Sunday, April 24, 2011

Bankruptcy Judge sanctions mortgage servicer for lying.

This one is a must read for anyone working in or around the mortgage foreclosure industry.  Bankruptcy Judge Elizabeth Manger sanctioned a lawyer, an affiant, and a mortgage servicer for botching the accounting of a debtor's post-petition payments, and then presenting false and incomplete affidavits and pleadings to the court in an effort to lift the automatic stay.  This particular order addresses the culpable actions of the loan servicer, LPS.

If you have PACER access, search for case #07-11862, styled as "LaRhonda Wilson" in the Eastern District of Louisiana. This will take you to the April 7, 2011 opinion of Judge Manger, where she details the "fraud perpetrated on the court, Debtors and trustees..."

If you don't have Pacer, start  with this 2010 article.  A more recent article appears in this 2011 blog post, after discovery on the issue had been concluded.

I've read the opinion and reviewed the court's docket of prior orders in the case.  Counsel for the lender was sanctioned $1,000 for filing pleadings that did not properly report payments received in his office from the debtor.  The lender, Option One and an employee who executed affidavits prepared by counsel in reliance only on information shown on a screen shot, were each sanctioned $5,000 in prior orders.  The court's docket shows these sums were actually paid in July, 2008.  This particular order is directed at the loan servicer's conduct.

After discovery and a merits trial, Judge Manger held that the affiant/employee was not qualified to execute the affidavits, and that her training by the mortgage servicer, Lender Processing Services, Inc. (a Fidelity National related entity) had been "insufficient and negligent."

This order is a wonderful cautionary tale for anyone dealing with servicers, and who regularly obtains affidavits from loan servicers in connection with litigation.  Judge Manger also cites to other bankruptcy cases that discuss different aspects of the loan servicing industry that are worth a read:  In re Stewart, 391 B.R. 327 (E.D. La. 2008) (post petition application of payments and errors in automated programs); Jones v. Wells Fargo, 366 B.R. 584 (E.D. La. 2007) (automated software and mis-application of debtor payments).

Judge Manger ends her opinion, saying that "one hopes the bottom of the barrel has been reached and that the industry will self correct. Sadly, this doesn't appear to be a reality."