Lender Processing Services, which provides “technology” services to servicers and foreclosure mills, is under an escalating legal assault. Although media attention has focused on its role as a generator of fabricated documents for servicers and mortgage trusts, it can probably shift the liability for those documents onto the parties that used them as part of foreclosure proceedings.
The more serious legal assault is a pair of related lawsuits which we discussed earlier, which strike at the core of LPS’ business model on its largest unit, its Default Services group, which contributes nearly 50% of revenues. Both cases allege that LPS’ arrangements with the foreclosure mills that are part of its network amount to illegal sharing of legal fees. The typical remedy is disgorgement.
LPS and its defenders dismissed these cases, since a superficially similar case in Texas had been filed in the past and withdrawn. We indicated that we had reviewed the claims and spoken with the attorneys regarding the caliber of their evidence, and they seemed to have more than support for their argument to get past summary judgment.
Today, a new court filing on one of the two cases, the proceeding in Federal bankruptcy court in Mississippi, has dramatically expanded LPS’ potential liability and increased the odds of an unfavorable outcome for the company.
The standing Chapter 13 Trustee for the Northern District of Mississippi, Locke Barkley, has joined the case on behalf of herself and of all Chapter 13 Trustees in the US.
By way of background, the Chapter 13 Trustee is called a “standing trustee.” Her role is to administer all of the bankruptcy estates for all of the Chapter 13 debtors in her district. She (and all other Chapter 13 Trustees) are interested parties because to the extent that illegal fees were included in proofs of claim and illegal fees were assessed to debtors to be paid through Chapter 13 plans, then all of that money should have gone to these estates to pay towards unsecured creditors. Needless to say, this is a large additional potential liability to LPS. The presence of the Federal bankruptcy trustee as a plaintiff should give the plaintiffs considerable credibility with the judge.