Foreclosure Mills, Attorneys Face Hot Water In Alleged Illegal Fee-Splitting Operation

AOL's DailyFinance reports:

• An awful lot of attorneys are in deep trouble, two companies will be destroyed, two more will be deeply damaged and a venture capital firm faces big losses, if the allegations in a lawsuit updated Monday are true.

• Jonathan and Darlene Thorne accuse the companies, LPS Default Solutions and Prommis Solutions, and their attorneys of having an illegal and fraudulent business model through which non-attorneys secretly practice law and illegally share legal fees.

• Because many of these fees are for bankruptcy work and are ultimately paid by the debtor, the suit explains, the business model isn't just illegal -- it's also a fraud on the bankruptcy court system in violation of the bankruptcy code, rules and processes.

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• If the Thornes win their case, the business model of LPS Default Solutions and Prommis Solutions will be illegal, driving them out of business. [...] In addition, all of the thousands of attorneys that have contracted with the companies -- and thus shared fees with them -- could face discipline, including disbarment.

• Finally, the owners of each, Lender Processing Services for Default Solutions and Prommis Solutions Holdings plus Great Hill Partners, could take massive financial hits. That's because, as the blog Naked Capitalism explained when the suit was originally filed, disgorgement is the typical remedy for illegal fee-sharing. Since every dollar of revenue both foreclosure subsidiaries have ever earned comes from allegedly illegally shared attorney's fees, the companies and their parents could have to pay it all back. It's hard to see how the highly leveraged LPS could repay the billions it has earned from its foreclosure subsidiary.

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• The root of the alleged business model is to do have non-lawyers perform lawyers' work for much less money, and then have real lawyers nominally sign off on the documents to disguise the fact that the lawyers aren't doing the work.

• As little respect as the general public may have for lawyers, the legal profession does involve skill and a deep base of knowledge: Even legal tasks that look like empty-headed blank filling -- completing an assignment of mortgage, for example -- are not. Properly transferring the ownership of real property is crucially important, and the failure to do so in possibly millions of cases across the country could trigger yet another stage of the housing meltdown as clouded titles thwart sales or force down prices to account for the attendant risks.

For more, see Are Foreclosure Attorneys Illegally Outsourcing Legal Work to Non-Lawyers?