Data Management Firm, Assembly Line Law Firm Scorched By Scathing Court Ruling That Shines Light On Filing Screw-Ups In Consumer Foreclosure Cases

In Philadelphia, Pennsylvania, Bloomberg News reports:

• Lender Processing Services Inc.(1) fell 29 percent after Dow Jones News Service reported that the company was the subject of an inquiry by the U.S. Trustees Office, an arm of the Justice Department that monitors bankruptcy courts.

• A ruling by Judge Diane Weiss Sigmund in U.S. Bankruptcy Court in Philadelphia questioned inaccurate court filings made by HSBC Mortgage Corp. in a personal bankruptcy case. HSBC relied on electronic information from an LPS system that manages foreclosure data. “At issue in these cases are the homes of poor and unfortunate debtors, more and more of whom are threatened with foreclosure due to the historic job loss and housing crisis,” Sigmund wrote in a 58-page opinion released [Wednesday].(2)

• Lender Processing, based in Jacksonville, Florida, runs an automated system to track mortgage payments and defaults and as recently as 2007 was used by 39 of the country’s 50 largest banks, according Sigmund’s ruling.

For more, see Lender Processing Falls 29% on Report of Inquiry.

See also, The Wall Street Journal: DOJ Probing Mortgage Data Processing Firms:

• In pursuit of homeowners Niles and Angela Taylor, HSBC filed the wrong mortgage, gave incorrect payment amounts and claimed the Taylors had missed monthly payments. This "was simply not true," Sigmund wrote in a 58-page decision. Pressed to produce a loan history for the Taylors, HSBC's lawyer confessed the system simply wouldn't give it to him.

***

• The processes the company uses to crank out court documents for fast, cheap foreclosures were the culprit, the judge found. By forcing lawyers to talk to computers rather than to their clients - the lenders - LPS makes it hard for lawyers to do right by the court and discharge their ethical obligations, Sigmund said. Lawyers at one level spot-check a fraction of the documents that are on their way to foreclosure actions, Sigmund found. But the business is built for profitability rather than reliability, and counts on "lower-cost labor," according to the judge. [...] She faulted HSBC and some of the lawyers involved in the case for having "sacrificed accuracy and fairness to efficiency and cost-savings," by relying on LPS's systems.

For Judge Sigmund's opinion, see In re Niles C. & Angela J. Taylor (Case No. 07-15385DWS, Bankr. E.D. Pa., April 15, 2009).

Go here, go here, go here, and go here for posts on questionable mortgage servicing practices.

Go here for other posts on sloppy foreclosures and assembly line lawyering.

(1) Formerly known as Fidelity National Information Services, Inc., according to the court ruling.

(2) Judge Sigmund diplomatically expresses her "disappointment" over the errors generated by the company's foreclosure data processing system, and the assembly line attorneys (ie. Udren Law Office and Moss Codilis LLP) who are roped in by their clients into allowing themselves to be manipulated by said system yielding sloppy, careless results in the interest of profits, by concluding her ruling with the following statement:

• My research has disclosed no other published opinion that explains the NewTrak process that is utilized by so many consumer mortgage lenders seeking relief in bankruptcy cases. I have attempted to share my education in this Opinion. Finally, it is my hope that by bringing the NewTrak process to the light of day in a published opinion, systemic changes will be made by the attorneys and lenders who employ the system or at least help courts formulate the right questions when they have not. While NewTrak has many features that make a volume business process more efficient, the users may not abandon their responsibility for fairness and accuracy to the seduction of electronic communication. The escalation procedures in place at HSBC and the Udren Firm existed on paper only. When an attorney appears in a matter, it is assumed he or she brings not only substantive knowledge of the law but judgment. The competition for business cannot be an impediment to the use of these capabilities. The attorney, as opposed to a processor, knows when a contest does not fit the cookie cutter forms employed by paralegals. At that juncture, the use of technology and automated queries must yield to hand-carried justice. The client must be advised, questioned and consulted. Young lawyers must be trained to make those judgments as opposed to merely following the form manual. Until they are capable of doing so, they should be supported and not left to sink or swim alone in an effort for the firm to be more profitable by leveraging the cheapest labor.

• At issue in these cases are the homes of poor and unfortunate debtors, more and more of whom are threatened with foreclosure due to the historic job loss and housing crisis in this country. Congress, in its wisdom, has fashioned a bankruptcy law which balances the rights and duties of debtors and creditors. Chapter 13 is a rehabilitative process with a goal of saving the family home. The thoughtless mechanical employment of computer·driven models and communications to inexpensively traverse the path to foreclosure offends the integrity of our American bankruptcy system. It is for those involved in the process to step back and assess how they can fulfill their professional obligations and responsibly reap the benefits of technology. Nothing less should be tolerated. QuestionableServicingTacticsSigma SloppyForeclosuresAlpha