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Major Foreclosure Contractor Underplayed the Extent of Document Flaws

Marian Wang, ProPublica

In our primer on the players in the foreclosure scandal, we noted that the biggest foreclosure contractor to which banks outsourced servicing tasks, Lender Processing Services (LPS), has been accused of flaws in the processing of key mortgage documents. The company has said that it is “not aware of any defects in our signing and review processes that resulted in the wrongful foreclosure of any borrower” and has maintained that flaws in its signing practices were limited to a subsidiary, DocX, which was shut down soon after the wrongdoing was discovered in 2009.

But Reuters reported on Monday that the company–which counts all 50 of the nation’s largest banks as clients for at least some services–may be in more legal trouble than it has so far let on.

DocX continued operating longer than LPS had told investors, signing its last document in May 2010–long after the U.S. Attorney’s Office began investigating the firm, as LPS acknowledged in its 2009 annual report.

Separate from the subsidiary, at least one of LPS’s own offices had signed and notarized large quantities of documents that seemed similarly suspect. These mortgage assignments may not have transferred the loan’s ownership before a foreclosure attempt was filed, which according to some state judges warrants dismissal of the foreclosure case.

As the company came under fire for its practices, it began to transfer signing operations out of its own offices, according to Reuters. The company acknowledges that it “transitioned away from signing documents on behalf of its customers,” and instead sent personnel to work “on-site at client locations” to set up signing operations there and provide training.

LPS has also been accused of fee-splitting relationships with foreclosure law firms, a charge LPS denies. (In order to prevent kickbacks from being passed on to clients, most states have laws barring lawyers from sharing legal fees with non-lawyers.) Reuters explained how the system works, noting that LPS says the firms pay the fees to use the LPS system, not in exchange for work:

Reuters has obtained new details of how the relationship worked from copies of the “network agreements” the law firms sign with LPS, among other sources. Interviews and records from court cases show that this system often worked to the detriment of homeowners struggling to keep their homes.

LPS says that clients are the ones who pick law firms to represent them in foreclosure cases. But copies of its agreements with clients reviewed by Reuters state that the company’s clients sign up to use LPS’s network of lawyer[s]. The agreements and depositions from lawsuits show that when a homeowner goes into default, the LPS system automatically selects a law firm in its network, sometimes using criteria set by a client, and transmits an offer of work that pops up on the law firm’s LPS Desktop screen.

The firm has no more than a couple of hours to accept the job. And if it does, it immediately agrees to pay an up-front fee to LPS. The law firms also pay LPS a monthly fee for use of the LPS Desktop system.

LPS has been known to push its law firms to move quickly on the legal paperwork for foreclosures, assigning firms “green,” “yellow,” and “red” ratings based on speed. LPS denied that the ratings were used to punish the slow firms, but were given so that firms could compare efficiency.

Last year, a federal bankruptcy judge noted that the LPS system had major flaws which became apparent when a law firm submitted documents that contained incorrect information from LPS and were signed without the review by lawyers. Though the judge’s opinion focused its criticism on the law firm, LPS has also been the subject of recent lawsuits and is currently being investigated by the Office of the Comptroller of the Currency.


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