Louisiana Bankruptcy Court Ruling Confirms Claims Made Against Lender Processing Services in Class Action Filings

A ruling in a Louisiana bankruptcy court case, In re Wilson, provides compelling evidence that many of the assertions made by Lender Processing Services, which both acts as the servicing platform and provider of default services for mortgage services industry, about how limited its role and hence its legal liability is, simply do not comport with reality.

In very simple terms, LPS claims that it is simply a hub, acting as a middleman of sorts between servicers, borrowers, and law firms, providing “information services” of various sorts. Some pending lawsuits, including one launched as a class action in bankruptcy (Federal) court in Mississippi, contend that LPS has been engaging in impermissible splitting of legal fees (which is subject to disgorgement) as well as charing fees that have not been disclosed to the court (a huge no-no in bankruptcy court, where every disbursement is required to be reported). The Chapter 13 bankruptcy trustee for Northern Mississippi has joined that case, both in her own name and on behalf of all Chapter 13 bankruptcy trustees as a class.

I strongly suggest you read this Louisiana decision (hat tip April Charney) in full. It provides an amusing contrast of LPS’s PR about what it does, versus a client’s account.

In Re Wilson Memorandum Opinion 07 Apr 2011

For instance, even though LPS insisted it was largely passive, the client, Option One. contended otherwise, maintaining that:

LPS takes a very large range of actions relative to clients on its own initiative, without specific servicer instructions or involvement. Some are even done by the system automatically, without human intervention.

LPS manages all “all tasks required during the administration of a loan during bankruptcy”. If counsel needs to be told to do something, LPS gives orders and involves the client only if it cannot resolve the matter on its own. That includes court filings, such as all Motions for Relief of Stay and Affidavits of Default.

Given the extent of “he said, she said,” the US Trustee, which is an arm of the Department of Justice dedicated to bankruptcy courts, offered to help and the court agreed. Eighteen months of fractious discovery followed, and as a result, the US Trustee filed motions to sanction the law firm involved in the borrower case as well as LPS.

The court not only deemed an LPS’s affidavit to be a sham and took such a dim view of that as to call into question all banks’ breezy assertions that robosigning is no big deal, it also services to confirm elements of the role LPS plays in mortgage servicing as set forth in pending litigation. We’ve long been of the view that LPS’s role in the mortgage mess is far from innocent, and the tidbits coming out over time continue to bear out our suspicions.

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12 comments

  1. psychohistorian

    I sure wish there was a state AG or so that was using your information to prosecute LPS BIG TIME!

    Are we ever going to see folks go to jail? If not, the devolution will continue apace.

    I think the Gawds can consider us a failed experiment at this point.

  2. Matt

    Best quote in the opinion:

    “The fraud perpetrated on the Court, Debtors, and trustee would be shocking if this Court hadless experience concerning the conduct of mortgage servicers. One too many times, this Court hasbeen witness to the shoddy practices and sloppy accountings of the mortgage service industry. Witheach revelation, one hopes that the bottom of the barrel has been reached and that the industry willself correct. Sadly, this does not appear to be reality. This case is one example of why their conductcomes at a high cost to the system and debtors.” @ p. 25.

    1. monday1929

      Yeah, and what has the Court done about it? Sounds like judges are worrying about their own involvement.

      1. Anonymous II

        “For the reasons assigned above, the Motion for Sanctions
        is granted as to liability of LPS. The Court will conduct
        an evidentiary hearing on sanctions to be imposed. ”
        [page 26]

        The United States Trustee (UST) filed the Motion
        for Sanctions, and that motion came before the
        Court on December 1, 2010.
        [from page 1]

        I believe the court proceedings aren’t over yet …

  3. ambrit

    Financial Fiendes;
    Considering that the prudent use of credit has been the basic building block of the Modern Consumer Society, from which all ‘good’ things have flowed this last century, the resolution of the present crisis in credit management is essential to the continued health of our culture.
    It appears that a line was crossed when the ‘credit handlers’ shifted their focus from societal utility/profit to pure profit. Irregardless your personal philosophy about this matter, the fact remains: Pure profit thinking remains preponderantly short term, and thus doomed to fail, usually in a spectacular fashion. Society, in which we are all enmeshed, of necessity thinks in mid to long terms. To round out the arguement; since profit thinking of all types is part of and dependant on the society it functions within, it invariably follows that those who worship at the alter of Mammon must without fail give prior obesiance to the needs of the society they inhabit.
    The Poet was right: “No man is an island…”

    1. ScottS

      All throughout history, money lenders have been greedy. The only reason the last 50 years have been pleasant and mutually beneficial is that the greatest generation was in charge and could see beyond the next quarterly earnings report. The crucial difference was that they were long-term greedy. They new they were parasites, and a smart parasite does not kill the host. The smartest parasites are symbiotes, providing some actual benefit to the host.

      Baby boomers, unfortunately, are not the greatest generation. Present company excluded, of course.

      1. ambrit

        Good Sir ScottS;
        I’ve been thinking a lot lately about just what motivated the “Greatest Generation” to think, and most importantly, act in a longer time frame then usual. My parents went through the London Blitz as children. My Dad was in their house with his older brother when it was hit by incendary bombs. That and the pure D privation, which lasted well into the ’50s in England seems to have set my parents in a permanent “thrift mode.” My father, while working in South America for AID in the ’60s, refused a credit card, offered free by his employers. He said he could do just fine with cash. He did indeed do well with cash, only finally getting a card when he discovered he couldn’t rent a car out of town on a trip without one.
        The thought has occured to me that people only really appreciate rights and freedoms when they have to fight for them. The Greatest Generation did a H— of a lot of struggling: in war zones, picket lines, dust bowls and just plain getting along with life. Our task, present company included, must be to be Mentors and Guides for the upcoming generation when it runs head on into what is unfortunately shaping up to be Hard Times for All. I’m already feeling a psychic bond with Grandpa and or Grandma as they sat around the family dinner table telling tales about the “Panic of 98!” See you.

  4. Gaius Gracchus

    Well, at least we can put to bed the whole “rational actor” and “self-regulating markets” theory promoted by certain economists…..

    The reason the predators are out of control is because stopped regulating these frauds. It is always easy to get flunkies like Ms. Goebel (wow, what a name for a fanatical follower of an evil group) to do the dirty work and think they are protecting society from “wicked” borrowers.

    We need to throw the crooks in jail, seize their loot, break up big banks, kill derivatives, and bring back massive regulation of the financial marketplace. Let’s make banking boring….

  5. robert

    agreed. TBTF? why? let em fail…JPM record profits and 12.5% rise in compensation? what? the company does not exist

  6. ChrisPacific

    Most interesting part for me:

    “In this case the lender and LPS cloaked Ms. Goebel with a title that implied knowledge and gravity. LPS could have identified Ms. Goebel as a document execution clerk but it didn’t. The reason is evident, LPS wanted to perpetrate the illusion that she was both OptionOne’s employee and a person with personal and detailed knowledge of the loan. Neither was the case.”

  7. bankruptcy court

    All throughout history, money lenders have been greedy. The only reason the last 50 years have been pleasant and mutually beneficial is that the greatest generation was in charge and could see beyond the next quarterly earnings report. The crucial difference was that they were long-term greedy. They new they were parasites, and a smart parasite does not kill the host. The smartest parasites are symbiotes, providing some actual benefit to the host.

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