Despite a homeowner's best intentions of paying a mortgage, circumstances can enter the equation and force the lender to foreclose.

Which is where Philip Kleinsmith enters the picture.

The Colorado attorney is regularly sought out by national lenders with Utah business interests to act as trustee on loans. He conducts the foreclosure and is paid for doing so. Kleinsmith isn't a Utah resident, but he is a 12-year member of the Utah State Bar.

Kleinsmith estimates his office has handled an average of 60 such cases a year since 1998, which has generated about $80,000 a year.

However, a newly enacted law makes it illegal for Kleinsmith to continue his business in Utah.

Kleinsmith filed a federal lawsuit this week against the state Attorney General's Office over SB53, which was sponsored by state Sen. Michael Waddoups, R-Taylorsville, and makes it illegal for non-Utah residents to act as trustees on trust deeds.

According to the suit, the law, which took effect Monday, discriminates unreasonably against nonresidents, restricts interstate commerce and violates due process and equal protection rights guaranteed by the U.S. Constitution.

Besides depriving him of substantial future income, Kleinsmith on Wednesday told U.S. District Judge Ted Stewart the law jeopardizes the 25 Utah foreclosures he currently is handling.

Because of the new law, Kleinsmith said, his participation would "put a cloud" on the title. Therefore, he would feel obligated to suggest his customers seek a Utah attorney to handle the cases. The move could cost Kleinsmith up to $35,000, he said.

"I would lose that income," he said. "Moreover I would lose that stream of income in the future."

Stewart granted Kleinsmith's request for a 120-day temporary restraining order on the law, which will allow him to settle his outstanding cases.

"I don't believe I ought to put in jeopardy Mr. Kleinsmith's income or those foreclosures," Stewart said.

The order covers any current case Kleinsmith is handling but does not allow the attorney to take any more, the judge said. Also, it applies only to Kleinsmith. Any other out-of-state attorney must take the same action as Kleinsmith to block the law in court.

"My intent is not to protect you for new business during this interim, but to protect you and those you are representing as a trustee in current cases," Stewart said.

The purpose of the bill is to allow more face-to-face contact between trustees and debtors, Assistant Attorney General Jerrold Jensen told Stewart.

However, Kleinsmith said most Utah trustees conduct business in Salt Lake City while clients are often as far away as St. George. That leaves little or no ability for face-to-face contact anyway, he said.

Waddoups was unavailable for comment Wednesday.

In recent years, out-of-state companies have created a niche by providing foreclosure services for national lenders, said Blake Heiner, vice president and regional counsel for First American Title Co. The lenders hire one or two attorneys to act as trustees in various states, which sometimes makes it more difficult for borrowers to obtain timely information about their case, he said.

"They just send everything to (the attorney), who becomes a one-stop shopping kind of deal for these national lenders so they don't have to have a contact in every state," Heiner said. "There are a handful of attorneys in the Salt Lake area who have specialized in performing those foreclosure services. Obviously (the out-of-state attorneys were) cutting into their business."

Kleinsmith is seeking to have the new law declared unconstitutional, which he said will benefit all out-of-state attorneys.

But until then, he said, it will take some creative juggling to maintain business as usual. "We'll dribble the basketball around the office for the next month."


E-mail: awelling@desnews.com