. Dozens of Georgia lawyers were set to take a major hit, since they had already shelled out cash to pay off sellers and old mortgages from those escrow accounts.</p><p>Small law firms whose names wound up on HomeBanc's roster of unsecured creditors faced real trouble, since those escrow accounts are sacrosanct repositories for client funds. Technically, the loans could be property of HomeBanc, or of backers that provided HomeBanc with funding and abruptly pulled the plug Aug. 6.</p><p>But the settlement, which is going to a Delaware bankruptcy judge for approval Monday, would allow HomeBanc to relinquish its claim on the mortgages to the people who handled them.</p><p>If the judge approves the settlement, it would clear the way for lawyers who have been stuck covering shortfalls in their escrow accounts with their own funds by allowing the mortgages to be funded elsewhere. Otherwise, the lawyers would be left holding the bag and hoping for a partial recovery from HomeBanc's Chapter 11 liquidation.</p><p>In an interview earlier this week, Georgia real estate attorney H. Gilman Hudnall said the possibility of a settlement to short-cut the bankruptcy process was a hot topic in the close-knit Georgia bar.</p><p>"There is a certain hope that any loan that wasn't funded by HomeBanc, that was funded by the lawyer, can be assigned to the lawyer," said Hudnall, a former president of the Georgia Real Estate Closing Attorney Association.</p><p>His firm, Hudnall, Cohn & Abrams PC, dodged the HomeBanc bullet, and doesn't expect to be a creditor in the company's Delaware bankruptcy case.</p><p>The problem of what to do about unfunded home loans has afflicted other companies caught in the recent spate of mortgage company failures. The Georgia situation was unusual in that so many lawyers were affected, "due to the state's "good funds" law, which called for lawyers to accept the mortgage company's checks, rather than wire transfers."</p><p>Nobody in Georgia is taking checks from mortgage companies these days, said Scott Logan of Atlanta's Fryer Law Firm, president of the Georgia closing attorneys group. Wire transfers, cashiers checks and even cash are the only acceptable currency when homes are bought or sold, and the Georgia law negotiated by lenders is likely headed for change, he added.</p>