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Judge Sanctions Loan Servicing Firm for Robo-Signing Leading to Wrongful Foreclosure

April 26, 2011

As Upland foreclosure defense attorneys, we've read a lot about the practice of robo-signing -- foreclosing lenders signing foreclosure documents without reading them or making any attempt to verify the information they contain. In addition to constituting perjury, this practice makes it possible for foreclosures to go through based on incorrect information. When the story first broke, lenders argued that it was only a technical error and no wrongful foreclosures had taken place. At least one Louisiana bankruptcy judge now seems to think differently. As the Florida Times-Union reported April 14, U.S. Bankruptcy Judge Elizabeth Magner has ordered financial sanctions against Lender Processing Services Inc. for wrongfully attempting to foreclose on one couple.

Ron and LaRhonda Wilson filed for bankruptcy when they were behind on their mortgage payments. They made a Chapter 13 bankruptcy and started making payments under their bankruptcy plan in 2008. Their loan servicer, Option One Mortgage Corp. (now known as American Home Mortgage Servicing Inc.), hired LPS to handle loan servicing while the Wilsons were in bankruptcy -- and LPS, acting for Option One, tried to foreclose two weeks later, saying they were in default even though they weren't. That was denied because the servicer could not show that the Wilsons were in default. So the companies filed a new affidavit, robo-signed by an LPS employee, saying they had not paid their mortgage for four months.

That was not true, but the Wilsons' payments hadn't been credited correctly due to communication problems the judge later blamed on LPS. When challenged in court, the LPS employee said she would have signed the affidavit even if she had known it was false, because the company's law firm had submitted it. As the Wilsons challenged the foreclosure, the Justice Department intervened because it was separately investigating LPS for similar acts of potential fraud. In an April 7 ruling, the bankruptcy judge said the affidavit was a farce and criticized the entire mortgage servicing industry for shoddy and sloppy practices. She will hold a hearing on sanctions. LPS was hit a week later with a federal consent decree requiring it to repay borrowers and servicers for any financial injury stemming from its robo-signing.

Our Norwalk foreclosure defense lawyers hope other loan servicers sit up and take notice of what is happening to LPS. Submitting false, perjuring affidavits in court is not just against the law, but can also produce injustices like this one, which undoubtedly cost the Wilsons extra money and stress to fight. Even if the Wilsons' case is unique, it demonstrates that robo-signing is not just a "technical" issue -- it has real effects on real people, many of whom are already struggling financially. As the state attorneys general negotiate a robo-signing settlement with major banks, they should keep those effects in mind when determining appropriate and effective penalties.

Howard Law PC represents people who are fighting their lenders and loan servicers over an unfair or incorrect foreclosure. Because we have worked as Cypress foreclosure defense attorneys since the start of the housing crisis, we understand what our clients are up against. Frequently, we hear from frustrated homeowners who have tried for months to get a loan modification considered, but have been stymied by seeming incompetence at servicers that lose paperwork, don't respond to phone calls or invalidate paperwork for arbitrary or undisclosed reasons. We've come to believe that servicers don't want to do loan workouts, because they can make more money from fines and fees when they foreclose. These servicers aren't the owners of the loans, so they have no financial incentive to give homeowners a fair shake.

If you're tired of struggling with your loan servicer to get clear answers and serious consideration, you should call Howard Law to see how we can help. For a free, confidential case evaluation, send us an email or call toll-free at 1-800-872-5925.