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HSBC FORECLOSURES AND THE NEWTRAK SYSTEM OF LENDER PROCESSING SERVICES

HSBC FORECLOSURES AND THE NEWTRAK SYSTEM OF LENDER PROCESSING SERVICES


HSBC FORECLOSURES AND THE NEWTRAK SYSTEM
OF LENDER PROCESSING SERVICES

By Lynn E. Szymoniak, Esq., Ed. Fraud Digest,
August 26, 2011

On August 24, 2011, Circuit Judge Fuentes of the United States Third Circuit Court of Appeals, issued an opinion in a case appealing the reversal by the District Court of sanctions originally imposed in the bankruptcy court on attorneys Mark J. Urden and Lorraine Doyle, the Udren Law Firm, and HSBC for violations of Federal Rule of Bankruptcy Procedure 9011. Highlights from that opinion, particularly regarding Lender Processing Services and HSBC, are set forth below. In this decision, the Third Circuit reversed the District Court and affirmed the bankruptcy court’s imposition of sanctions with respect to Lorraine Doyle, the Udren Law Firm, and HSBC. The District Court’s decision reversing the bankruptcy court’s sanctions against attorney Mark Udren was affirmed. The appeal was taken by Acting United States Trustee Roberta A. DeAngelis, In re Nile C. Taylor, et al., Case No. 10- 2154, 3d Cir. 2011. Ultimately, the Taylors lost their home. The sanctions imposed by the Bankruptcy Court, reversed by the District Court and finally affirmed by the Circuit Court, were minimal. Doyle  was ordered to take 3 CLE credits in professional responsibility; Udren himself to be trained in the use of NewTrak and to spend a day observing his employees handling NewTrak; and both Doyle and Udren to conduct a training session for the firm’s relevant lawyers in the requirements of Rule 9011 and procedures for escalating inquiries on NewTrak. The court also required HSBC to send a copy of its opinion to
all the law firms it uses in bankruptcy proceedings, along with a letter explaining that direct contact with HSBC concerning matters relating to HSBC’s case was permissible.

The Court made the following findings:

  • • HSBC does not deign to communicate directly with the firms it
    employs in its high-volume foreclosure work; rather, it uses a
    computerized system called NewTrak (provided by a third party, LPS)
    to assign individual firms discrete assignments and provide the limited
    data the system deems relevant to each assignment. The firms are
    selected and the instructions generated without any direct human
    involvement. The firms so chosen generally do not have the capacity
    to check the data (such as the amount of mortgage payment or time
    in arrears) provided to them by NewTrak and are not expected to
    communicate with other firms that may have done related work on the
    matter. Although it is technically possible for a firm hired through
    NewTrak to contact HSBC to discuss the matter on which it has been
    retained, it is clear from the record that this was discouraged and that
    some attorneys, including at least one Udren Firm attorney, did not
    believe it to be permitted. [The Udren Firm represented HSBC in this
    bankruptcy foreclosure.](Page 6-7)
  • • LPS is also not involved in the present appeal, as the bankruptcy
    court found that it had not engaged in wrongdoing in this case.
    However, both the accuracy of its data and the ethics of its practices
    have been repeatedly called into question elsewhere. See, e.g., In re
    Wilson, 2011 WL 1337240 at 9 (Bankr. E.D.La. Apr. 7, 2011)
    (imposing sanctions after finding that LPS had issued “sham” affidavits
    and perpetrated fraud on the court); In re Thorne, 2011 WL 2470114
    (Bankr. N.D. Miss. June 16, 2011); In re Doble, 2011 WL 1465559
    (Bankr. S.D. Cal. Apr. 14, 2011). (Footnote 5, Page 6)
  • • Doyle [the attorney from the Udren Firm representing HSBC] did
    nothing to verify the information in the motion for relief from stay
    besides check it against “screen prints” of the NewTrak information.
    She did not even access NewTrak herself. In effect, she simply
    proofread the document. It does not appear that NewTrak provided
    the Udren Firm with any information concerning the Taylors’ equity in
    their home, so Doyle could not have verified her statement in the
    motion concerning the lack of equity in any way, even against a
    “screen print.” (Page 8 )
  • • In May 2008, the bankruptcy court held a hearing on both the motion
    for relief and the claim objection. HSBC was represented at the
    hearing by a junior associate at the Udren Firm, Mr. Fitzgibbon. At that
    hearing, Fitzgibbon ultimately admitted that, at the time the motion
    for relief from the stay was filed, HSBC had received a mortgage
    payment for November 2007, even though both the motion for stay
    and the response to the Taylors’ objection to the proof of claim stated
    otherwise.8 Despite this, Fitzgibbon urged the court to grant the relief
    from stay, because the Taylors had not responded to HSBC’s RFAs
    (which included the “admission” that the Taylors had not made
    payments from November 2007 to January 2008). It appears from the
    record that Fitzgibbon initially sought to have the RFAs admitted as
    evidence even though he knew they contained falsehoods. (Page 10)
  • • The bankruptcy court denied the request to enter the RFAs as
    evidence, noting that the firm “closed their eyes to the fact that there
    was evidence that . . . conflicted with the very admissions that they
    asked me [to deem admitted]. They . . . had that evidence [that the
    assertions in its motion were not accurate] in [their] possession and
    [they] went ahead like [they] never saw it.” (App. 108-109.) (Page
    11)
  • • At the next hearing, in June 2008, Fitzgibbon stated that he could
    not obtain an accounting from HSBC, though he had repeatedly placed
    requests via NewTrak. He told the court that he was literally unable to
    contact HSBC—his firm’s client—directly to verify information which
    his firm had already represented to the court that it believed to be
    true. (Page 11)
  • • The bankruptcy court held four hearings over several days, making
    in-depth inquiries into the communications between HSBC and its
    lawyers in this case, as well as the general capabilities and limitations
    of a system like NewTrak. Ultimately, it found that the following had
    violated Rule 9011: Fitzgibbon, for pressing the motion for relief based
    on claims he knew to be untrue; Doyle, for failing to make reasonable
    inquiry concerning the representations she made in the motion for
    relief from stay and the response to the claim objection; Udren and
    the Udren Firm itself, for the conduct of its attorneys; and HSBC, for
    practices which caused the failure to adhere to Rule 9011.
  • • Rule 9011 of the Federal Rules of Bankruptcy Procedure, the
    equivalent of Rule 11 of the Federal Rules of Civil Procedure, requires
    that parties making representations to the court certify that “the
    allegations and other factual contentions have evidentiary support or,
    if specifically so identified, are likely to have evidentiary support.” Fed.
    R. Bank. P. 9011(b)(3). A party must reach this conclusion based on
    “inquiry reasonable under the circumstances.” Fed. R. Bank. P.
    9011(b). The concern of Rule 9011 is not the truth or falsity of the
    representation in itself, but rather whether the party making the
    representation reasonably believed it at the time to have evidentiary
    support.
  • • As an initial matter, the appellees’ insistence that Doyle’s and
    Fitzgibbon’s statements were “literally true” should not exculpate
    them from Rule 9011 sanctions. First, it should be noted that several of
    these claims were not, in fact, accurate. There was no literal truth to
    the statement in the request for relief from stay that the Taylors had
    no equity in their home. Doyle admitted that she made that statement
    simply as “part of the form pleading,” and “acknowledged having no
    knowledge of the value of the property and having made no inquiry on
    this subject.” (App. 215.) Similarly, the statement in the claim
    objection response that the figures in the original proof of claim were
    correct was false. (Page 16)
  • • In particular, even assuming that Doyle’s and Fitzgibbon’s
    statements as to the payments made by the Taylors were literally
    accurate, they were misleading. In attempting to evaluate whether
    HSBC was justified in seeking a relief from the stay on foreclosure, the
    court needed to know that at least partial payments had been made
    and that the failure to make some of the rest of the payments was due
    to a bona fide dispute over the amount due, not simple default.
    Instead, the court was told only that the Taylors had “failed to make
    regular mortgage payments” from November 1, 2007 to January 15,
    2008, with a mysterious notation concerning a “suspense balance”
    following. (App. 214-15.) A court could only reasonably interpret this
    to mean that the Taylors simply had not made payments for the period
    specified. As the bankruptcy court found, “[f]or at best a $540 dispute,
    the Udren Firm mechanically prosecuted a motion averring a $4,367
    post-petition obligation, the aim of which was to allow HSBC to
    foreclose on [the Taylors] “house.” (App. 215.) Therefore, Doyle’s and
    Fitzgibbon’s statements in question were either false or misleading.
    (Pages 16-17)
  • • With respect to the Taylors case in particular, Doyle ignored clear
    warning signs as to the accuracy of the data that she did receive. In
    responding to the motion for relief from stay, the Taylors submitted
    documentation indicating that they had already made at least partial
    payments for some of the months in question. In objecting to the
    proof of claim, the Taylors pointed out the inaccuracy of the mortgage
    payment listed and explained the circumstances surrounding the flood
    insurance dispute. Although Doyle certainly was not obliged to accept
    the Taylors’ claims at face value, they indisputably put her on notice
    that the matter was not as simple as it might have appeared from the
    NewTrak file. At that point, any reasonable attorney would have
    sought clarification and further documentation from her client, in order
    to correct any prior inadvertent misstatements to the court and to
    avoid any further errors. Instead, Doyle mechanically affirmed facts
    (the monthly mortgage payment) that her own prior filing with the
    court had already contradicted. (Page 20)
  • • Doyle’s reliance on HSBC was particularly problematic because she
    was not, in fact, relying directly on HSBC. Instead, she relied on a
    computer system run by a third-party vendor. She did not know where
    the data provided by NewTrak came from. She had no capacity to
    check the data against the original documents if any of it seemed
    implausible. (Page 20)
  • • Although the initial data the Udren Firm received was not, in itself,
    wildly implausible, it was facially inadequate. In short, then, we find
    that Doyle’s inquiry before making her representations to the
    bankruptcy court was unreasonable.
    In making this finding, we, of course, do not mean to suggest that the
    use of computerized databases is inherently inappropriate. However,
    the NewTrak system, as it was being used at the time of this case,
    permits parties at every level of the filing process to disclaim
    responsibility for inaccuracies. HSBC has handed off responsibility to a
    third- party maintainer, LPS, which, judging from the results in this
    case, has not generated particularly accurate records. LPS apparently
    regards itself as a mere conduit of information. Appellees, the
    attorneys and final link in the chain of transmission of this information
    to the court, claim reliance on NewTrak’s records. Who, precisely, can
    be held accountable if HSBC’s records are inadequately maintained,
    LPS transfers those records inaccurately into NewTrak, or a law firm
    relies on the NewTrak data without further investigation, thus leading
    to material misrepresentations to the court? It cannot be that all the
    parties involved can insulate themselves from responsibility by the use
    of such a system. (Page 21)
  • • We also find that it was appropriate to extend sanctions to the Udren
    Firm itself. Rule 11 explicitly allows the imposition of sanctions against
    law firms…In this instance, the bankruptcy court found that the
    misrepresentations in the case arose not simply from the
    irresponsibility of individual attorneys, but from the system put in
    place at the Udren Firm, which emphasized high-volume, high-speed
    processing of foreclosures to such an extent that it led to violations of
    Rule 9011. (citations omitted)(Page 24)
  • • We appreciate that the use of technology can save both litigants and
    attorneys time and money, and we do not, of course, mean to suggest
    that the use of databases or even certain automated communications
    between counsel and client are presumptively unreasonable. However,
    Rule 11 requires more than a rubber-stamping of the results of an
    automated process by a person who happens to be a lawyer. Where a
    lawyer systematically fails to take any responsibility for seeking
    adequate information from her client, makes representations without
    any factual basis because they are included in a “form pleading” she
    has been trained to fill out, and ignores obvious indications that her
    information may be incorrect, she cannot be said to have made
    reasonable inquiry. (Page 26)

[ipaper docId=63229856 access_key=key-7ik7ga710cir1yvmbl4 height=600 width=600 /]

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Taylor vs HSBC | U.S. 3rd Circuit Ct of Appeals – Affirms Bk Sanctions for misleading the court in filings

Taylor vs HSBC | U.S. 3rd Circuit Ct of Appeals – Affirms Bk Sanctions for misleading the court in filings


PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

_____________

In re: NILES C. TAYLOR; ANGELA J. TAYLOR, Debtors
ROBERTA A. DEANGELIS, Acting United States Trustee, Appellant.

No. 10-2154.

United States Court of Appeals, Third Circuit.

Argued: March 22, 2011. Opinion Filed: August 24, 2011.

Frederic J. Baker, Esq., Robert J. Schneider, Esq., George M. Conway, Esq., United States Department of Justice, Office of the United States Trustee, 833 Chestnut St., Suite 500, Philadelphia, PA 19107.

Ramona Elliott, Esq., P. Matthew Sutko, Esq., John P. Sheahan, Esq. (argued), United States Department of Justice, Executive Office for United States Trustees, 20 Massachusetts Ave. NW, Suite 8100, Washington, DC 20530, Attorneys for Appellant.

Jonathan J. Bart, Esq. (argued), Wilentz Goldman & Spitzer, P.A., Two Penn Center Plaza, Suite 910, Philadelphia, PA 19102, Attorney for Appellees.

Before: FUENTES, SMITH and VAN ANTWERPEN, Circuit Judges.

OPINION

FUENTES, Circuit Judge.

The United States Trustee, Region 3 (“Trustee”), appeals the reversal by the District Court of sanctions originally imposed in the bankruptcy court on attorneys Mark J. Udren and Lorraine Doyle, the Udren Law Firm, and HSBC for violations of Federal Rule of Bankruptcy Procedure 9011. For the reasons given below, we will reverse the District Court and affirm the bankruptcy court’s imposition of sanctions with respect to Lorraine Doyle, the Udren Law Firm, and HSBC.[1] However, we will affirm the District Court’s reversal of the bankruptcy court’s sanctions with respect to Mark J. Udren.

I.

A. Background

This case is an unfortunate example of the ways in which overreliance on computerized processes in a high-volume practice, as well as a failure on the part of clients and lawyers alike to take responsibility for accurate knowledge of a case, can lead to attorney misconduct before a court. It arises from the bankruptcy proceeding of Mr. and Ms. Niles C. and Angela J. Taylor. The Taylors filed for a Chapter 13 bankruptcy in September 2007. In the Taylors’ bankruptcy petition, they listed the bank HSBC, which held the mortgage on their house, as a creditor. In turn, HSBC filed a proof of claim in October 2007 with the bankruptcy court.

We are primarily concerned with two pleadings that HSBC’s attorneys filed in the bankruptcy court—(1) the request for relief from the automatic stay which would have permitted HSBC to pursue foreclosure proceedings despite the Taylors’ bankruptcy filing and (2) the response to the Taylors’ objection to HSBC’s proof of claim. We are also concerned with the attorneys’ conduct in court in connection with those pleadings. We draw our facts from the findings of the bankruptcy court.

1. The proof of claim (Moss Codilis law firm)

To preserve its interest in a debtor’s estate in a personal bankruptcy case, a creditor must file with the court a proof of claim, which includes a statement of the claim and of its amount and supporting documentation. Tennessee Student Assistance Corp. v. Hood, 541 U.S. 440, 447 (2004); Fed. R. Bank. P. 3001; Official Bankruptcy Form 10. In October 2007, HSBC filed such a proof of claim with respect to the Taylors’ mortgage. To do so, it used the law firm Moss Codilis.[2] Moss retrieved the information on which the claim was based from HSBC’s computerized mortgage servicing database. No employee of HSBC reviewed the claim before filing.

This proof of claim contained several errors: the amount of the Taylors’ monthly payment was incorrectly stated, the wrong mortgage note was attached, and the value of the home was understated by about $100,000. It is not clear whether the errors originated in HSBC’s database or whether they were introduced in Moss Codilis’s filing.[3]

2. The motion for relief from stay

At the time of the bankruptcy proceeding, the Taylors were also involved in a payment dispute with HSBC. HSBC believed the Taylors’ home to be in a flood zone and had obtained “forced insurance” for the property, the cost of which (approximately $180/month) it passed on to the Taylors. The Taylors disputed HSBC’s position and continued to pay their regular mortgage payment, without the additional insurance costs.[4] HSBC failed to acknowledge that the Taylors were making their regular payments and instead treated each payment as a partial payment, so that, in its records, the Taylors were becoming more delinquent each month.

Ordinarily, the filing of a bankruptcy petition imposes an automatic stay on all debt collection activities, including foreclosures. McCartney v. Integra Nat’l Bank North, 106 F.3d 506, 509 (3d Cir. 1997). However, pursuant to 11 U.S.C. § 362(d)(1), a secured creditor may file for relief from the stay “for cause, including the lack of adequate protection of an interest in property” of the creditor, in order to permit it to commence or continue foreclosure proceedings. Because of the Taylors’ withheld insurance payments, HSBC’s records indicated that they were delinquent. Thus, in January 2008, HSBC retained the Udren Firm to seek relief from the stay.

Mr. Udren is the only partner of the Udren Firm; Ms. Doyle, who appeared for the Udren Firm in the Taylors’ case, is a managing attorney at the firm, with twenty-seven years of experience. HSBC does not deign to communicate directly with the firms it employs in its high-volume foreclosure work; rather, it uses a computerized system called NewTrak (provided by a third party, LPS) to assign individual firms discrete assignments and provide the limited data the system deems relevant to each assignment.[5] The firms are selected and the instructions generated without any direct human involvement. The firms so chosen generally do not have the capacity to check the data (such as the amount of mortgage payment or time in arrears) provided to them by NewTrak and are not expected to communicate with other firms that may have done related work on the matter. Although it is technically possible for a firm hired through NewTrak to contact HSBC to discuss the matter on which it has been retained, it is clear from the record that this was discouraged and that some attorneys, including at least one Udren Firm attorney, did not believe it to be permitted.

In the Taylors’ case, NewTrak provided the Udren Firm with only the loan number, the Taylors’ name and address, payment amounts, late fees, and amounts past due. It did not provide any correspondence with the Taylors concerning the flood insurance dispute.

In January 2008, Doyle filed the motion for relief from the stay. This motion was prepared by non-attorney employees of the Udren Firm, relying exclusively on the information provided by NewTrak. The motion said that the debtor “has failed to discharge arrearages on said mortgage or has failed to make the current monthly payments on said mortgage since” the filing of the bankruptcy petition. (App. 65.) It identified “the failure to make . . . post-petition monthly payments” as stretching from November 1, 2007 to January 15, 2008, with an “amount per month” of $1455 (a monthly payment higher than that identified on the proof of claim filed earlier in the case by the Moss firm) and a total in arrears of $4367. (App. 66.) (It did note a “suspense balance” of $1040, which it subtracted from the ultimate total sought from the Taylors, but with no further explanation.) It stated that the Taylors had “inconsequential or no equity” in the property.[6] Id. The motion never mentioned the flood insurance dispute.

Doyle did nothing to verify the information in the motion for relief from stay besides check it against “screen prints” of the NewTrak information. She did not even access NewTrak herself. In effect, she simply proofread the document. It does not appear that NewTrak provided the Udren Firm with any information concerning the Taylors’ equity in their home, so Doyle could not have verified her statement in the motion concerning the lack of equity in any way, even against a “screen print.”

At the same time as it filed for relief from the stay, the Udren Firm also served the Taylors with a set of requests for admission (pursuant to Federal Rule of Bankruptcy Procedure 7036, incorporating Federal Rule of Civil Procedure 36) (“RFAs”). The RFAs sought formal and binding admissions that the Taylors had made no mortgage payments from November 2007 to January 2008 and that they had no equity in their home.

In February 2008, the Taylors filed a response to the motion for relief from stay, denying that they had failed to make payments and attaching copies of six checks tendered to HSBC during the relevant period. Four of them had already been cashed by HSBC.[7]

3. The claim objection and the response to the claim objection

In March 2008, the Taylors also filed an objection to HSBC’s proof of claim. The objection stated that HSBC had misstated the payment due on the mortgage and pointed out the dispute over the flood insurance. However, the Taylors did not respond to HSBC’s RFAs. Unless a party responds properly to a request for admission within 30 days, the “matter is [deemed] admitted.” Fed. R. Civ. P. 36(a)(3).

In the same month, Doyle filed a response to the objection to the proof of claim. The response did not discuss the flood insurance issue at all. However, it stated that “[a]ll figures contained in the proof of claim accurately reflect actual sums expended . . . by Mortgagee . . . and/or charges to which Mortgagee is contractually entitled and which the Debtors are contractually obligated to pay.” (App. 91.) This was indisputably incorrect, because the proof of claim listed an inaccurate monthly mortgage payment (which was also a different figure from the payment listed in Doyle’s own motion for relief from stay).

4. The claim hearings

In May 2008, the bankruptcy court held a hearing on both the motion for relief and the claim objection. HSBC was represented at the hearing by a junior associate at the Udren Firm, Mr. Fitzgibbon. At that hearing, Fitzgibbon ultimately admitted that, at the time the motion for relief from the stay was filed, HSBC had received a mortgage payment for November 2007, even though both the motion for stay and the response to the Taylors’ objection to the proof of claim stated otherwise.[8] Despite this, Fitzgibbon urged the court to grant the relief from stay, because the Taylors had not responded to HSBC’s RFAs (which included the “admission” that the Taylors had not made payments from November 2007 to January 2008). It appears from the record that Fitzgibbon initially sought to have the RFAs admitted as evidence even though he knew they contained falsehoods. (App. 101-102.)[9]

The bankruptcy court denied the request to enter the RFAs as evidence, noting that the firm “closed their eyes to the fact that there was evidence that . . . conflicted with the very admissions that they asked me [to deem admitted]. They. . . had that evidence [that the assertions in its motion were not accurate] in [their] possession and [they] went ahead like [they] never saw it.” (App. 108-109.) The court noted:

Maybe they have somebody there churning out these motions that doesn’t talk to the people that—you know, you never see the records, do you? Somebody sends it to you that sent it from somebody else.

(App. 109.) “I really find this motion to be in questionable good faith,” the court concluded. (App. 112.)

After the hearing, the bankruptcy court directed the Udren Firm to obtain an accounting from HSBC of the Taylors’ prepetition payments so that the arrearage on the mortgage could be determined correctly. At the next hearing, in June 2008, Fitzgibbon stated that he could not obtain an accounting from HSBC, though he had repeatedly placed requests via NewTrak. He told the court that he was literally unable to contact HSBC—his firm’s client—directly to verify information which his firm had already represented to the court that it believed to be true.

At the end of the June 2008 hearing, the court told Fitzgibbon: “I’m issuing an order to show cause on your firm, too, for filing these things . . . without having any knowledge. And filing answers . . . without any knowledge.” (App. 119.) Thereafter, the court entered an order sua sponte dated June 9, 2008, directing Fitzgibbon, Doyle, Udren, and others to appear and give testimony concerning the possibility of sanctions.

5. The sanctions hearings

The order stated that the purpose of the hearing included “to investigate the practices employed in this case by HSBC and its attorneys and agents and consider whether sanctions should issue against HSBC, its attorneys and agents.” (App 96-98.) Among those practices were “pressing a relief motion on admissions that were known to be untrue, and signing and filing pleadings without knowledge or inquiry regarding the matters pled therein.” Id. The order noted that “[t]he details are identified on the record of the hearings which are incorporated herein.” Id. In ordering Doyle to appear, the order noted that “the motion for relief, the admissions and the reply to the objection were prepared over Doyle’s name and signature.” Id. However, this order was not formally identified as “an order to show cause.”

The bankruptcy court held four hearings over several days, making in-depth inquiries into the communications between HSBC and its lawyers in this case, as well as the general capabilities and limitations of a system like NewTrak. Ultimately, it found that the following had violated Rule 9011: Fitzgibbon, for pressing the motion for relief based on claims he knew to be untrue; Doyle, for failing to make reasonable inquiry concerning the representations she made in the motion for relief from stay and the response to the claim objection; Udren and the Udren Firm itself, for the conduct of its attorneys; and HSBC, for practices which caused the failure to adhere to Rule 9011.

Because of his inexperience, the court did not sanction Fitzgibbon. However, it required Doyle to take 3 CLE credits in professional responsibility; Udren himself to be trained in the use of NewTrak and to spend a day observing his employees handling NewTrak; and both Doyle and Udren to conduct a training session for the firm’s relevant lawyers in the requirements of Rule 9011 and procedures for escalating inquiries on NewTrak. The court also required HSBC to send a copy of its opinion to all the law firms it uses in bankruptcy proceedings, along with a letter explaining that direct contact with HSBC concerning matters relating to HSBC’s case was permissible.[10]

B. The District Court’s Decision

Udren, Doyle, and the Udren Firm (but not HSBC) appealed the sanctions order to the District Court, which ultimately overturned the order. The District Court’s decision was based on three considerations: that the confusion in the case was attributable at least as much to the actions of Taylor’s counsel as to Doyle, Udren, and the Udren Firm; that the bankruptcy court seemed more concerned with “sending a message” to the bar concerning the use of computerized systems than with the conduct in the particular case; and that, since Udren himself did not sign any of the filings containing misrepresentations, he could not be sanctioned under Rule 9011. Although HSBC had not appealed, the District Court overturned the order with respect to HSBC, as well.

The United States trustee then appealed the District Court’s decision to this court.[11]

II.

Rule 9011 of the Federal Rules of Bankruptcy Procedure, the equivalent of Rule 11 of the Federal Rules of Civil Procedure, requires that parties making representations to the court certify that “the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support.” Fed. R. Bank. P. 9011(b)(3).[12] A party must reach this conclusion based on “inquiry reasonable under the circumstances.” Fed. R. Bank. P. 9011(b). The concern of Rule 9011 is not the truth or falsity of the representation in itself, but rather whether the party making the representation reasonably believed it at the time to have evidentiary support. In determining whether a party has violated Rule 9011, the court need not find that a party who makes a false representation to the court acted in bad faith. “The imposition of Rule 11 sanctions . . . requires only a showing of objectively unreasonable conduct.” Fellheimer, Eichen & Braverman, P.C. v. Charter Tech., Inc., 57 F.3d 1215, 1225 (3d Cir. 1995). We apply an abuse of discretion standard in reviewing the decision of the bankruptcy court. See Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405 (1990). However, we review its factual findings for clear error. Stern v. Marshall, ___ U.S. ___, 131 S. Ct. 2594, 2627 (2011) (Breyer, J., dissenting).

In this opinion, we focus on several statements by appellees: (1) in the motion for relief from stay, the statements suggesting that the Taylors had failed to make payments on their mortgage since the filing of their bankruptcy petition and the identification of the months in which and the amount by which they were supposedly delinquent; (2) in the motion for relief from stay, the statement that the Taylors had no or inconsequential equity in the property; (3) in the response to the claim objection, the statement that the figures in the proof of claim were accurate; and, (4) at the first hearing, the attempt to have the requests for admission concerning the lack of mortgage payments deemed admitted. As discussed above, all of these statements involved false or misleading representations to the court.[13]

A. Alleged literal truth

As an initial matter, the appellees’ insistence that Doyle’s and Fitzgibbon’s statements were “literally true” should not exculpate them from Rule 9011 sanctions. First, it should be noted that several of these claims were not, in fact, accurate. There was no literal truth to the statement in the request for relief from stay that the Taylors had no equity in their home. Doyle admitted that she made that statement simply as “part of the form pleading,” and “acknowledged having no knowledge of the value of the property and having made no inquiry on this subject.” (App. 215.) Similarly, the statement in the claim objection response that the figures in the original proof of claim were correct was false.

Just as importantly, appellees cite no authority, and we are aware of none, which permits statements under Rule 9011 that are literally true but actually misleading. If the reasonably foreseeable effect of Doyle’s or Fitzgibbon’s representations to the bankruptcy court was to mislead the court, they cannot be said to have complied with Rule 9011. See Williamson v. Recovery Ltd. P’ship, 542 F.3d 43, 51 (2d Cir. 2008) (a party violates Rule 11 “by making false, misleading, improper, or frivolous representations to the court”) (emphasis added).

In particular, even assuming that Doyle’s and Fitzgibbon’s statements as to the payments made by the Taylors were literally accurate, they were misleading. In attempting to evaluate whether HSBC was justified in seeking a relief from the stay on foreclosure, the court needed to know that at least partial payments had been made and that the failure to make some of the rest of the payments was due to a bona fide dispute over the amount due, not simple default. Instead, the court was told only that the Taylors had “failed to make regular mortgage payments” from November 1, 2007 to January 15, 2008, with a mysterious notation concerning a “suspense balance” following. (App. 214-15.) A court could only reasonably interpret this to mean that the Taylors simply had not made payments for the period specified. As the bankruptcy court found, “[f]or at best a $540 dispute, the Udren Firm mechanically prosecuted a motion averring a $4,367[] post-petition obligation, the aim of which was to allow HSBC to foreclose on [the Taylors’] house.” (App. 215.) Therefore, Doyle’s and Fitzgibbon’s statements in question were either false or misleading.

B. Reasonable inquiry

We must, therefore, determine the reasonableness of the appellees’ inquiry before they made their false representations. Reasonableness has been defined as “an objective knowledge or belief at the time of the filing of a challenged paper that the claim was well-grounded in law and fact.” Ford Motor Co. v. Summit Motor Prods., Inc., 930 F.2d 277, 289 (3d Cir. 1991) (internal quotations omitted). The requirement of reasonable inquiry protects not merely the court and adverse parties, but also the client. The client is not expected to know the technical details of the law and ought to be able to rely on his attorney to elicit from him the information necessary to handle his case in the most effective, yet legally appropriate, manner.

In determining reasonableness, we have sometimes looked at several factors: “the amount of time available to the signer for conducting the factual and legal investigation; the necessity for reliance on a client for the underlying factual information; the plausibility of the legal position advocated; .. . whether the case was referred to the signer by another member of the Bar . . . [; and] the complexity of the legal and factual issues implicated.” Mary Ann Pensiero, Inc. v. Lingle, 847 F.2d 90, 95 (3d Cir. 1988). However, it does not appear that the court must work mechanically through these factors when it considers whether to impose sanctions. Rather, it should consider the reasonableness of the inquiry under all the material circumstances. “[T]he applicable standard is one of reasonableness under the circumstances.” Bus. Guides, Inc. v. Chromatic Commc’ns Ents., Inc., 498 U.S. 533, 551 (1991); accord Garr v. U.S. Healthcare, Inc., 22 F.3d 1274, 1279 (3d Cir. 1994).

Central to this case, then, is the degree to which an attorney may reasonably rely on representations from her client. An attorney certainly “is not always foreclosed from relying on information from other persons.” Garr, 22 F.3d 1278. In making statements to the court, lawyers constantly and appropriately rely on information provided by their clients, especially when the facts are contained in a client’s computerized records. It is difficult to imagine how attorneys might function were they required to conduct an independent investigation of every factual representation made by a client before it could be included in a court filing. While Rule 9011 “does not recognize a `pure heart and empty head’ defense,” In re Cendant Corp. Derivative Action Litig., 96 F. Supp. 2d 403, 405 (D.N.J. 2000), a lawyer need not routinely assume the duplicity or gross incompetence of her client in order to meet the requirements of Rule 9011. It is therefore usually reasonable for a lawyer to rely on information provided by a client, especially where that information is superficially plausible and the client provides its own records which appear to confirm the information.

However, Doyle’s behavior was unreasonable, both as a matter of her general practice and in ways specific to this case. First, reasonable reliance on a client’s representations assumes a reasonable attempt at eliciting them by the attorney. That is, an attorney must, in her independent professional judgment, make a reasonable effort to determine what facts are likely to be relevant to a particular court filing and to seek those facts from the client. She cannot simply settle for the information her client determines in advance— by means of an automated system, no less—that she should be provided with.

Yet that is precisely what happened here. “[I]t appears,” the bankruptcy court observed, “that Doyle, the manager of the Udren Firm bankruptcy department, had no relationship with the client, HSBC.” (App. 202.) By working solely with NewTrak, a system which no one at the Udren Firm seems to have understood, much less had any influence over, Doyle permitted HSBC to define—perilously narrowly—the information she had about the Taylors’ matter. That HSBC was not providing her with adequate information through NewTrak should have been evident to Doyle from the face of the NewTrak file. She did not have any information concerning the Taylors’ equity in the home, though she made a statement specifically denying that they had any.

More generally, a reasonable attorney would not file a motion for relief from stay for cause without inquiring of the client whether it had any information relevant to the alleged cause, that is, the debtor’s failure to make payments. Had Doyle made even that most minimal of inquiries, HSBC presumably would have provided her with the information in its files concerning the flood insurance dispute, and Doyle could have included that information in her motion for relief from stay—or, perhaps, advised the client that seeking such a motion would be inappropriate under the circumstances.

With respect to the Taylors’ case in particular, Doyle ignored clear warning signs as to the accuracy of the data that she did receive. In responding to the motion for relief from stay, the Taylors submitted documentation indicating that they had already made at least partial payments for some of the months in question. In objecting to the proof of claim, the Taylors pointed out the inaccuracy of the mortgage payment listed and explained the circumstances surrounding the flood insurance dispute. Although Doyle certainly was not obliged to accept the Taylors’ claims at face value, they indisputably put her on notice that the matter was not as simple as it might have appeared from the NewTrak file. At that point, any reasonable attorney would have sought clarification and further documentation from her client, in order to correct any prior inadvertent misstatements to the court and to avoid any further errors. Instead, Doyle mechanically affirmed facts (the monthly mortgage payment) that her own prior filing with the court had already contradicted.

Doyle’s reliance on HSBC was particularly problematic because she was not, in fact, relying directly on HSBC. Instead, she relied on a computer system run by a third-party vendor. She did not know where the data provided by NewTrak came from. She had no capacity to check the data against the original documents if any of it seemed implausible. And she effectively could not question the data with HSBC. In her relationship with HSBC, Doyle essentially abdicated her professional judgment to a black box.

None of the other factors discussed in the Mary Ann Pensiero case which are applicable here affect our analysis of the reasonableness of appellees’ actions. This was not a matter of extreme complexity, nor of extraordinary deadline pressure. Although the initial data the Udren Firm received was not, in itself, wildly implausible, it was facially inadequate. In short, then, we find that Doyle’s inquiry before making her representations to the bankruptcy court was unreasonable.

In making this finding, we, of course, do not mean to suggest that the use of computerized databases is inherently inappropriate. However, the NewTrak system, as it was being used at the time of this case, permits parties at every level of the filing process to disclaim responsibility for inaccuracies. HSBC has handed off responsibility to a third-party maintainer, LPS, which, judging from the results in this case, has not generated particularly accurate records. LPS apparently regards itself as a mere conduit of information. Appellees, the attorneys and final link in the chain of transmission of this information to the court, claim reliance on NewTrak’s records. Who, precisely, can be held accountable if HSBC’s records are inadequately maintained, LPS transfers those records inaccurately into NewTrak, or a law firm relies on the NewTrak data without further investigation, thus leading to material misrepresentations to the court? It cannot be that all the parties involved can insulate themselves from responsibility by the use of such a system. In the end, we must hold responsible the attorneys who have certified to the court that the representations they are making are “well-grounded in law and fact.”

C. Notice

Doyle, Udren, and the Udren Firm also argue on appeal that they had insufficient notice that they were in danger of sanctions.[14] Rule 9011 directs that a court “[o]n its own initiative . . . may enter an order describing the specific conduct that appears to violate [the rule] and directing an attorney . . . to show cause why it has not violated [the rule].” Fed. R. Bank. P. 9011(c)(1)(B). Due process in the imposition of Rule 9011 sanctions requires “particularized notice.” Jones v. Pittsburgh Nat’l Corp., 899 F.2d 1350, 1357 (3d Cir. 1990). The meaning of “particularized notice” has not been rigorously defined in this circuit. In Fellheimer, we noted that this requirement was met where the sanctioned party “was provided with sufficient, advance notice of exactly which conduct was alleged to be sanctionable.” Fellheimer, 57 F.3d at 1225. In Simmerman v. Corino, 27 F.3d 58, 64 (3d Cir. 1994), we held that “the party sought to be sanctioned is entitled to particularized notice including, at a minimum, 1) the fact that Rule 11 sanctions are under consideration, 2) the reasons why sanctions are under consideration . . . .”

The bankruptcy court’s June order was clearly in substance an order to show cause, even if it was not specifically captioned as such. The more difficult question is whether the court adequately described “the specific conduct that appear[ed] to violate” Rule 9011, so as to give sufficient notice of “exactly which conduct was alleged to be sanctionable.” As mentioned above, the court’s June order identified “pressing a relief motion on admissions that were known to be untrue, and signing and filing pleadings without knowledge or inquiry regarding the matters pled therein” as the conduct the court wished to investigate. (App. 119) The judge also told Fitzgibbon, “I’m issuing an order to show cause on your firm, too, for filing these things . . . without having any knowledge. And filing answers . . . without any knowledge.” Id. The June order also made specific reference to “the motion for relief, the admissions and the reply to the objection.”

In these particular circumstances, the notice given to appellees was sufficient to put them on notice as to which aspects of their conduct were considered sanctionable. At that point in the case, the Udren Firm lawyers had only filed three substantive papers with the court—totaling six (substantive) pages—and the court found all of them problematic. Appellees’ claim that they believed that the only issue at the time of the hearing was Fitzgibbon’s inability to contact HSBC is simply not plausible in light of the language of the June order and the bankruptcy court’s statements at the hearing, which were incorporated by reference into the June order. In a case in which more extensive docket activity had taken place, the bankruptcy court’s order might not have been sufficient to inform appellees as to which of their filings were sanctionable, but, given the unusual circumstances here, it was. But see Martens v. Thomann, 273 F.3d 159, 178 (2d Cir. 2001) (requiring specific identification of individual challenged statements to uphold imposition of sanctions).

D. The Udren Firm and Udren’s individual liability

We also find that it was appropriate to extend sanctions to the Udren Firm itself. Rule 11 explicitly allows the imposition of sanctions against law firms. Fellheimer, 57 F.3d 1215 at 1223 n.5. In this instance, the bankruptcy court found that the misrepresentations in the case arose not simply from the irresponsibility of individual attorneys, but from the system put in place at the Udren Firm, which emphasized high-volume, high-speed processing of foreclosures to such an extent that it led to violations of Rule 9011.

However, we do not find that responsibility for these failures extends specifically to Udren, whose involvement in this matter was limited to his role as sole shareholder of the firm.

E. The District Court’s reversal of sanctions against HSBC

Ordinarily, of course, a party which does not appeal a decision by a district court cannot receive relief with respect to that decision. “[T]he mere fact that a [party] may wind up with a judgment against one [party] that is not logically consistent with an unappealed judgment against another is not alone sufficient to justify taking away the unappealed judgment in favor of a party not before the court.” Repola v. Morbark Indus., Inc., 980 F.2d 938, 942 (3d Cir. 1992). However, “where the disposition as to one party is inextricably intertwined with the interests of a non-appealing party,” it may be “impossible to grant relief to one party without granting relief to the other.” United States v. Tabor Court Realty Corp., 943 F.2d 335, 344 (3d Cir. 1991). In Tabor Court Realty, a contract dispute, the assignee of a property had failed to appeal a decision, while the assignor had (and had ultimately prevailed). Given that the dispute was over the disposition of the property, it was impossible to grant relief to the assignor without also granting relief to the assignee.

In this instance, whether the lawyers at the Udren Firm violated Rule 9011 is a question analytically distinct from whether HSBC was responsible for any violations of Rule 9011. A court might find that HSBC was responsible for violations, whereas, say, Udren himself was not. It was entirely possible for HSBC to comply with the sanctions ordered (a letter to its firms informing them that they are permitted to consult with HSBC) without affecting the interests of the lawyers at the Udren Firm. Therefore, the interests of the lawyers at the Udren Firm and HSBC were not “inextricably intertwined,” and the District Court lacked jurisdiction to reverse the sanctions against HSBC.

F. Alternative basis for the District Court’s decision

In reversing the bankruptcy court’s decision, the District Court focused on that court’s apparent attention to the broader problems of high-volume bankruptcy practice in imposing sanctions. It is true that the bankruptcy judge noted that appellees were not the first attorneys to run into these sorts of difficulties in her court. But she nonetheless made individualized findings of wrong-doing after four days of hearings and issued sanctions thoughtfully chosen to prevent the recurrence of problems at the Udren Firm based on what she had learned of practices there. Insofar as she considered the effect of the sanctions on the future conduct of other attorneys appearing before her, such considerations were permissible. After all, “the prime goal [of Rule 11 sanctions] should be deterrence of repetition of improper conduct.” Waltz v. County of Lycoming, 974 F.2d 387, 390 (3d Cir. 1992).

G. Conclusion

We appreciate that the use of technology can save both litigants and attorneys time and money, and we do not, of course, mean to suggest that the use of databases or even certain automated communications between counsel and client are presumptively unreasonable. However, Rule 11 requires more than a rubber-stamping of the results of an automated process by a person who happens to be a lawyer. Where a lawyer systematically fails to take any responsibility for seeking adequate information from her client, makes representations without any factual basis because they are included in a “form pleading” she has been trained to fill out, and ignores obvious indications that her information may be incorrect, she cannot be said to have made reasonable inquiry. Therefore, we find that the bankruptcy court did not abuse its discretion in imposing sanctions on Doyle or the Udren Firm itself. However, it did abuse its discretion in imposing sanctions on Udren individually.

III.

For the foregoing reasons, we will reverse the District Court with respect to Doyle and the Udren Firm, affirming the bankruptcy court’s imposition of sanctions. With respect to HSBC, as discussed previously, the District Court lacked jurisdiction to reverse the sanctions, as do we; therefore, we vacate the District Court’s order with respect to that party, leaving the sanctions imposed by the bankruptcy court in place. We will affirm the District Court with respect to Udren individually, reversing the bankruptcy’s court imposition of sanctions.

[1] Although HSBC was sanctioned by the bankruptcy court, it did not participate in this appeal.

[2] Moss Codilis is not involved in the present appeal. However, it is worth noting that the firm has come under serious judicial criticism for its lax practices in bankruptcy proceedings. “In total, [the court knows] of 23 instances in which [Moss Codilis] has violated [court rules] in this District alone.” In re Greco, 405 B.R. 393, 394 (Bankr. S.D. Fla. 2009); see also In re Waring, 401 B.R. 906 (Bankr. N.D. Ohio 2009).

[3] HSBC ultimately corrected these errors in an amended court filing.

[4] This dispute has now been resolved in favor of the Taylors. (App. 199.)

[5] LPS is also not involved in the present appeal, as the bankruptcy court found that it had not engaged in wrongdoing in this case. However, both the accuracy of its data and the ethics of its practices have been repeatedly called into question elsewhere. See, e.g., In re Wilson, 2011 WL 1337240 at *9 (Bankr. E.D.La. Apr. 7, 2011) (imposing sanctions after finding that LPS had issued “sham” affidavits and perpetrated fraud on the court); In re Thorne, 2011 WL 2470114 (Bankr. N.D. Miss. June 16, 2011); In re Doble, 2011 WL 1465559 (Bankr. S.D. Cal. Apr. 14, 2011).

[6] The U.S. Trustee now points out that the motion also claimed that the Taylors were not making payments to other creditors under their bankruptcy plan and argues that this claim was false as well. Since the bankruptcy court did not make any findings with respect to this issue, we will not consider it.

[7] It is not clear from the briefing whether the last two checks, for February and March 2008, had actually been submitted to HSBC at the time the motion was filed; appellees deny that they were. However, appellees do not dispute that checks for October and November 2007 and January 2008 had been cashed.

[8] Appellees concede that, by the time the May hearing was held, HSBC had received all of the relevant checks.

[9] Appellees now claim that “[i]t is clear from the record, that Mr. Fitzgibbon honestly disclosed to the Court that these checks had just been received by [the] Udren [Firm] and that the only issue was that of flood insurance.” (App’ee Br. 16.) However, this disclosure did not occur until after Fitzgibbon had attempted to enter the RFAs, which made contrary claims, as evidence, and debtor’s counsel raised the issue. As the bankruptcy court described it, “[Fitzgibbon] first argued that I should rule in HSBC’s favor . . . On probing by the court, he acknowledged that as of the date of the continued hearing, he had learned that [the Taylors] had made every payment.” (App. 196, emphasis added.) In a Rule 9011/11 proceeding such as the present one, one would expect the challenged parties to be scrupulously careful in their representations to the court.

[10] Taylor’s counsel was also ultimately sanctioned and removed from the case. Counsel did not perform competently, as is evidenced by the Taylors’ failure to contest HSBC’s RFAs. She also made a number of inaccurate statements in her representations to the court. However, it is clear that her conduct did not induce the misrepresentations by HSBC or its attorneys. As the bankruptcy court correctly noted, “the process employed by a mortgagee and its counsel must be fair and transparent without regard to the quality of debtor’s counsel since many debtors are unrepresented and cannot rely on counsel to protect them.” (App. 214.)

[11] The bankruptcy court had jurisdiction under 28 U.S.C. § 157(a). The District Court had jurisdiction under 28 U.S.C. § 158(a)(1), except as discussed below. We have jurisdiction under 28 U.S.C. § 158(d).

[12] “[C]ases decided pursuant to [Fed. R. Civ. P. 11] apply to Rule 9011.” In re Gioioso, 979 F.2d 956, 960 (3d Cir. 1992).

[13] Appellees expend great energy in questioning the factual findings of the bankruptcy court, but we, like the District Court before us, see no error.

[14] Any claim regarding a due process right to notification of the form of sanctions being considered has been waived by appellees, as it was not raised in their papers, either here or in the district court. United States v. Pelullo, 399 F.3d 197, 222 (3d Cir. 2005).

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Estimated More Than 200 Law Firms, Likely To Address Relationship with LPS For Alleged Fee-Splitting

Estimated More Than 200 Law Firms, Likely To Address Relationship with LPS For Alleged Fee-Splitting


HousingWire

The alleged splitting of attorney fees between foreclosure law firms and third-party mortgage servicing providers is the subject of another lawsuit, bringing the number of cases filed on this issue to five within the past seven months, said Nick Wooten, an Alabama-based plaintiff’s attorney involved in all of the cases.

By mid-May, Wooten said he expects to file 10 to 12 additional cases, making similar allegations about what he claims are illegal, split-attorney fee arrangements between mortgage servicing outsourcers and law firms. The cases are concentrated in the Northern District of Mississippi, the Southern District of Alabama and the Northern District of Florida-Pensacola division.

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FL Class Action Against Ben-Ezra & Katz, Lender Processing Services, Inc. (LPS): IN RE: HARRIS

FL Class Action Against Ben-Ezra & Katz, Lender Processing Services, Inc. (LPS): IN RE: HARRIS


Via: NakedCapitalism

The latest filing is in bankruptcy court in the Northern District of Florida, In re Harris, and involves both LPS (the parent company and its subsidiary LPS Default Solutions) and major Florida foreclosure mill Ben-Ezra & Katz. The bankruptcy clients of Ben Ezra are the group that the litigation seeks to have certified as a class. Note that the usual remedy for the sharing of impermissible legal fees is disgorgment. In addition, the suit lists ten causes of actions, of which the fee sharing is only one.

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Gretchen Morgenson takes on Regulators, LPS and the Shoddy Practices and Sloppy Accountings of the Mortgage Service Industry

Gretchen Morgenson takes on Regulators, LPS and the Shoddy Practices and Sloppy Accountings of the Mortgage Service Industry


The absolute beauty of this all,  is when one of the greatest gets the word out.

Understand that us bloggers don’t have the means both in funding nor in the capacity of such a global platform, but what us bloggers do have most importantly, a POWERFUL VOICE, your voice to manage to get the word out.

Make no mistake, no coincidence…In many opinions, insiders are tipped before anything major will break and why timing is EVERYTHING.

Read the latest from Gretchen Morgenson:

Homework Regulators Aren’t Doing

“ONE too many times, this court has been witness to the shoddy practices and sloppy accountings of the mortgage service industry. With each revelation, one hopes that the bottom of the barrel has been reached and that the industry will self correct. Sadly, this does not appear to be reality.”


Then come back and read the full case.

BLOCKBUSTER FRAUD | LA BK Judge Grants Motion For Sanctions Against Lender Processing Services (LPS) Liability IN RE: WILSON

The fraud perpetrated on the Court, Debtors, and trustee would be shocking if this Court had less experience concerning the conduct of mortgage servicers.

ELIZABETH W. MAGNER, Bankruptcy Judge

IN RE: WILSON

[Image: NYTimes]

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REUTERS | U.S. judge to sanction LPS for lying to court

REUTERS | U.S. judge to sanction LPS for lying to court


(Reuters) – A federal bankruptcy judge in New Orleans said she will impose sanctions on Lender Processing Services, after concluding that the mortgage servicing company deliberately committed fraud on the court in a foreclosure case, by giving false testimony and submitting a “sham” affidavit.

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BLOCKBUSTER FRAUD | LA BK Judge Grants Motion For Sanctions Against Lender Processing Services (LPS) Liability IN RE: WILSON

BLOCKBUSTER FRAUD | LA BK Judge Grants Motion For Sanctions Against Lender Processing Services (LPS) Liability IN RE: WILSON


The fraud perpetrated on the Court, Debtors, and trustee would be shocking if this Court had less experience concerning the conduct of mortgage servicers.

 

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF LOUISIANA

IN RE:
RON WILSON, SR.
LARHONDA WILSON
DEBTORS

Excerpt:

III. Conclusion
The fraud perpetrated on the Court, Debtors, and trustee would be shocking if this Court had less experience concerning the conduct of mortgage servicers. One too many times, this Court has been witness to the shoddy practices and sloppy accountings of the mortgage service industry. With each revelation, one hopes that the bottom of the barrel has been reached and that the industry will self correct. Sadly, this does not appear to be reality. This case is one example of why their conduct comes at a high cost to the system and debtors.

The hearing on the Motion for Sanctions provides yet another piece to in the puzzle of loan administration. In Jones v. Wells Fargo,104 this Court discovered that a highly automated software package owned by LPS and identified as MSP administered loans for servicers and note holders but was programed to apply payments contrary to the terms of the notes and mortgages. In In re Stewart,105 additional information was acquired regarding postpetition administration under the same program, revealing errors in the methodology for fees and costs posted to a debtor’s account. In re Fitch,106 delved into the administration of escrow accounts for insurance and taxes. In this case, the process utilized for default affidavits has been examined. Although it has been four (4) years since Jones, serious problems persist in mortgage loan administration. But for the dogged determination of the UST’s office and debtors’ counsel, these issues would not come to light and countless debtors would suffer. For their efforts this Court is indebted.

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.

New Orleans, Louisiana, April 6, 2011.

Hon. Elizabeth W. Magner
U.S. Bankruptcy Judge

Continue below…

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In re: RON WILSON, SR. LARHONDA WILSON, Chapter 13, Debtors.

Case No. 07-11862.

United States Bankruptcy Court, E.D. Louisiana.

April 6, 2011.

MEMORANDUM OPINION

ELIZABETH W. MAGNER, Bankruptcy Judge

On December 1, 2010, the Motion for Sanctions[1] filed by the United States Trustee (UST) came before the Court. At the beginning of the hearing, a request to bifurcate the issues presented was granted. Hearing on the sanctions to be awarded was deferred to a separate hearing, pending determination of liability for sanctionable conduct. After trial on the merits, the Court ordered that simultaneous briefs be submitted no later than February 1, 2011. Upon the filing of briefs, the matter was taken under advisement.

I. Procedural History and Facts Leading to Expanded Order to Show Cause

Option One Mortgage Corporation (“Option One”) holds a mortgage on Ron and LaRhonda Wilson’s (“Debtors”) home payable in monthly installments. On September 29, 2007, Debtors filed a voluntary petition under chapter 13 of the Bankruptcy Code. At the time of their bankruptcy filing, Debtors were in default on the mortgage, and a prepetition arrearage was owed. Debtors’ plan of reorganization provided for monthly payments to the trustee for satisfaction of the prepetition arrearage, and Debtors’ direct payment of monthly postpetition mortgage installments to Option One. The plan was confirmed on December 21, 2007.[2]

Option One filed a Motion for Relief From Stay on January 7, 2008 (“First Motion”).[3] The First Motion alleged that Debtors had failed to make the monthly postpetition installment payments for November 2007 through January 2008. The First Motion requested relief from the automatic stay to enforce payment of the debt in a foreclosure action. On February 4, 2008, Debtors responded averring they were current and that Option One had failed to credit several postpetition payments to their account.[4]

Because Option One failed to supply evidence of default, the First Motion was denied without prejudice.[5] Option One filed a new Motion for Relief From Stay on March 10, 2008 (“Second Motion”).[6] The Second Motion alleged that Debtors were in default for “over four (4) months now. . .” Option One also stated that “Due to the Debtors’ failure to maintain the monthly [postpetition] payments, there exists the possibility that real estate taxes may go unpaid or insurance on the property may lapse because of the shortage in the Debtors’ escrow account.”

The Second Motion was supported by an affidavit of Dory Goebel, Assistant Secretary for Option One. In the affidavit, Ms. Goebel averred under oath that Option One was the holder of the secured claim in Debtors’ case. To support her affidavit, Ms. Goebel attached a copy of a note and mortgage executed by Debtors and an endorsement to Option One by America’s Mortgage Resource, the original payee on the note.

Ms Goebel affirmed:

Appearer has reviewed and is familiar with the mortgage loan account of RON WILSON, Sr. And LA RHONDA WILSON (“Mortgagor”) represented by the afore described note and mortgage and the records and data complications [sic] pertaining thereto, which business records reflect acts, events or condition made at or near the time by Dory Goebel, or from information transmitted by a person with knowledge thereof and which records and data complications [sic] are made and kept as a regular practice of the regularly conducted business activities of OPTION ONE MORTGAGE CORPORATION.

Ms. Goebel then declared that the balance due on the note was $176,063.27 and that Debtors were in default under their plan for failure to pay the monthly installments accruing from November 1, 2007, through February 1, 2008. Ms. Goebel represented that the last payment on the note was applied to the October 1, 2007 installment.

Debtors opposed the Second Motion alleging that all postpetition installments were paid by money order, cashier’s, or personal check and that all payments by cashier’s or personal check were delivered by certified mail.[7] At the initial hearing on the Second Motion on April 8, 2008, Debtors offered into evidence proof of payment for installments made on the Option One note. Debtors’ evidence included:

1. October 2007 payment — confirmation by Western Union that a money order was delivered to Option One on October 20, 2007, in the amount of $1546.64 and receipt was acknowledged by Option One on October 27, 2007.

2. November 2007 payment — confirmation by Western Union that a money order was delivered to Option One on November 30, 2007, in the amount of $1546.64 and receipt was acknowledged by Option One on November 30, 2007.

3. December 2008 payment-copy of a certified mail receipt showing delivery to Option One on January 2, 2008. Debtors alleged tender of a cashier’s check #XXXXXXXXXXXXXXXXXXXX for $1546.84.

4. January 2008 payment-a copies of a cashier’s check for $1000.00 and two money orders for $546.84 and $312.00 both dated January 25, 2008; certified mail receipts evidencing delivery to and acknowledging receipt by Option One on January 31, 2008.

5. February 2008 payment — copies of a cashier’s check for $1546.84 and a personal check for $78.00; as well as a receipt for certified mail delivery on February 28, 2008, and acknowledging receipt by Option One on March 3, 2008.

6. March 2008 payment — copies of two cashier’s checks for $1546.84 and $78.00; as well as a receipt for certified mail delivery on March 28, 2008, and confirmation of delivery to Option One by the United States Postal Service on March 31, 2008.[8]

Both the First and Second Motions were filed by Mr. Clay Writz of the Boles Law Firm (“Boles”) representing Option One. However, Mr. Timothy Farrelly of Nicaud, Sunseri, & Fradella appeared on behalf of Option One at the hearing on the Second Motion. At the conclusion of the hearing, the Court continued the matter until April 22, 2008, in order to allow Option One the opportunity to trace the alleged payments and provide an accounting of the loan’s payment history from petition date through April 2008.

On April 22, 2008, the continued hearing on the Second Motion was held. Mr. Farrelly again appeared on behalf of Option One. At the hearing, Debtors’ counsel represented that Mr. Wirtz had contacted him at 5:30 p.m. the night before requesting a continuance due to a conflict in another court. Mr. Wirtz stated that he had not reviewed the prior evidence and was not prepared to address the issues raised by Debtors in their Opposition. Option One did acknowledge, through a pleading filed by Mr. Wirtz the night before the hearing, the receipt of three (3) additional and previously undisclosed payments:

1. Payment dated October 22, 2007, in the amount of $1546.84 applied to the installment due October 1, 2007;

2. Payment dated December 3, 2007, in the amount of $1546.84 applied to the installment due November 1, 2007; and

3. Payments of $1546.84 and $78.00 dated April 2, 2008, applied to installment due December 1, 2007.

The pleading was not the accounting ordered by the Court, but instead a chart reflecting the receipt and application of three (3) payments postpetition. The pleading again asserted that the funds delivered were insufficient to satisfy the amounts due and reasserted Option One’s request for relief.[9]

Since Debtors’ evidence indicated 1) additional payments not acknowledged by Option One; 2) Option One had failed to supply the ordered accounting or address the additional payments made by Debtors; and 3) Mr. Farrelly lacked any knowledge regarding the loan, the Court determined that Option One’s response was insufficient and issued show cause orders for Mr. Wirtz, Dory Goebel, and Option One.[10] The merits of the Second Motion were again continued to afford Option One and Ms. Goebel the opportunity to respond to the allegations raised by the Opposition and subsequent admission by Option One that three (3) unaccounted for payments were not included in its motion.[11]

On June 26, 2008, a third hearing on the Second Motion and the initial hearing on the show cause orders was conducted. Mr. Wirtz appeared at the hearing, but Ms. Goebel was not present. Mr. Wirtz admitted that Debtors were in fact current on their loan. Mr. Wirtz also admitted receipt of $7,513.53 in funds on Debtors’ account and stipulated that Debtors were current through and including May 2008. Mr. Wirtz admitted that between the filing of the First and Second Motions, Option One located one (1) payment which was applied to the October 2007 installment.

Regarding the show cause order, Mr. Writz represented that his contact was Fidelity National Foreclosure Solutions, n/k/a Lender Processing Services (“LPS”) and that all information regarding payments, defaults, or inquires were taken by him from a LPS website or LPS personnel.[12]

Mr. Wirtz represented that additional unapplied payments were only discovered when they arrived at his office.[13] Specifically, he stated that payments were delivered on February 18, 2008, in the amount of $1,858.84; March 7, 2008, in the amount of $1,624.17; May 12, 2008, in the amount of $1,624.84; and May 22, 2008, in the amount of $1,524.84. Because payments were received by Mr. Wirtz on February 18 and March 7 and prior to the filing of the Second Motion, Mr. Wirtz was sanctioned for his failure to disclose this fact in the Second Motion or correct the representations made in his pleadings.

Nevertheless, based on the information available to Mr. Writz when the Second Motion was filed, it appeared that the payments received from Option One were insufficient to alert Mr. Wirtz that the loan was entirely current. As a result, the Court ordered further investigation into the receipt and application of payments by Option One in a continued effort to uncover the cause of the erroneous filing. The Court jointly sanctioned Option One and Ms. Goebel $5,000.00 for failure to appear and $5,000.00 for filing a false affidavit.[14] Option One was also ordered to pay $900.00 in attorney’s fees to Debtors’ counsel. The Court sanctioned Mr. Wirtz $1,000.00 for failing to amend the Second Motion and Default Affidavit once he obtained information which revealed that they were false.[15] The Court continued the hearing on the show cause order against Ms. Goebel and Option One to August 21, 2008.[16] Based on Mr. Wirtz’s representations, an additional show cause order was issued for LPS.[17]

On July 9, 2008, LPS voluntarily intervened “to clarify its role in this matter and to address any misconceptions or misunderstandings which may have been left with the Court regarding that role.”[18] On August 21, 2008, the Court held an evidentiary hearing on the Orders to Show Cause. Participating at the hearing were representatives and counsel for Boles, LPS, Option One, the UST and Debtors.

Mr. Michael Cash, representing LPS, explained LPS’ role in the administration of Debtors’ loan:

Fidelity does work for Option One, and basically Fidelity’s role is almost as a conduit and storage of information and data. Option One will send their information to Fidelity, and then attorneys such as Clay [Wirtz] can access that information.[19]

***

. . . [B]asically Fidelity became—if you think if it almost as a library, various clients could put their information in that library. The attorneys would go to the library, check out the information, and that’s how things would happen. One of the services that we provided, and no longer do, but one that we did is executing affidavits such as the one in this case.[20]

***

Ms. Goebel is an employee of Fidelity. The various clients in this case, including Option One, would sign a corporate resolution, and I have a copy of a corporate resolution, that would give her limited authority as a vice president for particular purposes. And in this case one of the purposes was executing the affidavit.[21]

***

Court: . . . if Fidelity is merely storing information . . . why wouldn’t Option One sign the affidavit?

Cash: . . a number of clients sign their own, Your Honor. Sometimes they would want us to, simply because we have people like Ms. Goebel who handle the accounts on a daily basis, who review the material, who have access to the material, and it was simply one less thing that the client had to do, that we would do.[22]

***

Cash: . . . and when Ms. Goebel would execute the affidavit she would have access to the same information as someone at Option One. She would go into their system, look at what has been posted, what hasn’t been posted. And I think what happened here was just a series of miscommunications . . .[23]

***

Cash: . . . And I think that the simple explanation here, . . . and I think it’s one that’s clearly human error that can happen, is there was a payment sent. There was an error made where that payment was sent, because this was in bankruptcy. . . . that payment was sent to the Boles Firm, rather than being posted. And that was basically, I think, someone in Mr. Wirtz’s office had instructed Option One, “Send us the checks and we will send them back,” or “we will take care of that.”[24]

Mr. Cash then offered the testimony of Ms. Goebel who is both an employee of LPS and was an authorized signer of default affidavits for Option One. Ms. Goebel testified as to the process by which a default affidavit is executed. In particular, Ms. Goebel explained:

To execute such an affidavit, once I receive the affidavit, I will review the information that is in the affidavit with Option One’s system. So, I will validate the information based on their system and the information that is there.[25]

At the August 21, 2008, hearing, Ms. Goebel represented that from her desk she would log into Option One’s computer system and verify the information in the affidavit. She also represented that she had access to Option One’s entire record of the loan.[26] She stated that she verified this information with LPS’ own system which reflected the communications between Option One’s law firm and Option One.[27] Ms. Goebel represented that LPS only maintained a “library” of information that Option One supplied.[28]

She confirmed that she reviewed a debtors’ entire loan history prior to executing the affidavit[29] and would also review communications between counsel and LPS in connection with the signing of the affidavit. She, however, would not review communications between counsel and Option One.[30]

Ms. Goebel explained that LPS had no way to verify unposted payments.[31] She stated emphatically that after reviewing Debtors’ file, she found no communications between LPS and Boles about any additional payments tendered after the filing of the motions.[32] Ms Goebel also testified that after reviewing Debtors’ loan file before testifying, she saw no communications between LPS and Option One.[33] She asserted that it was Option One’s responsibility to notify counsel should a change in circumstance warrant the withdrawal of a motion for relief[34] and that LPS never stopped legal actions once it referred a loan to counsel.[35]

The testimony presented by Option One, however, did not agree with Mr. Cash or Ms. Goebel’s representations. Mr. Arthur Simmons of American Home Mortgage, formerly Option One, testified for Option One. Mr. Simmons was the person tasked with the day to day administration of Debtors’ loan once their bankruptcy was filed.

Mr. Simmons testified that once a borrower filed for bankruptcy, LPS opened a bankruptcy workstation or subprogram to administer the loan. Option One was given notice that this had occurred.[36]

Once a bankruptcy workstation is opened, Option One would take no action unless requested by LPS, who was described as actually administering the loan.[37] As previously explained in In re Stewart,[38] LPS markets to loan servicing companies and note holders a very sophisticated loan management program commonly referred to in the industry as “MSP.” MSP interfaces with a client’s computer system collecting information and monitoring a loan’s status. When certain events occur, the program is designed to take action without human intervention. For example, when a loan reflects past due payments for a specified period of time, generally forty-five (45) days, MPS will generate a demand or default letter to the borrower. The timing or triggers for various loan administrative actions are set by the lender or servicer but executed by MSP as overseen by LPS.[39]

When a bankruptcy is filed, the bankruptcy workstation is activated and provides a set of additional parameters, tasks and actions that can be performed by the program or those that use it in a bankruptcy. For example, when a loan is sixty (60) days postpetition delinquent, the system will notify of this event and typically trigger a referral to counsel for the filing of a motion for relief.[40]

Mr. Simmons represented that LPS manages all tasks required during the administration of a loan during bankruptcy. If counsel needs instruction, LPS is contacted and only if LPS cannot solve counsel’s problem, is Option One involved.[41]

Although Debtors’ filed for bankruptcy relief on September 29, 2007, the bankruptcy workstation was not activated by LPS until November. Because LPS delayed setting up the workstation, Debtors’ first postpetition payment, made in October 2007, was not posted to the October installment but to June 2007, the earliest outstanding prepetition installment. As a result, the system showed October 2007 installment as past due.[42]

When Debtors’ file was reviewed by LPS for referral to counsel, the postpetition due date was not accurate because it did not reflect the October payment.[43] To avoid this type of problem, Option One had procedures in place for LPS to follow if activation of a bankruptcy workstation was delayed. In such a case, LPS was directed to search for payments that might have been delivered after the bankruptcy filing date but prior to activation of the workstation. If any were found, LPS was to apply the payments to postpetition installments correcting the posting error. Mr. Simmons testified that LPS had the ability to adjust the application of payment in this circumstance and it was their responsibility to do so.[44]

Mr. Simmons also testified that Option One’s computer system generated reports when a debtor was 45 to 60 days postpetition past due.[45] In this case, a delinquency report was generated in December, when the incorrect posting for October led the computer to read a 60 day postpetition delinquency.

LPS maintained an on site employee at Option One who reviewed the post bankruptcy delinquency reports. That employee reviewed the list, then entered a request on LPS’ system for a motion for relief referral.[46]

If a payment was received after a file had been referred to counsel for action (i.e. the filing of a motion for relief from stay), Option One’s policy was to request that LPS contact counsel for instruction. If LPS could not satisfy counsel’s request, only then would LPS contact Option One. Although direct communications between counsel and Option One were not prohibited, they were rare because it was LPS’ responsibility to manage the loan. This case appears to have followed the normal chain of administration because there was no evidence that Boles had any, or attempted any, direct communications with Option One.[47]

When Option One received the payment for December 2007, LPS sent an inquiry to Boles for instructions. Boles replied that Option One should send the payment to it.[48] Option One contacted LPS for instructions on each payment as it was received from December through March.[49] As each postpetition payment arrived from Debtors, Option One communicated with LPS, LPS with Boles, and then LPS reported back to Option One the instruction received.[50] As a result, Debtors’ postpetition payments for December 2007 through March 2008 were not posted, but instead were reflected on a cash log that was not available to either Mr. Wirtz or LPS.[51] However, LPS knew of the payments because it was communicating directly with Mr. Wirtz and Option One on the issue.[52]

All Motions for Relief from Stay or Affidavits of Default are submitted by counsel directly to LPS. Option One neither proof reads nor reviews these documents.[53] If an Opposition is filed, Option One does not read it. Instead, Option One employs LPS for the purpose of handling any issues pertaining to the loan or Motion for Relief. LPS contacts Option One only if it cannot handle a matter.[54]

In this case, LPS contacted Option One about Debtors’ claim of missing payments. Option One replied that the payments were with Mr. Wirtz.[55]

The UST made an appearance for the purpose of assisting the Court in its investigation.[56] The obvious conflict between the testimony of Mr. Simmons and Ms. Goebel and representations by counsel for LPS led the Court to accept the UST’s offer for assistance. As a result of the foregoing, the Court continued the hearing on August 21, 2008, without date to allow formal discovery.[57]

From July 9, 2008, through December 2010, the parties conducted contentious discovery. Ten (10) motions to quash, compel, clarify, reconsider orders, stay proceedings, request protective orders; and appeal interlocutory orders were considered along with responses, oppositions and replies to each. On May 21, 2010, the UST filed a Motion for Sanctions against LPS and Boles.[58]

On December 1, 2010, trial on the merits of the UST’s intervening Motion for Sanctions[59] against LPS was heard.

II. Law and Discussion

Q: Mr. Simmons, what was the amount due on the . . . Wilson account on February, 28th, 2008? . . .

A: Actually, the loan was current, if in fact we would have accounted for all the monies received. . . .

Q: What about on March 10, 2008? What was the amount due on the mortgage loan at that date?

A: Again, the loan would have been current. . . . .[60]

Debtors filed bankruptcy on September 29, 2007. Notification of that fact was mailed to Option One on October 6, 2007.[61] LPS encoded the bankruptcy filing on November 21, 2008. The process was completed on November 23, 2008.[62]

Debtors sent their first postpetition mortgage payment of $1,546.84 via Western Union on October 21, 2007. Because LPS failed to alert its system that a bankruptcy had been filed, this payment was applied to Debtors’ earliest past due prepetition installment, June 2007.

Debtors forwarded another $1,546.84 payment to Option One on November 30, 2007. That payment was intended to satisfy the postpetition installment due November 1, 2007. Instead, Option One applied the payment to the October 1, 2007, installment, the date showing due on the system.[63]

On December 21, 2007, LPS entered a referral to Boles requesting a Motion for Relief from Stay based on two (2) past due postpetition payments (November 1 and December 1, 2007).[64] The First Motion was filed by Boles on January 7, 2008.[65] In the interim, LPS received notification that a payment of $1,546.84, one (1) monthly installment, had been made by Debtors.[66] LPS requested posting instructions from Boles, who directed LPS to send the payment to the firm.[67]

On January 25, 2008, Debtors sent $1,858.84 to Option One. That payment was received on January 31, 2008. Again, LPS was notified by Option One of the payment, and on February 1, 2008, LPS requested posting instructions from Boles.[68] Boles responded three (3) days later directing LPS to send the payment to it.[69] On February 4, 2008, Boles advised LPS that the First Motion would go to hearing on February 12, 2008. Boles cited “Judge delay” as the reason, but in reality, Debtors opposed the First Motion.[70] In the Opposition, Debtors alleged that all payments had been made on the loan postpetition, challenging the allegations of Option One’s First Motion that the loan was postpetition delinquent for November 1, 2007, and all installments thereafter.

Putting aside the posting issue created by LPS’s failure to properly account for Debtors’ bankruptcy filing, the allegations of the First Motion also failed to acknowledge Option One’s receipt of $1,546.84 on January 2, 2008.[71]

LPS was also alerted by Boles on February 6, 2008, of Debtors’ Opposition. Boles requested a “pencil post” of the loan.[72] Boles’ understanding of a “pencil post” was a manual accounting of a loan payment history used to verify the status reflected by the computer file. In reality, LPS only manually reviews what is already on the computer system and recopies it onto a spread sheet.

Evidently in performing the “pencil post,” LPS discovered the misapplied October payment and requested correction on February 11, 2008. The manual adjustment also corrected the application of the two (2) Western Union payments received postpetition. However, no mention was made of the two (2) additional unposted payments discussed in the preceding communications between LPS, Option One, and Boles. On February 15, 2009, LPS sent a message to Boles that according to Option One, its cash log reflected forwarded payments to Boles in an amount sufficient to bring the loan current. However, LPS instructed Boles that if in fact the funds Boles held were insufficient to bring the loan current, Boles should consider the loan past due as of December 1, 2007.[73]

In response to LPS’ message on February 15, 2008, Boles acknowledged receipt of $1,858.84 in funds. Assuming they were applied to the December 2007 installment, payments for January and February 2008 were still due.[74][75] On February 27, 2008, Debtors’ account was adjusted to show a past due date of December 1, 2007.[76][77] Therefore, as of February 15, Boles had not received enough funds to bring the loan current and communicated this fact to LPS. No further investigation or response was made as to the whereabouts of the missing January 2008 payment. On February 27, 2008, Boles forwarded an affidavit to Ms. Goebel at LPS for execution in connection with the Second Motion. The affidavit alleged Debtors were past due as of November 2007, which was in conflict with the allegations contained in the Second Motion which now reflested a past due date as of December 1, 2007.

As part of its default services, LPS executed Affidavits of Default in support of Motions for Relief from Stay. LPS testified that it was just one of the services that LPS provided to clients.[78] The affidavit is typical. It purports to be executed under oath before a notary and two (2) witnesses.

It provides the name and title of the affiant and represents that the affiant has personal knowledge of the facts contained in the affidavit.[79] In fact, it is a sham.

When an affidavit is received by LPS, an employee prints the document and delivers it to one of twenty-eight (28) LPS employees authorized by Option One to execute the document on its behalf.[80] By corporate resolution, Option One grants these individuals “officer” status, but limits their authority to the signing of default affidavits. These “officers” execute 1,000 documents per day for Option One and other clients similar to the one used in this case.[81] In fact, Ms. Goebel is an employee of LPS with little or no connection to Option One. Each day Ms. Goebel receives approximately thirty (30) documents to sign.[82] The process of signing default affidavits is rote and elementary.

As Ms. Goebel is also a manager of a work unit at LPS, she allocates two (2) hours per day for document execution and estimates that it takes her five (5) to ten (10) minutes to sign each affidavit she receives.[83] Before signing an affidavit, Ms. Goebel follows the procedures directed by LPS. She checks three (3) computer screens that provide the amount of the installment payment, the total balance due on the loan, and the due date for the earliest past due installment.[84][85] She matches this information with that contained in the affidavit. If it is correct, she signs the document and forwards it to a notary for execution.

Although the affidavit in this case purported to verify that Option One was the holder of the note owed by Debtors through an assignment, Ms. Goebel does not personally know this to be a fact and made no effort to verify her assertion.[86] Similarly, the affidavit identifies the mortgage and note as exhibits to the affidavit, but Ms. Goebel neither checks the attachments nor verifies that they are correct. In fact, the affidavits she signs never have any attachments when forwarded to her for execution, and she never adds any.[87]

Although the affidavit represents that it was executed in the presence of a notary and witnesses under oath, no oath is ever administered, and the signatures of the affiant, notary, and witnesses are separately affixed and outside the presence of each other.[88] Ms. Goebel has no personal knowledge regarding the loan file save for the three (3) or four (4) facts read off a computer screen that she neither generates nor understands.[89] She does not review any other information pertaining to the loan file, even information available to her.[90] LPS admitted that Ms. Goebel followed its procedures and that those procedures were used in all cases.[91]

Ms. Goebel’s training on the seriousness of her task was sorely lacking. She could not remember who “trained” her when she was promoted in 2007 to a document execution position.[92] She could not remember the extent or nature of her training.[93] She did surmise that written procedures were given to her and then she began “signing.”[94] She described her task as “clerical”[95] and repeatedly expressed the belief that the affidavits were counsel’s affidavits, and therefore, she relied upon counsel regarding their accuracy.[96] In this admission, the real problem surfaces.

Default affidavits are a lender’s representation as to the status of a loan. They are routinely accepted in both state and federal courts in lieu of live testimony. They are an accommodation to the lending community based on a belief by the courts that the facts they present are virtually unassailable. The submission of evidence by affidavit allows lenders to save countless hours and expense establishing a borrower’s default without the need for testimony from a lending representative. While they can be refuted by a borrower, too often, a debtor’s offer of alternative and conflicting facts is dismissed by those who believe that a lender’s word is more credible than that of a debtor. The deference afforded the lending community has resulted in an abuse of trust.

The abuse begins with a title. In this case, Ms. Goebel was cloaked with the position of “Assistant Secretary,” in a purposeful attempt to convey an experience level and importance beyond her actual abilities. Ms. Goebel is an earnest young woman, but with no training or experience in banking or lending. By her own account, she has rocketed through the LPS hierarchy receiving promotions at a pace of one (1) promotion per six (6) to eight (8) month period.[97] Her ability to slavishly adhere to LPS’ procedures has not only been rewarded, but has assured the development of her tunnel vision. Ms. Goebel does not understand the importance of her duties, and LPS failed to provide her with the tools to question the information to which she attests.

For example, the following exchange occurred between the Court and Ms. Goebel:

Q: . . . if you look at paragraph 2 at the bottom there is “see attached copy of the Notice, Exhibit A, certified copy of the mortgage is Exhibit B, and copy of the assignments is Exhibit C.” Is your testimony that those documents were not attached to the affidavit when you signed it. .?

A: Typically, those exhibits would not be attached.

Q: . . So, . . . counsel would attach those after you signed..?

A: … we relied on the attorney. We believed the information that they were giving us and what they were going to attach, because this is their affidavit. It would be accurate.[98]

***

Q: . . . Did you check any screen to see if in fact there was a note, there was a mortgage, there were assignments?

A: That would be the responsibility of the attorney.

Q: . . so you didn’t verify that information at all?

A: No…[99]

***

Q: … And you don’t sign it [the affidavit] in the presence of the notary or the witnesses?

A: That’s correct.[100]

***

Q: You weren’t put under oath by a notary before you signed the Affidavit of Debt?

A: No.

Q: And you didn’t really have personal knowledge of the contents [of the affidavit] because you just said the information involving the existence of the mortgage and the note and so on you relied on the Boles Law Firm to have that information correct.

A: Right. As I stated earlier, it was the Boles Law Firm. Option One had hired them to kind of handle this work and had asked LPS to help clerically sign these. We relied on the Boles Law Firm.

Q: So you considered this a clerical function?

A: Part of our administrative services with LPS.

Q: But you just used the word “clerical.”

A; Well, it’s signing a document, more you know administrative work, clerical work, yes.[101]

***

Q: Ms Goebel…Have you ever refused to sign an affidavit for a reason other than the note payment amount was incorrect, the due date on the affidavit was incorrect, the number of installment payments that were past due was incorrect, or …that you were not a [authorized] signatory…?

A: Not to my recollection, no.

Q: .. So if, … you had know[n] that there were three payments that were not posted on this account . . . that were in the possession of either Option One or the law firm, would you have still signed the affidavit?

A: In my opinion, yes. I was getting an affidavit from a law firm that I trusted. They’re the legal experts on the matter and Option One is in charge of their cash posting. I’m not the decision maker of, you know, should they proceed. The attorney would have that knowledge.[102]

It is evident that the training provided Ms. Goebel by LPS was insufficient and negligent. LPS was the first line of communication with counsel. The evidence was clear that Option One was contacted only if LPS employees could not satisfy counsel’s requests. Counsel did not communicate directly with Option One, and although Option One controlled the physical posting of payments, LPS managed the communications between Option One and its counsel regarding them. In this case, LPS had personal knowledge of four (4) critical facts. First, that as of February 15, 2008, Option One had received two (2) payments from Debtors in amounts sufficient to satisfy the installments due for December and January. Second, counsel had directed that the payments be sent to it rather than posted. Third, Option One alerted LPS in February that the amounts forwarded were sufficient to bring the loan current. Fourth, counsel reported to LPS that they had only received $1,846.84, a fact LPS neglected to forward to Option One. As a result of this knowledge, LPS should have known that a payment was unaccounted for between Option One and Boles. An inquiry to either might have brought the problem to light. Instead, LPS ignored the facts.

Ms. Goebel presented another opportunity for LPS to get it right. If she had reviewed the file and familiarized herself with the communications between the parties, she might have also noticed that the December payment was forwarded to Boles, but evidently not received. She certainly would have noted the receipt of an additional payment by Boles but not posted and the inconsistency in due dates contained in the Second Motion and affidavit. However, Ms. Goebel was trained to rotely check three (3) finite pieces of information. She candidly admitted that even if she had known of the unposted payments, she would have signed the affidavit without questioning its content because it was counsel’s.[103]

Of course, the affidavit is anything but counsel’s. It is the sworn statement of the loan’s status by the holder of the note. It is evident that LPS blindly relied on counsel to account for the loan and all material representations. In short, the affidavit was nothing other than a farce and hardly the evidence required to support relief. The facts supporting a default are the lender’s to prove, not counsel’s. 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 Option One’s employee and a person with personal and detailed knowledge of the loan. Neither was the case.

III. Conclusion

The fraud perpetrated on the Court, Debtors, and trustee would be shocking if this Court had less experience concerning the conduct of mortgage servicers. One too many times, this Court has been witness to the shoddy practices and sloppy accountings of the mortgage service industry. With each revelation, one hopes that the bottom of the barrel has been reached and that the industry will self correct. Sadly, this does not appear to be reality. This case is one example of why their conduct comes at a high cost to the system and debtors.

The hearing on the Motion for Sanctions provides yet another piece to in the puzzle of loan administration. In Jones v. Wells Fargo,[104] this Court discovered that a highly automated software package owned by LPS and identified as MSP administered loans for servicers and note holders but was programed to apply payments contrary to the terms of the notes and mortgages. In In re Stewart,[105] additional information was acquired regarding postpetition administration under the same program, revealing errors in the methodology for fees and costs posted to a debtor’s account. In re Fitch,[106] delved into the administration of escrow accounts for insurance and taxes. In this case, the process utilized for default affidavits has been examined. Although it has been four (4) years since Jones, serious problems persist in mortgage loan administration. But for the dogged determination of the UST’s office and debtors’ counsel, these issues would not come to light and countless debtors would suffer. For their efforts this Court is indebted.

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.

[1] P-219.

[2] P-13.

[3] P-15.

[4] P-17.

[5] P-18. Pursuant to the local procedures of the Court, Motions for Relief must be accompanied by an affidavit of default by the mover attesting to the facts relevant to the motion and supporting the relief requested. The affidavit is taken into evidence in lieu of testimony if the matter is otherwise uncontested and if the court determines that it establishes a basis for granting relief.

[6] P-20.

[7] P-24.

[8] P-25.

[9] P-28.

[10] P-30.

[11] Id.

[12] 6/26/08 TT 25:15-30:25.

[13] 6/26/08 TT 31:22-32:23.

[14] P-46.

[15] Id.

[16] Id.

[17] P-45.

[18] P-43. On July 11, 2008, the Court entered an additional Order to Show Cause against LPS directing its presence to explain its calculation of the amounts due on the Wilson loan. P-45.

[19] 8/21/08 TT 14:5-9.

[20] 8/21/08 TT 14:21-15:1.

[21] 8/21/08 TT 15:3-8.

[22] 8/21/08 TT 26:13-21.

[23] 8/21/08 TT 15:11-15 (emphasis added).

[24] 8/21/08 TT 18:11-20 (emphasis added).

[25] 8/21/08 TT 38:22-39:1.

[26] 8/21/08 TT 39:2-23.

[27] 8/21/08 TT 40:10-41:3.

[28] 8/21/08 TT 41:16-20.

[29] 8/21/08 TT 60:1-15.

[30] 8/21/08 TT 97:14-20.

[31] 8/21/08 TT 78:14-79:24.

[32] 8/21/08 TT 110:24-111:5.

[33] 8/21/08 TT 47:20-23.

[34] 8/21/08 TT 81:14-16.

[35] 8/21/08 TT 81:25-82:5.

[36] 8/21/08 TT 123:18-124:25.

[37] 8/21/08 TT 125:15-20.

[38] In re Stewart, 391 B.R. 327 (Bankr.E.D.La. 2008). LPS confirmed that the program utitlized in this case was MSP. 12/1/10 TT 176:2-16.

[39] Id.

[40] 8/21/08 TT 127:8-21.

[41] 8/21/08 TT 130:2-23.

[42] 8/21/08 TT 133:6-133:20; 134:1-13.

[43] 8/21/08 TT 222:23-223:2.

[44] 8/21/08 TT 223:9-225:1.

[45] 8/21/08 TT 214:6-10.

[46] 8/21/08 TT 205:14-206:10; 225:2-7.

[47] 8/21/08 TT 136:10-17.

[48] 8/21/08 TT 137:2-8.

[49] 8/21/08 TT 141:19-23.

[50] 8/21/08 TT 142:1-10.

[51] 8/21/08 TT 138:15-139:21.

[52] 8/21/08 TT 256:4-257:1.

[53] 8/21/08 TT 147:15-20; 148:7-15.

[54] 8/21/08 TT 150:3-13; 20-22.

[55] 8/21/08 TT 155:11-22.

[56] P-62, 70.

[57] P-70.

[58] On October 27, 2010, this Court approved a Stipulation between the UST and Boles. P-275.

[59] P-219.

[60] 8/21/08 TT 234:5-10; 18-20.

[61] P-7.

[62] Exh 5, nos. 353, 349.

[63] LPS did not manually adjust Debtors’ account for the October 2007 payment until February 2008. Exh. 5, no. 265. As a result, Debtors’ account showed past due for October until the adjustment was made.

[64] Exh. 5, no. 311. The referral of a file to counsel in actuality opens an internal monitoring process for a requested action or “issue.” The referral is sent via internal transmission, similar to email. When the Boles firm opens the request, the computer notes the receipt of the referral by date and time, i.e. Exh. 5, no. 306. The issue will remain open until the task is completed at which time the computer will note the time and date of completion and close the request. Through the use of the “issue” process, those managing a file can see the status of a task and its anticipated date of completion.

[65] P-15.

[66] Exh 5, no.305. The payment was intended to satisfy Debtors’ December installment. It was dated December 27 and received by Option One on January 2.

[67] Exh.5, nos. 305, 301, 299.

[68] Exh.5, nos. 290, 289, 287, 286.

[69] Exh. 5, no. 281.

[70] Exh. 5, no. 272, Response to Option One’s Motion to Lift, filed February 4, 2008, P-17.

[71] The funds were received and counsel was notified of receipt four (4) days prior to the filing of the First Motion. While the First Motion was pending, Debtors forwarded and counsel was notified of an additional $1,858.84 in payments.

[72] Exh. 5, no. 270.

[73] Exh. 5, no.253.

[74] February’s installment was due on the 1st of the month and past due on the 15th.

[75] Exh.5, no.234. Evidently, the payment acknowledged by Option One on January 3, 2007, for $1,546.68 was not forwarded to Boles as requested. See, Exh. 5 no. 305, 301, 299. If it had been, Boles would have had both the December and January installments in its possession making the loan only due for February. As it was, the one (1) payment held by Boles brought Debtors within 45 days of current. It should also be noted that Debtors were not only making payments on a monthly basis, but were also forwarding payment of late charges with each installment.

[76] Exh. 5, no. 192.

[77] P-15.

[78] 12/1/10 TT 159:24-160:12.

[79] 12/1/10 TT 247:16-248:8.

[80] 12/1/10 TT 252:12-15.

[81] TT 12/1/10 249:29-22; 250:8-10.

[82] TT 12/1/10 253:7-14; 345-6-9.

[83] TT 12/1/10 334:5-8.

[84] TT 12/1/10 320:19-321:3; 326:1-327:22; 328:7-17; 334:9-14.

[85] TT 12/1/10 334:5-21; 335:19-22; 336:9-24.

[86] TT 12/1/10 267:1-11; 341:1-342:6; 342:11-343:3.

[87] 12/1/10 TT 12/1/11 340:20-341:8.

[88] 12/1/10 TT 245:2-21; 276:4-277:13; 336:9-337:22.

[89] 12/1/10 TT 161:18-162:2; 247:16-248:8, 15-22; 275:1-6.

[90] 12/1/10 TT 331:4-11; 355:12-25; 36713-20.

[91] 12/1/10 TT 275:3-11.

[92] 12/1/10 TT 382:5-8.

[93] 12/1/10 TT 382:9-384:21.

[94] Id.

[95] 12/1/10 TT 342:25-343:10.

[96] 12/1/10 TT 341:5-8, 14-19.

[97] 12/1/10 TT 292:9-301:9.

[98] 12/1/10 TT 340:20-341:8.

[99] 12/1/10 TT 341:10-16.

[100] 12/1/10 TT 342:3-5.

[101] 12/1/10 TT 342:18-343:10.

[102] 12/1/10 TT 378:20-379:13.

[103] 12/1/10 TT 341:5-8, 14-19; 379:4-13.

[104] Jones v. Wells Fargo, 366 B.R. 584 (Bankr.E.D.La. 2007).

[105] In re Stewart, 391 BR 327 (Bankr.E.D.La. 2008).

[106] In re Fitch, 390 B.R. 834 (Bankr.E.D.La. 2008).

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DailyFinance | When Banks Outsource Foreclosures, Nothing Good Happens

DailyFinance | When Banks Outsource Foreclosures, Nothing Good Happens


Posted 7:40 PM 02/11/11

Lender Processing Service (LPS), is “the nation’s leading provider” of “default solutions” to mortgage servicers, meaning it manages every aspect of foreclosure, whether in bankruptcy or state court. However, LPS is facing investigations and lawsuits that challenge its existence because they focus on the legality of LPS’s basic business model.

It’s a Louisiana bankruptcy case involving a single foreclosure that best illustrates the problems with the banks’ outsourcing their mortgage default work to LPS or similar entities. During a bankruptcy, foreclosure is forbidden without the judge’s permission, so LPS is frequently involved in seeking that permission.

In that Lousiana case, involving the bankruptcy of Ron and La Rhonda Wilson, LPS is facing sanctions for
allegedly committing perjury during a hearing held to find out why the bank — Option One — twice asked the bankruptcy court for permission to foreclose when the debtors were current on their mortgage. LPS insists it did not intend to mislead the court.

A Disturbing Picture


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In Re Wilson US Trustee’s Post Trial Brief In Lieu of Closing Argument Seeking Sanctions Against LPS, Fidelity

In Re Wilson US Trustee’s Post Trial Brief In Lieu of Closing Argument Seeking Sanctions Against LPS, Fidelity


Via: William A. Roper Jr.

Excerpt:

UNITED STATES TRUSTEE’S POST-TRIAL BRIEF IN LIEU OF CLOSING
ARGUMENT

TO THE HONORABLE ELIZABETH W. MAGNER:

Henry G. Hobbs, Jr., the Acting United States Trustee for Region 5 (“United States Trustee”), files this brief in lieu of closing argument, per the Court’s directive at the conclusion of evidence on December 1, 2010. This brief, and the December 1, 2010 trial, relate to the May 21, 2010 Motion for Sanctions filed by the United States Trustee (“Motion”). The Motion seeks sanctions against the respondent, Lender Processing Services, Inc., f/k/a Fidelity National Information Services, Inc. (“Fidelity”), pursuant to the Court’s inherent power to sanction bad faith conduct and under 11 U.S.C. § 105(a) to prevent an abuse of process.

I. SUMMARY OF ARGUMENT

Fidelity permitted its officer, Dory Goebel, to give materially misleading testimony to the Court on August 21, 2008, and should be sanctioned. It is undisputed that important parts of Goebel’s testimony were untrue; the crux of the matter now is determining Fidelity’s level of culpability. The evidence proves that, at a minimum, Fidelity acted with indifference to the truth in permitting Goebel to give the misleading testimony. The United States Trustee has met his burden of proof, which is a mere preponderance of the evidence. The sanctions available to this Court, through its inherent authority and 11 U.S.C. § 105 (a), range from financial sanctions to injunctive relief.

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In re: WILSON: Louisiana BK Court, Sanctions, The Boles Law Firm, LPS, Option One, False Affidavit

In re: WILSON: Louisiana BK Court, Sanctions, The Boles Law Firm, LPS, Option One, False Affidavit


UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF LOUISIANA

—————————————————— x
Case No. 07-11862

In re:
RON WILSON :
LaRHONDA WILSON, :
: Chapter 13
:
Debtors. :
——————————————————x
STIPULATION AND ORDER

R. Michael Bolen, the United States Trustee for Region 5 (“United States Trustee”) and
The Boles Law Firm APC, (“Boles”), hereby enter into a consensual resolution resolving the
United States Trustee’s inquiry and litigation against Boles in this case. The parties have agreed
to the terms of the instant stipulation and order (the “Stipulation”), establishing protocol for
procedures to be employed by Boles prior to filing motions seeking relief from the automatic
stay, proofs of claims, and other papers (collectively referred to as a “Pleading” or “Pleadings”)
filed in bankruptcy courts including the United States Bankruptcy Court for the Eastern District
of Louisiana. The United States Trustee and Boles consent and agree as follows:

[ipaper docId=41730388 access_key=key-t7wf2d2bqx78m0e02gy height=600 width=600 /]

http://www.scribd.com/doc/40757070/Various-Signatures-of-Dory-GOEBEL

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In re TAYLOR: HSBC, LPS, NewTrak, Codilis, Udren

In re TAYLOR: HSBC, LPS, NewTrak, Codilis, Udren


In re NILES C. TAYLOR and ANGELA J. TAYLOR, Chapter 13, Debtors.

Bankruptcy No. 07-15385-DWS.

United States Bankruptcy Court, E.D. Pennsylvania.

April 15, 2009

OPINION

DIANE WEISS SIGMUND, Bankruptcy Judge

On June 9, 20081 entered an order to show cause (the “June 9 Order”) in response to certain practices of HSBC Mortgage Corp. (HSBC“) and its attorneys and agents, the propriety of which I questioned and which ultimately became the subject of four lengthy evidentiary hearings as described below. The United States Trustee (the “UST”) was invited to participate.

In connection with this inquiry, the UST sought discovery of Lender Processing Services, Inc., f/k/a Fidelity National Information Services, Inc.[1] (“LPS” or “Fidelity”). LPS describes itself as “a leading provider of integrated technology and outsourced services to the lending industry, with market-leading positions in mortgage processing and default management services in the U.S.”[2] Id. In this case, it served as the intermediary between HSBC and its law firms, the Udren Law Office (the “Udren Firm”) and Moss Codilis LLP (“Moss”). The UST’s discovery requests were opposed by LPS[3] (2) the UST’s Motion for Relief from Order Entered on October 23, 2008 (“Second Vacate Motion”) and (3) LPS‘ Objection to the Second Vacate Motion and Subpoena Issued on February 20,2008 (“Protection Motion”). Notwithstanding these contested matters, LPS had produced almost all of the Fidelity documents requested by the UST in the UST Motion but pursuant to a non-disclosure requirement memorialized in an order dated October 21, 2008 (the “Confidentiality Order“) from which the UST sought to be freed. LPS did not oppose the use of its documents in this bankruptcy case with appropriate safeguards but objected to the UST’s intention to share them with other members of the Office of the United States Trustee in other jurisdictions. on confidentiality grounds and resulted in the (1) Motion of the Acting United States Trustee for Rule 2004 Examination (the “UST Motion”) of Lender Processing Services, Inc., f/k/a Fidelity National Information Services, Inc.,

The UST Motion, Second Vacate Motion and Protection Motion have now been settled by an agreement between LPS and the UST have submitted a consent order that reflects their agreement that the Confidentiality Order be vacated and replaced with “Order Directing Filing of Documents Under Seal” (“Order Re: Protected Documents”). and the UST as further explained below.

Still remaining to be addressed is the June 9 Order which contemplated that sanctions could be issued depending on the outcome of the investigation it commenced. Regrettably I have found certain practices and procedures employed by HSBC, its agents and attorneys to implicate the integrity of these proceedings as more specifically described below. I have also found that these same practices and procedures have created an environment where Rule 9011 duties have been subordinated to efficiency and cost-savings so as to require sanctions, and sanctions are appropriately imposed.

BACKGROUND

The June 9 Order

The June 9 Order emanated from a routine Claim Objection hearing held on June 5, 2008.[4] The hearing had previously been continued thirty days from its first listing to allow HSBC to produce documentation requested by Debtors in support of HSBC’s disputed claim. At the continued hearing, David Fitzgibbon, Esquire (“Fitzgibbon”) of the Udren Firm who represented HSBC,[5] advised me that HSBC was unresponsive to his notice that HSBC was directed to produce a loan history. When pressed as to the details of his colloquy with HSBC, he informed me that he had no personal access to his client HSBC but rather communicated solely by means of an electronic information system known as “NewTrak,” NewTrak, I have since learned, is a technology developed by Fidelity and employed to provide foreclosure, bankruptcy and other mortgage loan-related default services to the mortgage industry. Simply stated HSBC and other mortgage lenders upload all or part of the mortgage documents and loan records of specified borrowers into the NewTrak system. Attorneys are engaged on a case by case basis through NewTrak to handle specified tasks. They get their assignments from NewTrak and report and/or seek further direction by “opening up an issue” on NewTrak. In this case, Fitzgibbon claimed to have opened up an issue (i.&. court has directed you to send a loan history immediately) and awaited an electronic response over NewTrak. He asserted that he had no recourse to the client when one was not forthcoming, specifically that he had no ability to discuss my directive about document production with either representatives of HSBC or the attorneys at Moss who had filed the claim for HSBC.[6]

This frank but surprising admission resulted in the entry of the June 9 Order in which I ordered HSBC to “provide a full accounting to Debtors by transmitting a loan history in form that Debtors and their counsel can understand as well as an explanation about the flood insurance charges.” Doc. No. 52. I scheduled a continued hearing on the Claim Objection and directed the following persons to appear in addition to Debtors and their counsel: (1) a representative of HSBC with knowledge of Debtors’ loan; (2) a representative of HSBC with knowledge of the procedures it uses with respect to assertion of claims in bankruptcy; (3) Maria Borrensen, Esquire (“Borrensen”), authorized agent for HSBC’s bankruptcy work at Moss; (5) the partner in charge of HSBC’s bankruptcy work at the Udren Firm; (6) Lorraine Gazzara Doyle (“Doyle”), Esquire of the Udren Firm; and (7) Fitzgibbon. As noted, the United States trustee was expressly invited to attend. The purpose of the hearing, as stated in the June 9 Order, was two-fold: (1) to address the Claim Objection and (2) “to investigate the practices in this case employed by HSBC, its attorneys and agents and consider whether sanctions should issue against HSBC, its attorneys and agents.” Id.[7] who filed the proof of claim and amended proof of claim in this case; (4) the partner in charge of

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Small Foreclosure Firm’s Big Bucks: Back Office Grossed $260M in 2009: ABAJOURNAL

Small Foreclosure Firm’s Big Bucks: Back Office Grossed $260M in 2009: ABAJOURNAL


Posted Apr 20, 2010 11:59 AM CDT
By Martha Neil

The Law Offices of David J. Stern has only about 15 attorneys, according to legal directories.

However, it’s the biggest filer of mortgage foreclosure suits in Florida, reports the Tampa Tribune. Aided by a back office that dwarfs the law firm, with a staff of nearly 1,000, the Miami area firm files some 5,800 foreclosure actions monthly.

The back-office operation, DJSP Enterprises, is publicly traded and hence must file financial reports with the Securities and Exchange Commission. It netted almost $45 million in 2009 on a little over $260 million in gross revenue that year. The mortgage meltdown of recent years apparently has been good to the company: In 2006, it earned a profit of $8.6 million on $40.4 million in revenue.

Stern, who is the company’s chairman and chief executive officer, could not be reached for comment, the newspaper says.

His law firm has been in the news lately, after one Florida judge dismissed a foreclosure case due to what he described as a “fraudulently backdated” mortgage document, and another said, in a hearing earlier this month concerning another of the Stern firm’s foreclosure cases, “I don’t have any confidence that any of the documents the court’s receiving on these mass foreclosures are valid.”

Earlier coverage:

ABAJournal.com: “Judge Dismisses Mortgage Foreclosure Over ‘Fraudulently Backdated’ Doc”

Posted in Law Offices Of David J. Stern P.A.Comments (1)

Open Letter to Honorable Judges in Foreclosure and Bankruptcy Proceedings

Open Letter to Honorable Judges in Foreclosure and Bankruptcy Proceedings


LYNN E. SZYMONIAK, ESQ.

The Metropolitan, PH2-05 403

South Sapodilla Avenue

West Palm Beach, Florida 33401

April 19, 2010

Dear Honorable Judges in Foreclosure and Bankruptcy Proceedings:
This letter concerns how a Jacksonville, Florida publicly-traded company, Lender Processing Services, Inc. solves Deutsche Bank National Trust Company missing documents in foreclosure cases. Deutsche Bank National Trust Company (“DBNTC”) is the plaintiff in the majority of foreclosure actions filed in thousands of counties in America since 2007. Deutsche Bank is sometimes referred to as “America Foreclosure King.” There is currently a Department of Justice investigation of LPS and its influence over law firms in foreclosure actions, according to an article in the Dow Jones Daily Bankruptcy Review on April 16, 2010.

In these foreclosure actions, DBNTC is usually acting as the trustee for a mortgagebacked securitized trust. This means that a securities company made a commodity out of approximately 5,000 mortgages that were bundled together. The notes in the trust have a face value of approximately $1.5 billion in each trust. Investors buy shares of these trusts. Deutsche Bank is the most common name in the business of being a Trustee for Mortgage-Backed trusts. Other banks very active in this role of Trustee include Wells Fargo, U.S. Bank, Citibank, Bank of New York, JP Morgan Chase and HSBC.

When each of these trusts was made, the securities company responsible for the securitization (often Financial Assets Securities Corporation in Greenwich, Connecticut) was supposed to have obtained mortgage assignments showing that the trust had acquired each mortgage and note from the previous owner, which was most often the original lender. The trust documents specify that the mortgages, notes and assignments in recordable from will have been obtained by the trust. Most mortgage-backed trusts included the following or equivalent language regarding Assignments:

Assignments of the Mortgage Loans to the Trustee (or its nominee) will not be recorded in any jurisdiction, but will be delivered to the Trustee in recordable form, so that they can be recorded in the event recordation is necessary in connection with the servicing of a Mortgage Loan.

Trustees take very few actions relating to the individual properties in the trust. Typically, the bank acting as a trustee for a mortgage-backed trust hires a mortgage servicing company to deal with issues involving the individual mortgages in the trust. The mortgage servicing companies in turn hire a “default management company” to foreclose when a homeowner defaults on payments on a loan that is part of the trust. Lender Processing Services in Jacksonville, Florida, is the largest mortgage default management company. Deutsche Bank National Trust Company uses several mortgage servicing companies, but most often uses American Home Mortgage Servicing, Inc. in Irving, Texas as its mortgage servicing company.

In tens of thousands of foreclosure cases filed by Deutsche Bank National Trust Company as trustee for a mortgage-backed trust, Deutsche Bank has not produced the mortgage, note or Assignment and instead has filed pleadings claiming that the original mortgage and note were inexplicably lost. In these cases, Deutsche Bank uses specially prepared Mortgage Assignments to show that they have the right to foreclose. These documents were often prepared by clerical employees of Docx, LLC, a subsidiary company of Lender Processing Services, the default management company. Hundreds of thousands of other Mortgage Assignments came from the LPS office in Dakota County, Minnesota. More recently, these documents were produced from the LPS offices in Jacksonville, Duval County, Florida. In thousands of other cases, LPS directs the law firms it hires to use the employees of the law firms to sign as officers of Mortgage Electronic Registration Systems to create the documents necessary for foreclosure

a) Mortgage Electronic Registration Services (MERS) is identified as the grantor and American Home Mortgage Servicing, Inc. is identified as the grantee; within days (or minutes), a second Assignment is filed, identifying American Home Mortgage Servicing, Inc. as the grantor and Deutsche Bank National Trust Company as trustee for the trust as the grantee;

b) a mortgage company no longer in existence is identified as the grantor and American Home Mortgage Servicing, Inc. is identified as the grantee; within days (or minutes), a second Assignment is filed, identifying American Home Mortgage Servicing, Inc. as the grantor and Deutsche Bank National Trust Company as trustee for the trust as the grantee;

c) a mortgage company no longer in existence is identified as the grantor and Deutsche Bank National Trust Company as trustee is identified as the grantee;

d) American Home Mortgage Servicing, Inc., purporting to be the “successor-in-interest” to Option One Mortgage Company, is identified as the grantor and Deutsche Bank National Trust Company as trustee is identified as the grantee;

e) Sand Canyon Corporation, formerly known as Option One Mortgage Company, is identified as the grantor and Deutsche Bank National Trust Company as trustee is identified as the grantee, with no further explanation of how both American Home Mortgage Servicing and Sand Canyon have authority to act for Option One Mortgage.

On several hundred thousand Assignments, the individuals signing as officers of the grantor were actually clerical employees of Lender Processing Services, the mortgage default management company hired by American Home Mortgage Servicing, Inc., working for the grantee – Deutsche Bank National Trust Company. On several hundred thousand Assignments, the very same individuals signed as officers of both the grantor and grantee.

In all of these hundreds of thousands of cases, no Assignment actually took place on the date stated and no consideration was paid by the grantee to the grantor despite the representations in the Assignments. Most significantly, no disclosure was ever made to the Court in the foreclosure or bankruptcy case or to the homeowners in default that the original Assignments to the Trust were never made – or were lost – or were defective and that the recently-filed Assignments were specially made to facilitate foreclosures years after the property was transferred to the trust.

An examination of the signatures on these Assignments shows that many are forgeries, with several different people signing the names Linda Green, Tywanna Thomas, Korell Harp, Jennifer Ohde, Linda Thoresen and many of the other names used on several million mortgage assignments, as I have reported in my article “Compare These Signatures.” Many of these same individuals use at least a dozen different job titles as I have reported in my article, “An Officer of Too Many Banks.” These articles are available at www.frauddigest.com.

A summary of my credentials can be found at www.szymoniakfirm.com.

Please do not hesitate to contact me for additional information.

Yours truly,

Lynn E. Szymoniak, Esq.

This article could also have been titled:

HOW LENDER PROCESSING SERVICES, INC. SOLVES U.S. BANK’S MISSING PAPERWORK PROBLEM IN FORECLOSURES
-or-
HOW LENDER PROCESSING SERVICES, INC. SOLVES WELLS FARGO MISSING PAPERWORK PROBLEM IN FORECLOSURES
-or-
HOW LENDER PROCESSING SERVICES, INC. SOLVES BANK OF NEW YORK MISSING PAPERWORK PROBLEM IN FORECLOSURES
-or-
HOW LENDER PROCESSING SERVICES, INC. SOLVES CITIBANK’S MISSING PAPERWORK PROBLEM IN FORECLOSURES
-or-
HOW LENDER PROCESSING SERVICES, INC. SOLVES HSBC’S MISSING PAPERWORK PROBLEM IN FORECLOSURES

For a copy of the Exhibits referenced below, please contact szymoniak@mac.com.

Copies of Assignments from MERS to American Home Mortgage Servicing, Inc. are attached hereto as Exhibit 1.

Copies of Assignments from American Home Mortgage Servicing Inc. to Deutsche Bank as Trustee are attached as Exhibit 2.

Copies of Assignments from American Brokers Conduit, a mortgage company no longer in existence at the time the Assignments were made, to Deutsche Bank as trustee are attached as Exhibit 3.

Copies of other Assignments to Deutsche Bank as Trustee signed by employees of Lender Processing Services, working for the grantee Deutsche Bank, but signing on behalf of the grantor mortgage companies or banks, or MERS as nominee for the grantor mortgage companies or banks, are attached as Exhibit 4.

Copies of Assignments from American Home Mortgage Servicing, Inc. as the successorin-interest to Option One Mortgage as grantor and Deutsche Bank as Trustee as the grantee are attached as Exhibit 5.

Copies of Assignments from Sand Canyon, formerly known as Option One Mortgage as grantor and Deutsche Bank as Trustee as the grantee are attached as Exhibit 6.

Copies of Assignments signed by employees of law firms working for Lender Processing Services on behalf of American Home Mortgage Servicing, Inc. and ultimately for grantee Deutsche Bank, where such employees signed as officers of MERS as grantor are attached as Exhibit 7.

Copies of Assignments signed by employees of Lender Processing Services on behalf of grantors and notarized in Duval County, Florida for grantee Deutsche Bank, filed by law firms working for Deutsche Bank are attached as Exhibit 8.

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Posted in concealment, conspiracy, corruption, DOCX, foreclosure fraud, foreclosure mills, forensic mortgage investigation audit, fraud digest, Lender Processing Services Inc., LPS, Lynn Szymoniak ESQ, MERSComments (1)

For those of you who like "irony": LPS meets Goldman

For those of you who like "irony": LPS meets Goldman


Anytime you have the word “FRAUD” involved in an on-going investigation, It makes you wonder when corps go at it together even more…click the links below to see what I mean.

Lender Processing Services, Inc. (NYSE: LPS) climbed 1.16% to $37.42 after Goldman Sachs upgraded the company’s share from Neutral to Buy with an one year price target of $48.

Posted in foreclosure fraudComments (2)


GARY DUBIN LAW OFFICES FORECLOSURE DEFENSE HAWAII and CALIFORNIA
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