Media Report: Storm Clouds Continue To Darken Over Accused Bogus F'closure Document Manufacturing Racket; Feds Impanel Grand Jury, Join Class Action

In Jacksonville, Florida, an invetigative report by Reuters on the alleged fraudulent foreclosure document manufacturing racket Lender Processing Services ("LPS") reveals that LPS' legal problems are more serious than the outfit's CEO Jeff Carbiener recently let on to Wall Street analysts in an October 29, 2010 conference call:

• Questionable signing and notarization practices weren't limited to its subsidiary, called DocX, but occurred in at least one of LPS's own offices, mortgage assignments filed in county recorders' offices show.

• And rather than halt such practices after the federal investigation got underway, the company shifted the signing to firms with which it has close business ties. LPS provided personnel to work in the new signing operations, according to information from an LPS spokeswoman and court records including an October 21 ruling by a judge in Brooklyn, New York.(1) Records in county recorders' offices, and in the judge's opinion, show that "robosigning" and preparation of apparently false documents went on at these sites on a large scale.

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• A spokeswoman for LPS confirmed to Reuters that it had helped other firms establish operations that performed the same function. [...] Interviews with key players and court records also show that pending investigations and lawsuits pose a bigger threat to the company than Carbiener let on.

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• The criminal investigation in Jacksonville by federal prosecutors and the Federal Bureau of Investigation is intensifying. The same goes for a separate inquiry by the Florida attorney general's office. Individuals with direct knowledge of the federal inquiry said that prosecutors have impaneled a grand jury, begun calling witnesses and subpoenaed records from LPS.

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• Meanwhile, the threats from four class action lawsuits filed in federal courts appear to be greater than the company has indicated, especially one filed in Mississippi. In a highly unusual move, a unit of the U.S. Justice Department has joined that suit as a plaintiff.

• The lawsuit alleges that LPS extracted many millions of dollars in kickbacks from law firms through an illegal fee-sharing arrangement, in exchange for doling out lucrative foreclosure work to them. The lawsuit also charges that LPS illegally practices law and routinely misleads homeowners and federal bankruptcy judges.

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• Copies of LPS internal documents obtained by Reuters and testimony in lawsuits shed new light on the company's unusual dealings with its vast network of law firms. LPS relentlessly pressed them for speed. The result was almost instant filing of foreclosure documents, mostly prepared by clerical workers, not lawyers, according to court records, including deposition testimony by LPS officials. Several judicial opinions from around the country and evidence from investigations in Florida show that these documents often were riddled with inaccurate information about the amount homeowners owed, and were signed and notarized en masse without anyone at the firms checking the information in them.

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• In an April 2009 court decision, Diane Weiss Sigmund, a federal bankruptcy judge in Philadelphia, specifically faulted lawyers whose firm filed LPS-transmitted documents in court using clerical workers to sign the name of a lawyer who hadn't looked at them. In that case, it turned out that, contrary to the documents supplied via the LPS system, the homeowners weren't in default on their mortgage.

• Referring to the LPS computer system, the judge stated, "the flaws in this automated process become apparent." She added: "An attorney must cease processing files and act like a lawyer."(2)

For more, see Special report: Legal woes mount for a foreclosure kingpin (requires a five-page "click-through" to read the entire story; for those who prefer the entire story on one web page, TRY HERE, TRY HERE, or TRY HERE).

(1) For Justice Arthur M. Schack's ruling, see OneWest Bank, F.S.B. v Drayton, 2010 NY Slip Op 20429 (NY Sup. Ct., Kings County, October 21, 2010).

(2) In re Taylor, Case No. 07-15385-DWS (Bankr. E.D. Pa., April 15, 2009), at page 32. Judge Sigmund concludes her 58-page opinion with this parting shot at robosigning foreclosure document processor outfits and the foreclosure mill law firms they hop into bed with:

• 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.