A breach-of-contract lawsuit filed by a foreclosure disposition company against two subprime lenders also names a Freddie Mac subsidiary as a defendant.

Barr & Associates of Diamond Bar, Calif., contends that the three organizations took a sales contract away from it so fast its relationships with real estate agents have been irreparably harmed - and that it may now go out of business.

Its suit asks for $300,000 in actual damages plus an unspecified amount in punitive damage.

Barr sued the Freddie subsidiary, HomeSteps Asset Management Services of Dallas, which got the contract; CitiFinancial Mortgage Co., the subprime subsidiary of Citigroup Inc.; and Fairbanks Capital Corp. of Salt Lake City.

Like Barr, HomeSteps provides outsourcing for banks, lenders, and other firms seeking to unload foreclosed properties.

The suit, filed Aug. 7, says Barr had been under contract since November to sell 118 home owned by CitiFinancial, which got them through foreclosed loans.

On April 10, the suit says, Baltimore-based CitFinancial told Barr that it had sold the REO portfolio to Fairbanks Capital - which then terminated the contract with Barr and gave it to HomeSteps.

Barr says it was not given the 30 days' notice specified in the contract - time it needed to properly inform the local real estate agents that were handling the sale of the properties and give them time to terminate their services.

"The termination was essentially one or two days, maybe a few more at most," said Barr's attorney in the case, Peter Langbord, in a telephone interview Monday.

HomeSteps interfered with Barr's listing arrangements with its real estate agents, Mr. Langbord said, and should have allowed time for the agents to contact Barr, at least for an explanation, he said.

Moreover, Mr. Langbord said, Freddie may not even have the right to conduct business in the REO industry. "I think there is a strong case to be made that Freddie's business of managing and disposing assets for third parties is not something they have the right to do under the charter given by the United States Congress," he said.

Neither HomeSteps, CitiFinancial, or Fairbanks would discuss the lawsuit.

Freddie formed HomeSteps in 1998 when it bought Cendant Asset Services and combined it with its own fledgling foreclosure disposition business. The company quickly became a bone of contention among REO specialists. They say Freddie has an unfair advantage as a government-sponsored company, has no right to be in foreclosure disposition, and is eating away at their niche business.

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