U.S. probing foreclosure processing firms
By Ariana Eunjung Cha
Washington Post Staff Writer
Monday, October 25, 2010; 9:43 PM
For a fee, the Jacksonville company would locate and assemble the documents necessary for a lender to foreclose on a borrower who defaulted on a mortgage. Working on behalf of the biggest names in the industry, including J.P. Morgan Chase, Bank of America and Citigroup, LPS says it handles more than half of all foreclosures in the country.
Now, amid reports of shoddy and possibly fraudulent paperwork, LPS as well as a handful of other document processors and law firms are coming under scrutiny for the criminal investigations into the foreclosure debacle.
Law enforcement authorities on both state and federal levels are probing whether individuals at these foreclosure companies and at the banks that hired them committed an array of possible crimes – mail and wire fraud, money laundering, conspiracy and racketeering. No charges have been filed.
These officials say they are taking a well-tested approach in their investigations: press low-level employees to implicate higher-up executives. Already, investigators have obtained in sworn testimony detailed descriptions of what took place inside the foreclosure companies.
Florida’s attorney general, Bill McCollum, said in an interview that “we know there are problems of great significance” at LPS. He added that one of the most important questions being asked is, “Does this involve the CEO” of a major bank?
“It’s way too early to tell whether the bigger financial institution had officers committing criminal fraud,” McCollum said. “It may be something that shows up, but it’s too early to say right now.”
LPS is fighting back against what it calls “misrepresentations” about the scope of its problems. It recently hired as consultants Tony Fratto, who was a spokesman for the George W. Bush administration, and Taylor Griffith, a former Treasury Department spokesman.
LPS spokeswoman Michelle Kersch on Monday said the company “is committed to providing authorities with any information that they need to better understand our business and the industry.” She declined to comment further.
Formerly a branch of Fidelity National Financial – the nation’s largest title insurer – LPS was spun off in 2008. It’s still housed in the same complex as the title company, in one of two twin 12-story buildings with expansive views of the Jacksonville waterfront. With 8,900 employees, it is one of the city’s largest employers.
Some homeowners contesting foreclosures have alleged that the firm’s employees forged signatures on paperwork that proves ownership of a loan. In other cases, the employees listed “Bogus Assignee” as the mortgage holder and “Bad Bene” as the borrower.
After The Washington Post reported in late September on several instances in which a single person’s signature on some foreclosure documents appeared to be scripted by different people, LPS admitted that a subsidiary called Docx in Alpharetta, Ga., improperly prepared some documents used for foreclosures. Company officials said that the paperwork problems were limited to filings made in 2008 and 2009 and that the division has since been shut down.
“The varying signature styles” resulted from a decision made by the manager “to allow an employee to sign an authorized employee’s name,” the company said in a statement on Oct. 4, adding that it had corrected the affected documents.
Chief executive Jeffrey S. Carbiener emphasized in a recent conference call with analysts that the company had found “isolated instances of errors.” There’s unfounded concern that a large percentage of transactions are invalid, Carbiener said. “That is just simply not the case.”
No charges have been filed against LPS. The Justice Department’s U.S. attorney in central Florida has launched a criminal probe into whether LPS manufactured fake assignments of mortgage. McCollum’s office is investigating whether the company forged signatures in order to speed up foreclosures. And the U.S. Trustee’s office, which is charged with monitoring bankruptcies, is investigating whether the company improperly hastened foreclosures.
LPS – which reached $44 a share in October 2009 as a surge of foreclosures began hitting the market – plummeted nearly 40 percent since then to $27 a share. The most dramatic fall occurred in the past month, since several major lenders announced they would freeze foreclosure sales.
Smaller foreclosure businesses around the country have found themselves the target of civil or criminal investigations.
In Massachusetts, the attorney general is investigating whether Harmon Law Offices engaged in unfair and deceptive housing practices. The law firm has denied the charges.
In Florida, the attorney general is investigating whether four law firms – Shapiro & Fishman, Marshall C. Watson law offices, the Florida Default Law Group, and the Law Offices of David J. Stern – fabricated documents. All four law firms have denied the allegations.
And in Maryland, two lawyers – Bethesda-based Jacob Geesing and Hunt Valley-based Thomas P. Dore – have admitted in court filings that they had other people sign their names in foreclosure documents. The lawyers told the courts that they are correcting each instance, but they face possible sanctions by judges.
A challenge law enforcement officials face is that LPS and other foreclosure businesses are just one part of a chain of companies that handle different aspects of a single foreclosure. The mortgage service divisions of major lenders initiate foreclosure proceedings, but the surge of struggling borrowers defaulting on their mortgages overwhelmed them with paperwork.
So mortgage servicers turned to document-processing firms such as LPS. When these contractors became overworked, some law firms seized on the opportunity to offer similar document-processing services in addition to their legal work. Many of these contractors were paid for each case they handled – the more foreclosures they did, the more they received in payment.
Some law enforcement officials say that a goal of their investigations is to negotiate an industrywide settlement with mortgage lenders that will include forgiving the principal on a loan and more loan modifications.
Arizona Attorney General Terry Goddard, who is part of the executive committee of a joint investigation into foreclosure processes by the 50 states, said the “long list of abuses” by mortgage companies and their contractors could be cured by a clear and transparent way for borrowers to negotiate with lenders.