LENDER PROCESSING SERVICES (LPS) Hits Local NEWS!

I have a feeling this is going to be the beginning to many reports on Local Media Outlets in time.

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IN RE BURKS v. COUNTRYWIDE HOME LOANS SERVICING, LP 4/12/2010

In re: JAMES L. BURKS, JR.
JAMES L. BURKS, JR., Plaintiff,
v.
COUNTRYWIDE HOME LOANS SERVICING, LP, AND UNITED STATES DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, Defendants.

Case No. 09-10170-DWH, Adv. Proc. No. 09-1064-DWH.

United States Bankruptcy Court, N.D. Mississippi.

April 12, 2010.

OPINION

DAVID W. HOUSTON III, Bankruptcy Judge

On consideration before the court is a motion for partial summary judgment filed by the defendant, Countrywide Home Loans Servicing, LP, (“Countrywide”), now known as BAC Home Loans Servicing, LP, (“BAC”); a response to said motion having been filed by the plaintiff, James L. Burks, Jr., (“debtor”); and the court, having heard and considered same, hereby finds as follows, to-wit:

I.

The court has jurisdiction of the subject matter of and the parties to this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core adversary proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (B), and (O).

II.

The debtor filed a voluntary petition for relief pursuant to Chapter 13 of the Bankruptcy Code on January 15, 2009. He filed the subject complaint on April 16, 2009, against Countrywide, now known as BAC, and the United States Department of Housing and Urban Development, (“HUD”).

The debtor executed a primary promissary note and a deed of trust to purchase his residence on August 31, 2002. The original beneficiary in the deed of trust was Mortgage Electronic Registration Systems, Inc. The underlying loan is currently being serviced by BAC, as the successor to Countrywide, and the amount of the indebtedness set forth in BAC’s proof of claim is $109,112.21.

The primary note and deed of trust were insured by HUD. When the debtor fell behind in his payments on the primary note, HUD paid $8,878.77 to Countrywide on debtor’s behalf under HUD’s Partial Claim Program. To provide security for this disbursement, on June 13, 2006, the debtor executed a subordinate note and deed of trust in favor of HUD encumbering his residence.

The debtor alleged in Count 1 of his complaint that none of the documents pertaining to either of the above described loans were signed by his wife, Shawna Yvette Dawson-Burks. Consequently, he contended, pursuant to Miss. Code Ann. §89-1-29, that neither of the deeds of trust were valid as liens against his and his wife’s homestead due to the lack of his spouse’s signature.

Motions for partial summary judgment as to Count 1 of the complaint were filed by the debtor, BAC, and HUD. The court concluded that there were no genuine issues of material fact remaining in dispute as to the debtor’s Count 1 claim against BAC and granted BAC’s motion for partial summary judgment. HUD’s joinder in BAC’s motion for partial summary judgment was denied. The debtor’s motion for partial summary judgment as to the invalidity of HUD’s unsecured non-purchase money deed of trust was sustained. (See the court’s opinion and order, both dated December 21, 2009.)

BAC has now filed this second motion for partial summary judgment asserting that it is entitled to a judgment as a matter of law as to the remaining counts of the debtor’s complaint. The debtor has alleged that BAC and its predecessor, Countrywide, charged improper and unauthorized fees in violation of § 506 of the Bankruptcy Code and Rule 2016, Federal Rules of Bankruptcy Procedure. The debtor objected to BAC’s proof of claim and additionally asserted that BAC and/or Countrywide committed violations of the automatic stay.

III.

Summary judgment is properly granted when pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Bankruptcy Rule 7056; Uniform Local Bankruptcy Rule 18. The court must examine each issue in a light most favorable to the nonmoving party. Anderson v. Liberty Lobby, 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Phillips v. OKC Corp., 812 F.2d 265 (5th Cir. 1987); Putman v. Insurance Co. of North America, 673 F.Supp. 171 (N.D. Miss. 1987). The moving party must demonstrate to the court the basis on which it believes that summary judgment is justified. The nonmoving party must then show that a genuine issue of material fact arises as to that issue. Celotex Corporation v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.29 265 (1986); Leonard v. Dixie Well Service & Supply, Inc., 828 F.2d 291 (5th Cir. 1987), Putman v. Insurance Co. of North America, 673 F.Supp. 171 (N.D. Miss. 1987). An issue is genuine if “there is sufficient evidence favoring the nonmoving party for a fact finder to find for that party.” Phillips, 812 F.2d at 273. A fact is material if it would “affect the outcome of the lawsuit under the governing substantive law.” Phillips, 812 F.2d at 272.

The court notes that it has the discretion to deny motions for summary judgment and allow parties to proceed to trial so that the record might be more fully developed for the trier of fact. Kunin v. Feofanov, 69 F.3d 59, 61 (5th Cir. 1995); Black v. J.I. Case Co., 22 F.3d 568, 572 (5th Cir. 1994); Veillon v. Exploration Services, Inc., 876 F.2d 1197, 1200 (5th Cir. 1989).

IV.

This court is of the opinion that this adversary proceeding has numerous material factual issues remaining in dispute. The debtor’s payment history and the methodology employed by BAC/Countrywide in the application of the debtor’s payments must be developed through an evidentiary hearing. The parties opposing views regarding the significance of the financial records have been made evident in telephonic conferences conducted by the court.

In summary, because of the aforesaid factual disputes, the court determines that BAC’s motion for partial summary judgment is not well taken.

A separate order will be entered consistent with this opinion.

The cautionary tale of Aegis Mortgage’s bankruptcy – Aug. 17, 2007

Not Much Has Changed! What could we have learned?

The darker side of buyout firms

The case of Aegis Mortgage shows that when private equity loses a high-risk bet, ordinary employees are the ones who suffer, reports Fortune’s Katie Benner.

By Katie Benner, Fortune reporter
August 20 2007: 1:24 PM EDT

 

NEW YORK (Fortune) — Buyout firms like to present themselves as a can’t-fail combination of operational genius and financial support that can heal sick businesses and create thriving companies. But sometimes, as in the case of Aegis Mortgage, genius fails and bankruptcy is declared. The private investment firm Cerberus bought a controlling stake in the Houston-based mortgage lender in 1998, but despite an infusion of cash and talent, Aegis ceased operations on Monday, August 6. Now hundreds of employees have been laid off – all without health insurance. It’s a reminder that risky turnarounds can mean real pain for more than just investors raising questions about how Cerberus will treat other ailing companies it has purchased, notably Chrysler.

Aegis, which was founded in 1993, closed its mortgage production operations on August 6. Two days later, employees were warned that there would be layoffs within 60 days and that benefits would be terminated effective midnight August 10, according to Aegis employees. They were also told that earned paid-time off would not be paid out and that there would be no severance. When the layoffs came on Monday, August 13, 782 people out of 1,302 employees were fired. Those let go were shocked to find that they were not eligible for COBRA. While Federal law requires businesses with more than 20 employees to offer departing workers the chance to buy an extra 18 months of health insurance, it is only required for companies with an active benefit plan, and Aegis had terminated its plan days before. Moreover, Aegis admitted in its bankruptcy filing that it didn’t have the money to pay employee benefits anyway.

Those actions have some up in arms. Richard Thompson, who co-founded Aegis in 1993, is asking Cerberus and Aegis to take care of its employees. “As a founder of Aegis, one of our stated corporate values was to always do the right thing,” says Thompson, who was CEO until October 2006, when Cerberus ousted him. “The right thing is to reinstate the company’s health insurance policy for the thousands of families affected by their actions last week.”

Thompson, of course, has reason to dislike Cerberus. Not only was he fired, he is suing Cerberus for mismanaging the company and destroying its chance to go public. Other observers note that many companies that go bankrupt leave their employees stranded. John Challenger, head of executive outplacement firm Challenger Gray Christmas, says: “Creditors will line up, so the company is taking these harsh actions to save what they can. You’re going to see lots of fighting over the company assets.” In its bankruptcy filing, Aegis said it had $625 million in debt and owed banks including Goldman Sachs, Deutsche Bank, Merrill Lynch and Morgan Stanley. Madeleine LLP, a subsidiary of Cerberus, is also in line for money.

Cerberus declined to comment; an Aegis spokesman said that the company is doing what it can to help its remaining 500 or so employees, including providing health care and job training.

What happened to Aegis? The company managed to survive the mortgage meltdown and S&L problems of the ’90s, but it had been wounded. Plans in 1997 to hold an IPO for its REIT business were scrapped when the REIT sector began to exhibit problems. The conditions were perfect for a company like Cerberus, which regularly scoops up distressed businesses it believes will be winners in the future. The mortgage business was suffering in the late 1990s, but the industry is cyclical and Cerberus was betting on returns during the upswing. (Indeed, even as the subprime business began to melt down this spring, Cerberus agreed to buy sub-prime lender Option One Mortgage from H&R Block this April.)

So in 1998, Cerberus agreed to buy a controlling stake in Aegis, which had $2.5 million in equity. Following a familiar pattern, Cerberus immediately injected a huge amount of money into the company ($47 million), placed its own people on the board and kept the management team, including Thompson, in place. It rolled pieces of other dying lenders into Aegis and built a thriving mortgage lending operation.

In late 2006, the company had grown its capital in reserves to $361 million, and like all other lenders it couldn’t issue mortgages fast enough for the Wall Street machine that used them to create high-risk, very profitable bonds. At the height of the mortgage origination boom, Aegis employed about 3,500 people, mostly in the Houston area. But Aegis lost it all in just nine months when the market for mortgage loans tanked.

The failure calls into question the management and health of Cerberus’s other loan plays. Cerberus owns a majority stake in GMAC and its mortgage subsidiary ResCap. Thanks to the credit crunch, the ratings agencies have downgraded ResCap, thus making it more expensive for the company to operate. The rising cost of capital may hurt Chrysler Financial, too, the healthy operation within Chrysler that should have been able to help fund the ailing automaker’s turnaround. At a minimum, Cerberus will take a financial hit because of Aegis and the bankruptcy is an embarrassment amid the firm’s recent spate of high-profile acquisitions.

“Cerberus has become a major player in the global economy. Its many constituents rightly will expect a higher standard of behavior than was exhibited last week with Aegis,” says Thompson. It’s a sober reminder that even the vaunted geniuses of private equity can’t save every company, and that employees – more than investors – are the real victims when they go under.

After ongoing INVESTIGATIONS: Lender Processing Services (LPS) closed the offices of its subsidiary, Docx, LLC, in Alpharetta, Georgia

Mortgage Fraud

American Home Mortgage Servicing
Deutsche Bank National Trust Company
Docx, LLC
Lender Processing Services

Action Date: April 13, 2010
Location: Jacksonville, FL

On April 12, 2010, Lender Processing Services closed the offices of its subsidiary, Docx, LLC, in Alpharetta, Georgia. That office was responsible for pumping out over a million mortgage assignments in the last two years so that banks could foreclose on residential real estate. The law firms handling the foreclosures were retained and largely controlled by Lender Processing Services, according to a Sanctions Order entered by U.S. Bankruptcy Judge Diane Weiss Sigmund (In re Niles C. Taylor, EDPA, Case 07-15385-sr, Doc. 193). Lender Processing Services, the largest “default management services company” in the country, has already made at least partial admissions that there were faults in the documents produced by the Docx office – although courts and homeowners were never notified. According to Lender Processing Services, over 50 major banks use their default management services. The banks that especially need the services provided by Lender Processing Services include Deutsche Bank, Citibank, Wells Fargo and U.S. Bank, acting as trustees for mortgage-backed securitized trusts. These trusts, in the rush to securitize mortgages and sell them to investors, often ignored the critical step of obtaining mortgage assignments from the original lenders to the securities companies to the trusts. Now, years later, when the companies “servicing” the trusts need to foreclose, they retain Lender Processing Services to draft the missing documents. The mortgage servicers, including American Home Mortgage Services, Saxon Mortgage Services, and American Servicing Company, never disclose that the trusts are missing essential documents – they just rely on Lender Processing Services to “fix” the problems. Although the Alpharetta office has been closed, Lender Processing Services continues to mass produce “replacement” assignments from its Jacksonville, Florida, and Dakota County, Minnesota offices. Law firms retained by Lender Processing Services also often use their own employees, posing as officer of Mortgage Electronic Registration Systems, to produce the needed Assignments. Since the vast majority of homeowners do not retain counsel in foreclosure proceedings, this flawed system has worked very effectively for the last few years, with courts all over the country rarely questioning why so many mortgage companies had officers in Alpharetta, Georgia, or why Trusts that closed in 2005 and 2006 were just obtaining Mortgage Assignments in 2009 and 2010. Most courts never even questioned why companies long-dissolved, such as Option One, could still be executing documents years after the dissolution. While the closing of the Alpharetta office may be a sign that these fraudulent activities will finally be exposed and addressed, for the time being, it is just a matter of an unsatisfactory end of one small facet of an enormous and far-reaching problem.