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Home Foreclosure News: Trustees Probi…

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OCTOBER 29, 2010

Trustees Probing Mortgage Handlers By CARRICK MOLLENKAMP And DIONNE SEARCEY

 A Justi Justice ce Depar Departmen tmentt unit unit is using using its watchd watchdog og role to pressure pressure law firms firms and and a large large U.S. mortgage mortgage processor to ensure they properly handle foreclosure proceedings. In recent months months,, the the U.S. T rustee rustee Program Program has has intervened intervened in two cases, cases, in Missis Mississip sippi pi and and Louisiana Louisiana.. Bankruptcy Bankruptcy trustees trustees are examining examining whether whether law law firms and Len Lender der Proc essi essing ng Services Inc., a Jacksonville, Jacksonville, Fla., Fla., mortgag mortgage e technology and informat information ion provider, provider, bungled bungled foreclosures foreclosures and and hurt hurt borrowers, borrowers, according according to court documents documents.. T he law law firms firms and Lender Lender Processin Processing g deny  deny   wrongdoing. In an unusu unusual al move, a trustee trustee in the Louisi Louisian ana a case install installed ed a two-year two-year progra program m to monit monitor or how how a law firm handles handles bankrupt bankruptcy cy proceedin proceedings, gs, according according to a document document filed in bankrupt bankruptcy cy court court in New Orlea Orleans ns this this week. week. Pursuing Pursuing mortgag mortgage e servicers for improper improper filings filings is an important important new "prong" of the trustee program's program's efforts to oversee the the flood of bankrupt bankruptcy cy cases following following the mortga mortgage ge crisis, crisis, Clifford Clifford White White III, director director of the program program,, said said in an August August speech. speech. "We aim aim to hold mortgag mortgage e servicers to the sam samee standa standard rd of completen completeness ess and accuracy accuracy in their their filings that we we do the debtors debtors who owe them money," Mr. White said. said. A spokeswoman spokeswoman for the program program said said Mr. White White wasn't wasn't available available to comment.

US Trustees Trustees Program

Cliff ord White IIIII said the eff ort on bankruptcy bankruptcy cases is an important important new 'prong.'

T he efforts of bankrupt bankruptcy cy trustees trustees add to the the stress stress on lender lenders, s, processo processors rs and and lawfirms lawfirms that that hand handle le mortgages mortgages amid amid allegat allegations ions that that foreclosures have have  been mishan mishandled. dled. In some instances, instances, "robo-signers" "robo-signers" approved approved hundreds hundreds of documen documents ts a day without without carefully carefully reviewing reviewing them when when foreclosing foreclosing on

homes. More Foreclosure eclosure Crisis Complete Coverage Coverage:: For Insurers Insu rers Ease on Amn Amnesty esty


Behin Behind d the problem problem is Wall Street's Street's use of mortga mortgage ge servicers and and securitiz securitizati ation—i on—in n which which loans loans are pooled pooled and and then then sold sold to investor investors— s—wh which ich has has created created a system system rife rife with with miss missin ing g or incomp incomplet letee 1/5


Home Foreclosure News: Trustees Probi… paperwork, some bankruptcy observers said.

"The paper trail is not taken care of properly," says Michael Joseph, a Delaware attorney and president of the National Association of Chapter 13 T rustees. "I often think of the movie, 'It's a  Wonderful Life,' " where the character of lender George Bailey "knew everybody .…Y ou don't have that anymore." Bankruptcy trustees are lawyers or accountants who are responsible for maintaining the integrity of  the U.S. bankruptcy system. They monitor cases to ensure creditors and debtors follow bankruptcy  rules. In a New Orleans federal bankruptcy court, a trustee is investigating how Lender Processing and the Boles Law Firm of Monroe, La., failed to credit a borrower's loan payments during efforts to lift a foreclosure stay on behalf of a lender. Lender Processing serves as a middleman between the law  firms and mortgage servicers that process loan payments. The case centers on a September 2007 Chapter 13 filing by borrowers Ron and La Rhonda Wilson Sr. in a process that allows debtors to reorganize their finances. Lawyers representing Option One Mortgage Corp. alleged that Mr. Wilson was delinquent in mortgage payments and late charges, and asked to foreclose in March 2008, documents show. That foreclosure motion included a document now central to the case being pursued by the trustee: an affidavit submitted by Dory Goebel, an employee at a predecessor company to Lender Processing called Fidelity National Information Services Inc. In a notarized "affidavit of debt," Ms. Goebel said the Wilsons were delinquent on monthly  payments between November 2007 and February 2008, according to documents. The Wilsons' lawyer subsequently proved to the court that the Wilsons had made debt payments, according to court documents. T hat sparked an inquiry by the trustee and U.S. Bankruptcy Judge Elizabeth Magner in the case into why the Boles Law Firm and Lender Processing didn't properly  record the payments. The U.S. trustee, Michael Bolen, alleged in a May 2010 court document that Boles and Lender Processing had "materially misled this court" about their knowledge of the Wilson mortgage payments. The trustee asked the court to sanction Boles and Lender Processing because "untruthful statements made in bankruptcy proceedings undermine the integrity of the bankruptcy proc ess."  A hearing on the sanctions is set for Dec. 1. In a court filing, Lender Processing called the allegations "unfounded" and said it is fighting the sanction. In the filing, Lender Processing defended its role, saying that Option One, on the advice of Boles, sent the payments to Boles and didn't post them to the Wilsons' account. Lender Processing said that explains why Ms. Goebel didn't realize the payments had been made. A spokesman said Ms. Goebel wasn't available to comment. Boles said in a court filing it had taken "remedial steps" to ensure its lawyers properly answered questions about borrower debt in the future. A lawyer for Option One couldn't immediately be reached for co mment. Boles declined to comment. Boles "terminated" the attorney handling the case, according to a court document. The Wilsons and their lawyer didn't respond to requests for comment. This week, the trustee said in a court filing he had reached an agreement with Boles that will monitor its bankruptcy actions for two years. Boles will be required to have a senior lawyer or a "designated attorney" review the firm's pleadings before filing them with the court. According to the filing, the …wsj.com/…/SB10001424052702304316…


10/29/2010 Home Foreclosure News: Trustees Probi… U.S. trustee no longer is seeking sanctions against Boles in the Wilson case.

 As part of the pact, Boles agreed to cooperate in the trustee's "continuing investigation," which is examining Boles's relationship with Lender Processing, among other things.  A spokeswoman for the trustee program said it didn't comment on pending litigation.  A bankruptcy trustee in Mississippi also is scrutinizing Lender Processing. T he trustee, Locke Barkley, this month joined an amended suit brought by a family alleging that Lender Processing and mortgage processor Prommis Solutions Holding Corp. improperly split legal fees with a law firm. The suit alleges that the fees were disguised as "administrative" and other fees "to conceal the true nature of the fee splitting relationship," which ends up inflating fees and charges for debtors.  At issue is whether the process violates bankruptcy rules, which call for the disclosure of fees, and ethics rules that ban the splitting of fees between law firms and non-law firms.  A lawyer f or Ms. Barkley referred calls to the family's lawyer, Nick Wooten, who said the addition of the trustee to the case as a representative of all U.S. Chapter 13 trustees "demonstrates the very  serious nature of this case." Dick Volentine, Prommis's general counsel, said the claims are "without merit" and will be contested "vigorously."  A spokeswoman for Lender Processing said the company denies the allegations. In a court filing Thursday, Lender Processing said the claims against it should be dismissed because it didn't provide  work to the lender or the law firm in the case. In a conference call this month, the company said it had prevailed in a similar case in 2008 in Tex as. Plaintiffs voluntarily dismissed that case, and a judge ordered that their suit couldn't be refiled.  Write to

Carrick Mollenkamp at [email protected] Dionne Searcey at [email protected]

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