UPDATE 2-LPS settles U.S. foreclosure fraud criminal probe

Fri Feb 15, 2013 7:27pm EST

* Lender Processing Services in non-prosecution agreement

* Criminal fraud probe had centered on now-closed DocX unit

By Jonathan Stempel

Feb 15 (Reuters) - The mortgage servicing company Lender Processing Services Inc has agreed to pay $35 million to resolve a federal criminal investigation into foreclosure fraud, the U.S. Department of Justice said on Friday.

The settlement resolves allegations over the Jacksonville, Florida-based company's involvement in what the government called a six-year scheme to prepare and file more than 1 million fraudulently signed and notarized mortgage documents in property recorders' offices nationwide from 2003 to 2009.

Friday's accord also follows a guilty plea last November by Lorraine Brown, the former chief executive of LPS' now-closed DocX LLC unit, to a felony charge of conspiracy to commit mail and wire fraud over the scheme.

Prior to DocX's closure in 2010, LPS had handled more than half of the nation's foreclosures.

LPS entered into a two-year non-prosecution agreement that requires it to meet many conditions, including cooperating in federal probes, and alert the government to any abuses in mortgage or foreclosure documentation services at the company.

The settlement followed LPS' agreement last month to pay $127 million to resolve inquiries by 46 U.S. states and Washington, D.C., over its document practices.

LPS on Friday said it has a $223 million reserve that covers the Justice Department accord and prior settlements.

Chief Executive Hugh Harris in a statement said LPS has now "effectively" addressed issues over its past business practices.

Foreclosure abuse became notorious in 2010 as borrowers, politicians and regulators accused lenders of pursuing cases that were based on defective or fraudulent documentation.

Many documents were found to have been signed systematically without being read, through a process known as "robo-signing."

Last February, Ally Financial Inc, Bank of America Corp , Citigroup Inc, JPMorgan Chase & Co and Wells Fargo & Co reached a $25 billion settlement with the U.S. government and 49 states to end probes into mortgage abuses.

The Justice Department said its settlement with LPS reflects the company's cooperation, as well as steps taken by LPS to address misconduct at DocX.

It said LPS has re-executed and refiled mortgage assignments as necessary, improved compliance and training procedures, and hired an independent consultant to monitor document execution.

Brown is scheduled to be sentenced on April 23 and faces up to five years in prison, the Justice Department said.

The $35 million payment includes penalties and forfeiture, and must be made within 10 days to the U.S. Marshals Service and the U.S. Treasury, the Justice Department said.

Shares of LPS closed Friday down 17 cents at $25.09 on the New York Stock Exchange. The settlement was announced after U.S. markets closed.

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