Shortly after Lender Processing Services became the target of class action lawsuits for alleged illegal legal fee-splititing in early October, an investor commented that he had never seen a company do such a poor job of crisis management. The company halted trading at 3:45 PM for the not legitimate reason that they didn’t like how much the stock price had decayed that day. And when they had an investor conference call (not the next day, which would be the usual response cycle, but the day after that), it was remarkably unpersuasive.
LPS has become the object of more class action litigation in November, this time for alleged securities law claims, namely making false and misleading statements to investors from July 29, 2009 to October 4, 2010, including “deceptive and improper document execution and preparation related to foreclosure proceedings.”
LPS appears to be continuing both to do a lousy job of crisis management and making false statements to investors. The latest instance occurred on December 10. Readers may recall that Reuters published a major story on LPS on December 6, which confirmed many details about the inner workings of LPS’s processes for managing foreclosure mills that had been published on this blog a full two months earlier (LPS acts as an outsourced contractor to servicers). The Florida Times-Union ran a story based on the Reuters piece.
LPS claimed in a December 8 press release that the stories were inaccurate, but did not demand corrections, and Reuters said it stood by its account. On December 10, LPS wrote letters to the editor of Reuters and the Florida Times-Union and also filed them with the SEC as 8-K reports (click to enlarge):
The letter to the Times-Union, which you can read on the LPS website, contains a patently untrue statement about its pending litigation:
Furthermore, the Times-Union article said:
“A lawsuit filed in Mississippi in October alleges that the company engaged in illegal fee-splitting with law firms. A federal bankruptcy trustee has joined the plaintiffs in that suit.”
It is particularly unfortunate that the reporter did not do any fact checking on his reference to the Mississippi case. The statement is false. The Chapter 13 Trustee is named in the caption of the complaint as a matter of course.
Below is a copy of the amended claim, filed with the US Bankruptcy Court for the Northern Mississippi district on October 10. It very clearly states in Item 5 on the second page:
The additional plaintiff added by this amendment is Locke Barkley, the standing Chapter 13 Trustee for the Northern District of Mississippi who is joined as an additional plaintiff and who sues on behalf of herself and a class of persons defined as all Chapter 13 Trustees in the United States of America.
Chapter 13 trustees ARE Federal bankruptcy trustees. This is about as clear-cut a misrepresentation that you will ever see.
Now this is the sort of lie which will have no practical consequences for LPS. No one is going to sue because a misrepresentation like this cannot be proven to have led to meaningful damages. But it’s telling that the company has no inhibitions about putting out information that is blatantly false in a SEC filing.
And there is plenty not to like in the rest of the Times-Union letter. Some examples:
“LPS has acknowledged that employees at a subsidiary falsely signed mortgage assignments…”
Instead of casting blame on LPS, the reporter might more fairly have explained that LPS – on its own – uncovered and corrected deficiencies in practices that took place at a former business unit called DocX. LPS not only shut down the DocX operation, but also corrected (“remediated”) errors in documents that DocX had prepared before LPS put a halt to its practices. As part of that process, and as LPS has done consistently, the company publicly disclosed that it had found and corrected problems in assignments of mortgage prepared by DocX. Upon learning of these problems in late 2009 through an internal investigation, LPS remediated the assignments of mortgage signed in this manner.
This is utter crap. LPS tries to claim it was proactive and initiated its “late 2009″ investigation on its own initiative. In fact, the Department of Justice (specifically, the U.S. Trustee) launched a probe of DocX in April 2009, which was reported to be “nationwide” in May 2009. But LPS nevertheless tries to fob off the idea that first learned of problems in “late 2009″ and investigated promptly, when in fact the delay of months meant it was taking action considerably after having not simply concrete, but embarrassingly public indications that something was amiss. And there is also good reason to suspect the internal exam was less than voluntary.
We also have this part:
“[the other publication]…also found LPS placed an emphasis on speed of filing foreclosures, and law firms that did not file quickly enough did not get more work. Court records show that green ratings go to firms that jump on offered assignments from their LPS computer screens and almost instantly turn out ready-to-file court pleadings, often using teams of low-skilled clerical workers with little oversight from the lawyers”
As LPS told the original publication, LPS does not hire law firms. Servicers select the attorneys with whom they want to work and the servicers direct them to use LPS’ technology if the servicers choose to use the LPS technology platform to assist them in their management of foreclosure matters. Additionally, the servicers, not LPS, establish the timeline for the steps required for an attorney to handle a foreclosure matter on their behalf. The attorneys, not LPS, determine who from their firm prepares the documents that they utilize in foreclosure proceedings. Finally, the performance metrics of law firms, which are established by the servicers, are reported to the servicers who may or may not utilize the information in their decision to hire or retain attorneys.
This is misleading, if at points accurate. Contacts of mine have records in their possession in which LPS notifies servicers of the law firms that LPS has chosen for the servicer. So who is really in charge? The servicer is technically the client, but if LPS hires and fires law firms in the servicer’s name, who effectively controls the relationship? Similarly, the operations of the law firm monitoring/performance platform are consistent across foreclosure mills, which is not the result you would see if the parameters were the result of servicer choice. In addition, key features to accelerate the process were clearly devised to not only speed up the process, but accelerate payment to LPS. As we reported in October:
To illustrate the degree of control LPS exercises over its network: we have been told by an LPS insider that the software that LPS uses to coordinate with all law firms in its network, LPS Desktop, incorporates a scoring system called 3/3/30. When LPS sends a referral on a foreclosure, the referee is expected to respond in three minutes. When it accepts the referral, it is auto debited (ACH or credit card).
The extraordinarily fast acceptance/payment cycle clearly benefits LPS and could never have been devised by the servicers, confirming the hand of LPS in the design of this platform.
There is more I could shred, but you get the picture. It’s offensive to see a company carry on this way. However, the lawsuits pending and the potential damages involved suggest that LPS is about to get its just desserts.