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Lender Processing Services: Another Middleman in the Foreclosure Fraud Game

The Washington Post today runs a story on Lender Processing Services, essentially a middleman in the foreclosure operations, one which gets rich off of kicking people out of their homes.

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.

We have several depositions about what took place at Lender Processing Services and other processors. They have been accused of forging signatures on paperwork that supposedly proves standing to foreclose. We have documents where “Bogus” is listed as the mortgagee. Their subsidiary, DocX, has been accused of inventing paperwork for the courts associated with foreclosures. Basically, the mortgage holder had an unclear claim on the home, and LPS and DocX and these other companies created fake assignments to get the foreclosures through the courts. These problems at LPS are analogous to the issues at foreclosure mill law firms. The law firms are offering similar document-processing services to overwhelmed loan servicers who cannot keep up with the pace of delinquencies. Importantly, the more work LPS and the foreclosure mills got, the more they got paid, meaning they had a financial incentive to get foreclosures done quickly and quietly.

Interestingly enough, LPS used to be a division of Fidelity National Financial, the largest title insurance company in America, and the one which reached a deal with banks to have them pick up the costs for any foreclosure-related errors with title. So you have a corrupt document processor with a connection to a title insurer that wants to outsource their business, lest they find problems with… foreclosure document processing. In a way the two work hand-in-hand. LPS manufactures the legal right to foreclose, and Fidelity National runs a “check” and assures the new owners that there are no problems with that legal right.

LPS has PR’ed up, hiring Bush spokesmen Tony Fratto and Taylor Griffith as consultants. But law enforcement is unlikely to be sweet-talked. And they have the right idea with these investigations:

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.

Absolutely. And also, jail.

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David Dayen

David Dayen