“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.” – Hon. Elizabeth W. Magner, U.S. Bankruptcy Judge, in granting the U.S. Trustee’s Motion for Sanctions against Lender Processing Services (“LPS”).
The Court’s Memorandum Opinion is a great read – like a John Grisham or Michael Connelly airplane paperback. It has all the usual protagonists: A Big Lender, an Incompetent Servicer, a Hapless Foreclosure Mill Law Firm, a couple of Honest Debtors, a Clueless Robo-Signer, and One Stern Judge
CAST OF CHARACTERS:
Big Lender: Option One Mortgage Corporation
Hapless Foreclosure Mill Law Firm: Boles Law Firm
Honest Debtors: Ron Wilson, Sr. and Larhonda Wilson
Incompetent Servicer: Lender Processing Servicers (“LPS”)
One Stern Judge: Honorable Elizabeth W. Magner, U. S. Bankruptcy Court Judge
Clueless Robo-Signer: Dory Goebel, LPS Employee (Masquerading as an “Assistant Secretary” for Option One)
OUR STORY BEGINS as so many do these days – in Bankruptcy Court. In September, 2007, the debtors filed a voluntary petition under Chapter 13 of the U.S. Bankruptcy Code. Their plan of reorganization called for them to make their mortgage payments directly to Option One. The plan was confirmed in December, 2007.
On January 7, 2008, Option One filed its first Motion for Relief From Stay, alleging that the debtors had failed to make their installment payments for November 2007 through January 2008. Debtors responded that they were current and that Option One had failed to properly credit their installments. The bank was unable to prove any default in the debtors’ plan, and its motion was dismissed without prejudice – meaning it could file again.
On March 10, 2008, Option One filed its second Motion for Relief from Stay, alleging the debtors were in default for “over four months now….” The second motion was supported by an affidavit signed by Ms. Dory Goebel, as Assistant Secretary for Option One. The Boles Law firm filed both the motions, acting as legal counsel for Option One – although it was actually hired by the lender’s servicer, LPS. After several hearings on the second motion, it became apparent that the debtors were, in fact, current. Actually, their payments had been forwarded from Option One directly to the Boles firm. The payments had never been posted to LPS’ computerized records.
By now, Judge Magner had also learned that Ms. Goebel was actually an employee of LPS, and had no employment relationship with Option One. She had merely been given a title as Option One’s “Assistant Secretary” to robo-sign affidavits like the one she made supporting the filing of the second Motion for Relief From Stay. Smelling a rat, but unsure which one in the pack was the most culpable, she fined the Boles Law Firm and issued an order requiring Ms. Goebel and Option One to show cause why they should not also be sanctioned.
Apparently feeling slighted for being left out of this drama, 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.” This public act of self-flagellation might seem inexplicable, until one realizes that LPS apparently felt no embarrassment or shame about a business model that relies upon bogus “corporate officers” and bogus “affidavits.”
At this point, the Whodunit turns into a comedy, with each player pointing fingers at the other:
- The Boles Law Firm blamed LPS, saying the company was their sole source of information (even though it filed its motions on behalf of Option One, it had no contact with the lender);
- Option One claimed the entire default processing operation was contractually undertaken by LPS, so this was their responsibility;
- LPS testified that they were only “a library” where lawyers could “check out the information….”;
- Ms. Goebel’s explanation for why she signed the Boles’ Affidavit alleging the debtors’ default, was because “…we relied on the (Boles) attorney….”
Over the course of her 26-page Memorandum Opinion, Judge Magner methodically reviewed the evidence and testimony about the LPS system – a fully automated platform that manages borrowers’ accounts and routinely spits out default letters to borrowers. When enough time elapses, the computers even send out notifications to attorneys for them to file the necessary legal motions.
This case highlights what we’ve always suspected about the mortgage default processing system – it is one huge Rube Goldberg machine – except there is no humorously simple result. LPS testified that it’s sophisticated loan management program, known as “MSP” is designed to take action without human intervention. But reminiscent of “Hal” in 2001 Space Odyssey, the machine took control in the Wilson bankruptcy, and began to wreak havoc. So while the debtors’ monthly payments were sent to the Boles Law Firm, and LPS failed to post them, the computers continued to:
Show the debtors in default – Sending automated instructions to the lawyers – who dutifully prepared blank affidavits – for the LPS robo-signers to fill in and sign under oath as authorized “officers” for the customer bank – that were then notarized by absent notaries – and finally delivered back to the attorneys to present to Judge Magner’s court, accompanied by a Motion for Relief from Stay.
So when the Boles Law Firm asked LPS for a “manual review” of the debtors’ payment history, LPS never bothered to check with its customer, Option One – which is where the debtors were required to mail their installments. Rather, LPS simply took the incorrect information off its own computers and manually inserted it into a spreadsheet. It is really no wonder LPS booked $2.45 Billion in revenues for 2010, representing (by their count) 50 of the largest U.S. banks in the country – the entire lending and servicing industries seem to make money in spite of their own incompetence. Why change a winning system?
The lender in this case, Option One, ostensibly owned the Wilson loan. However, under the LPS full-service system, Option One was never to be disturbed unless certain conditions exist – perhaps a DEFCON 1 event. So while the lender blithely ignored its borrowers, LPS blithely abused them.
Here are some snippets from Judge Magner’s Memorandum Opinion about LPS’ default servicing operations:
Although the (Goebel) 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. 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. She does not review any other information pertaining to the loan file, even information available to her. LPS admitted that Ms. Goebel followed its procedures and that those procedures were used in all cases.
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. [Underscore mine. – PCQ]
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. 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.
PCQ Observation: This case is not the exception, but the rule. For too many years, the lending and servicing industries have been accorded great latitude in foreclosing families out of their homes. No more. Debtors have testified to the abuse, the public has read about it, and the judges have dealt with it. But so long as there are lawyers willing to fill the role as enablers and shills on behalf of these industries, we will continue to read court decisions such as In Re: Wilson.
