Rethinking Document Mills

Today’s Wall Street Journal details the halting of mortgage foreclosures due, at least in part, to possible improper handling of the supporting legal documents by the mortgagers’ law firms.  This could, at least in the short term, be very good news for the real estate and corporate transactional departments of mid-sized law firms.

The firms being investigated for shoddy practices are what some call “document mills,” high volume law firms focusing on one form of routine transaction using a high degree of computerization and a large number of paraprofessional employees.  The creation of document mills is a completely expected result of corporate clients (in this case large banks and Freddie Mac) attempting to place a high volume of recurring work at the lowest price.

There will soon begin some very loud chest thumping in the financial and legal press abhorring the use of under-supervised non-lawyers who are probably being compensated on a piece-work basis.  Since many of these firms are in Florida, the media will probably even find an illegal alien connection to pursue.  In the meantime, corporations will quietly shift this type of work to mid-sized firms in smaller geographic markets where they can be more assured of quality but still negotiate discounted rates.

My advice to these mid-sized firms is to accept the work, but use it to perfect their own project management skills and efficiency.   There will be a couple of congressional hearings on the faulty foreclosures and a few lawyers may have their licenses briefly suspended, but economics will drive the day.  Anything that is routine and occurs at a high volume is by definition a commodity and must, in the final analysis be priced as such.  That means that the key to profitability will be efficiency and that will inevitably lead back to document mills and, eventually, off-shoring.   Although, next time around there will probably be better supervision and more cautious procedures.