LENDER PROCESSING SERVICES, INC. EXECUTIVE PLEADS GUILTY TO FRAUD AND FORGING MILLIONS OF MORTGAGE DOCUMENTS

Department of Justice – Office of Public Affairs – FOR IMMEDIATE RELEASE

Tuesday, November 20, 2012

Former Executive at Florida-Based Lender Processing Services Inc. Admits Role in Mortgage-Related Document Fraud Scheme

Over 1 Million Documents Prepared and Filed with Forged and False Signatures, Fraudulent Notarizations

WASHINGTON – A former executive of Lender Processing Services Inc. (LPS) – a publicly traded company based in Jacksonville, Fla. – pleaded guilty today, admitting her participation in a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage-related documents with property recorders’ offices throughout the United States.

The guilty plea of Lorraine Brown, 56, of Alpharetta, Ga., was announced by Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division; U.S. Attorney for the Middle District of Florida Robert E. O’Neill; and Michael Steinbach, Special Agent in Charge of the FBI’s Jacksonville Field Office.

The plea, to conspiracy to commit mail and wire fraud, was entered before U.S. Magistrate Judge Monte C. Richardson in Jacksonville federal court. Brown faces a maximum potential penalty of five years in prison and a $250,000 fine, or twice the gross gain or loss from the crime. The date for sentencing has not yet been set.

“Lorraine Brown participated in a scheme to fabricate mortgage-related documents at the height of the financial crisis,” said Assistant Attorney General Breuer. “She was responsible for more than a million fraudulent documents entering the system, directing company employees to forge and falsify documents relied on by property recorders, title insurers and others. Appropriately, she now faces the prospect of prison time.”

“Homeownership is a huge step for American citizens,” said U.S. Attorney O’Neill. “The process itself is often intimidating and lengthy. Consumers rely heavily on the integrity and due diligence of those serving as representatives throughout this process to secure their investments. When the integrity of this process is compromised, illegally, public confidence is eroded. We must work to assure the public that their investments are sound, worthy, and protected.”

Special Agent in Charge Steinbach stated, “Our country is increasingly faced with more pervasive and sophisticated fraud schemes that have the potential to disrupt entire markets and the economy as a whole. The FBI, with our partners, is committed to addressing these schemes. As these schemes continue to evolve and become more sophisticated, so too will we.”

Brown was the chief executive of DocX LLC, which was involved in the preparation and recordation of mortgage-related documents throughout the country since the 1990s. DocX was acquired by an LPS predecessor company, and was part of LPS’s business when LPS was formed as a stand-alone company in 2008. At that time, DocX was rebranded as “LPS Document Solutions, a Division of LPS.” Brown was the president and senior managing director of LPS Document Solutions, which constituted DocX’s operations.

DocX’s main clients were residential mortgage servicers, which typically undertake certain actions for the owners of mortgage-backed promissory notes. Servicers hired DocX to, among other things, assist in creating and executing mortgage-related documents filed with recorders’ offices. Only specific personnel at DocX were authorized by the clients to sign the documents.

According to plea documents filed today, employees of DocX, at the direction of Brown and others, began forging and falsifying signatures on the mortgage-related documents that they had been hired to prepare and file with property recorders’ offices. Unbeknownst to the clients, Brown directed the authorized signers to allow other DocX employees, who were not authorized signers, to sign the mortgage-related documents and have them notarized as if actually executed by the authorized DocX employee.

Also according to plea documents, Brown implemented these signing practices at DocX to enable DocX and Brown to generate greater profit. Specifically, DocX was able to create, execute and file larger volumes of documents using these signing and notarization practices. To further increase profits, DocX also hired temporary workers to sign as authorized signers. These temporary employees worked for much lower costs and without the quality control represented by Brown to DocX’s clients. Some of these temporary workers were able to sign thousands of mortgage-related instruments a day. Between 2003 and 2009, DocX generated approximately $60 million in gross revenue.

After these documents were falsely signed and fraudulently notarized, Brown authorized DocX employees to file and record them with local county property records offices across the country. Many of these documents – particularly mortgage assignments, lost note affidavits and lost assignment affidavits – were later relied upon in court proceedings, including property foreclosures and federal bankruptcy actions. Brown admitted she understood that property recorders, courts, title insurers and homeowners relied upon the documents as genuine.

Brown also admitted that she and others also took various steps to conceal their actions from clients, LPS corporate headquarters, law enforcement authorities and others. These actions included testing new employees to ensure they could mimic signatures, lying to LPS internal audit personnel during reviews of the operation in 2009, making false exculpatory statements after being confronted by LPS corporate officials about the acts and lying to the FBI during its investigation. LPS closed DocX in early 2010.

This case is being prosecuted by Trial Attorney Ryan Rohlfsen and Assistant Chief Glenn S. Leon of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mark B. Devereaux of the U.S. Attorney’s Office for the Middle District of Florida. This case is being investigated by the FBI, with assistance from the state of Florida’s Department of Financial Services.

Today’s conviction is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.

Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.

Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,700 mortgage fraud defendants. For more information on the task force, visit www.stopfraud.gov.

DOJ Criminal Division

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CHALLENGE SECURITIZED MORTGAGES

Posted by revolt | CHALLENGE SECURITIZED MORTGAGES | Tuesday 20 November 2012 1:05 am

Challenge Securitized Mortgages

Proof of Ownership of the Mortgage Note as it Relates to the Securitized Trust

1. What does it mean if the mortgage foreclosure action brought against you is a bank as Trustee?

Approximately 95% of mortgages in recent years have been packaged and sold on Wall Street as a securitized Trust. Investors in these Trusts bought securities consisting of certificates backed by mortgages. In foreclosure cases where the Plaintiff is a securitized Trust, there is a growing movement among courts to require the Trust to establish the unbroken chain of transfers, deliveries and acceptances of the mortgage note from the Originator to the Sponsor to the Depositor and finally to the Trust.

In the heady days of the market, the players did not spend the time and money to properly document transfers of mortgages and notes. Trusts often do not know exactly what mortgages they own. Original Notes were lost or destroyed. What this means is that if the Plaintiff cannot prove it owns the mortgage, the foreclosure cannot proceed.

2. An unbroken chain of ownership must exist before a foreclosure sale can occur.

A Plaintiff that fails to adequately trace the loan from the original lender to the Plaintiff faces defenses to the foreclosure including that the Plaintiff lacks standing, failed to join indispensable parties, and failed to state a cause of action. A requisite chain of assignments must be recorded or filed in the foreclosure action to prove Plaintiff is the real party in interest to enforce the mortgage note.

Plaintiff may be unable to show a chain of assignments from the Originator to the Sponsor who organized the securitization of the mortgage, to the Depositor and finally to the Trustee. Each of these parties must be included within the chain of assignments and endorsements, or in the case of a blank endorsement, there must be both a delivery and an acceptance receipt to document the transfer and delivery of the bearer note from the Originator to the Sponsor, from the Sponsor to the Depositor, and from the Depositor to the Trust.

Plaintiff must also show that this Note and Mortgage were part of the res of the Trust and that they were transferred to the Trust within the window of time between origination and cutoff dates that the Trust could accept assets. See generally, In re Hayes, 393 B.R. 259 (Bankr. D. Mass. 2008); In re Kang Jin Hwang, 396 B.R. 757 (Bankr. C.D. Calif. 2008); In re: Shelter Development Group, Inc., 50 B.R. 588 (Bankr. S.D. Fla. 1985); In re Foreclosure actions, 2007 WL 4034554 at *1 (N.D. Ohio 2007). Where a plaintiff does not own a mortgage at the time of filing a foreclosure action, the case must be dismissed for failing to comply with statutory requirements of standing.

3. Who are the various parties involved in my mortgage transaction?

The documents originally signed by the homeowner at the loan’s origination include the Mortgage and Note. The Mortgage must be properly assigned to the named Trust, generally in the following sequence:

a. Assignment from Originator to Sponsor;

b. Assignment from Sponsor to Depositor;

c. Assignment from Depositor to the Trust.

The Originator wrote and funded the original mortgage transaction. The Sponsor is the party who organized the securitization process and submitted the necessary registration statements to the SEC. The Depositor would be the last party in the chain of transfer to own the mortgage note before transfer to the Trust. The Trustee is the owner of the mortgage note for the benefit of the parties who invested in the bonds issued by the Trust. There is also a Master Document Custodian who is designated by the PSA to maintain custody and control of all the original notes and mortgages. MERS is another entity involved in these transactions. MERS stands for Mortgage Electronic Registration Systems and it is basically the file cabinet that maintains an electronic database of these mortgages.

You may only have dealt with a loan Servicer. There are various servicers involved too, including a Master Servicer and a Default Servicer. Importantly, the Servicer does not own the Note and Mortgage, it merely is in charge of collecting your payments and servicing the loan. The foreclosure lawsuit cannot be brought in the name of the Servicer as they are not the real party in interest and do not have standing to foreclose on your home.

4. The purpose of securitized trusts and limitations of transfer.

In the event that the Plaintiff asserts there was an equitable transfer, the Trust has no authority to accept an equitable transfer of a note. Each transfer must be a true sale for purposes of creating a bankruptcy remote structure which was the very purpose of the securitization process. Each transfer must follow the specific steps designated in the structure as set forth in Section 2.01 entitled Conveyance of Mortgage Loans of the Pooling and Servicing Agreement which is the document that set up the Trust (“PSA”).

Additionally, all steps in the transfer process must be true and complete sales between the parties in order to qualify the Trust for what is called REMIC qualification under the Internal Revenue Code for Real Estate Mortgage Conduit securitization trusts, or REMIC trusts.

The purpose of the securitization process was to make the mortgage note legally protected from any claims a bankruptcy trustee or the FDIC might assert against the originator of the loan. This requires a series of true sales and transfers pursuant to the mandatory transfer rules of the Pooling and Servicing Agreement. True sales and transfers were required in order to obtain a certain tax status as a REMIC trust.

In addition to a lack of proper assignment of the Mortgage, in many cases, the Plaintiff is unable to show proper endorsement on the Note or the delivery certificates for any endorsement in blank. Without this, the Plaintiff should not be able to foreclose on your home. Many states provide that a mortgage follows the note and only a note is required to foreclose (virtually ignoring the necessity of a proper assignment). However, even in those cases, if the Plaintiff has lost the Note, or if the note was not properly transferred pursuant to the terms of the Trust, how can the Mortgage lien be enforced?

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