Parsing the AHMSI v. LPS Documents

We have been pouring over the docs submitted in American Home Mortgage Servicing, Inc.’s lawsuit against Lender Processing Services.  We have finally obtained a copy of the entire complaint, including all exhibits, which can be read here and which we have already posted about this morning.

We knew the devil would be in the details, and in this case, the devil in in the exhibits.  Specifically, Exhibit K.  While this may be a little technical for some of our readers, we think it is important to point out exactly what LPS admitted it was doing, why AHMSI wants over 9 million dollars from LPS, and what it means to homeowners.

Exhibit K is a letter from Sheryl L. Newman, Sr. Vice President and Chief Litigation Counsel for Lender Processing Services, to Eric J Spett, VP & Associate General Counsel for AHMSI.  Ms. Newman (and yes, every time I say her name I think of Seinfeld), was responding to a demand letter from Mr. Spett seeking indemnification for improper assignments from various entities to AHMSI, thereby allowing AHMSI to proceed with foreclosures in every state in the Union.

The main basis of the complaint, and the basis of various demand letters from AHMSI to LPS, is that LPS was using “surrogate signers” to sign on behalf of officers of AHMSI, (these “officers” were actually employees of LPS but did in fact have limited signing authority granted by the board of directors of AHMSI).  Essentially, LPS forged the names of these special officers, had those signatures notarized, and recorded the the transfer documents in various county recorder’s offices to allow AHMSI to proceed with foreclosures.  Surrogate-signers, robo-signers, it all means the same thing, and readers of our blog know why this is so important.  Namely, AHMSI was relying on documents in its foreclosure practice that were fraudulent.  This fraud, then, has the effect of potentially making the foreclosures themselves fraudulent, and exposed AHMSI to various liabilities ranging from  the foreclosure being void all the way up to civil damages.  This all depends on the state in which the foreclosure took place.

Ms. Newman, as you can read for yourself in the full complaint linked to above, or in the letter attached to the complaint as Exhibit K below, calls this fraudulent activity “notarization error”.

Notarization error = fraud.  Simple as that.

If you had your home foreclosed on by AHMSI, it is imperative that you contact an attorney to review the case.  It is possible everything was done above board and the foreclosure was proper.  However, based on LPS’s own admissions, it is also possible that the foreclosure was improper, if not illegal, and you may be entitled to various forms of redress depending on the state you live in.

What Does AHMSI’s Lawsuit Against Lender Processing Services and DocX Mean for Homeowners?

The big news in the mortgage and foreclosure world was that servicer American Home Mortgage Servicing, Inc. filed a lawsuit against Lender Processing Services, Inc. (LPS) and its subsidiary, DocX, in Dallas County District Court in Texas for breach of contract (among other claims).  Or at least that is what was alleged in the petition.  Translated into plain English, AHMSI sued LPS and DocX for LPS and DocX for widespread robosigning, which potentially calls into question the validity of documents on more than 30,000 mortgages–according to the lawsuit.

I highly recommend reading the lawsuit and its many exhibits, as it is a roadmap of how at least a piece of the mortgage servicing industry works.  And, it’s a look at what happens if your loan is serviced by American Home Mortgage Servicing, Inc./AHMSI and you are facing foreclosure.

But enough about the particulars of the lawsuit itself.  What does this mean for homeowners?

I believe this lawsuit calls into question virtually every foreclosure attempted by AHMSI.  This alleged fraud was not simply a few isolated incidents–over 30,000 cases have been claimed.  More importantly, this is not just some suspicion or claim by an attorney or a story on 60 Minutes–this is an actual admission in a court document by one of the parties to the transactions.  This is huge for homeowners.

The practical effect for homeowners, in my opinion, will be that it will be a little less difficult to stop AHMSI foreclosures in court.  This lawsuit (and its accompanying exhibits) will be attached to applications for temporary restraining orders as “Exhibit A.”  I certainly plan to use it, and I believe judges will take a second look at foreclosures that AHMSI and LPS and DocX have touched.

Does this mean that every document that AHMSI, Lender Processing Services, and DocX created is fraudulent?  No.  But the practice was widespread enough that it calls into question virtually every foreclosure they are now attempting.

In the grand scheme of things, the AHMSI lawsuit against LPS and DocX didn’t say anything that wasn’t already being alleged across the country; namely, that there are serious inconsistencies in foreclosure-related documents.  But to have this admission come from one of the parties themselves is a major change and another reason for homeowners to take control of their own fate instead of leaving it up to the whims of the bank.