WASHINGTON A federal bankruptcy judge in New Orleans said she will impose sanctions on Lender Processing Services, after concluding that the mortgage servicing company deliberately committed fraud on the court in a foreclosure case, by giving false testimony and submitting a "sham" affidavit.
The opinion, obtained this week by Reuters, was issued April 7 by Judge Elizabeth Magner.
Her decision is the latest in a series of investigations and other legal actions involving Jacksonville, Florida-based LPS for allegedly creating false documents for foreclosure cases and misrepresenting amounts homeowners actually owed.
LPS handles many routine mortgage servicing tasks, including filing and overseeing foreclosures, for banks.
The judge granted a motion by the U.S. Trustee's Office for sanctions, and said she would decide on financial and other penalties against LPS later, after holding a hearing.
Her opinion in the bankruptcy of Ron and LaRhonda Wilson, also sharply criticized the entire mortgage servicing industry.
"One too many times, this Court has been witness to the shoddy practices and sloppy accountings of the mortgage service industry," she wrote.
The US Trustee is investigating LPS's actions in other bankruptcy cases.
The bankruptcy judge's decision was heralded by legal aid lawyers specializing in foreclosure cases as a landmark ruling in which the company was found definitively to have committed wrongdoing.
April Charney, a Florida legal aid attorney and leader of a national effort to crackdown on foreclosure abuse, said the sharply-worded decision is also a sign that bankruptcy courts are beginning to take a harder line against abuses, such as false testimony and documents, submitted in foreclosure cases.
Word of Judge Magner's ruling came as LPS agreed Wednesday to a settlement with federal bank regulators of allegations that it had created large numbers of false affidavits for foreclosure cases and had executed "inaccurate" documents purporting to show ownership of mortgages.
The LPS consent decree was part of a group of settlements announced Wednesday by bank regulators against 14 banks and two other entities, including LPS, for mishandling foreclosures. In the settlement, LPS, like the others, neither admitted nor denied wrongdoing.
LPS said it would comply with requirements that include hiring an independent third party to review its foreclosure operations.
The New Orleans case is an example of a wide variety of legal risks facing LPS, which in recent years has handled about half of all foreclosures in the United States, typically on behalf of banks that are the official mortgage loan servicers.
Shares of LPS fell 3.2 percent on Wednesday to $30.19 and are down 17 percent over the last 12 months.
LPS has confirmed that a federal criminal investigation has been pending, relating to a now-closed subsidiary that allegedly forged signatures on large numbers of foreclosure documents. A Reuters article in December disclosed details of LPS's operations and showed that the company faced wider legal risks than it had acknowledged.
An LPS spokesman declined to comment on both the bankruptcy court decision and the settlement with U.S. bank regulators.
In the bankruptcy case, LPS in February denied that an employee had intentionally misled the court and said LPS was not responsible for filing erroneous information about the amounts the Wilsons actually owed on their mortgage.
In her April 7 opinion, Judge Magner said LPS's wrongdoing was symptomatic of wrongdoing by the entire mortgage servicing industry. "The fraud perpetrated on the Court, Debtors, and trustee would be shocking if this Court had less experience concerning the conduct of mortgage servicers," the judge wrote.
The case is in re: Ron Wilson, LaRhonda Wilson, U.S. Bankruptcy Court for the Eastern District of Louisiana, case no. 07-11862.
(Reporting by Scot Paltrow; Editing by Tim Dobbyn)