gavel

Bam!

The Justice Department has issued their formal press release in the plea arrangement with Lorraine Brown, the former President of fraudulent foreclosure document processor DocX, a division of LPS. Brown pleaded guilty to wire and mail fraud and faces five years in prison and up to $250,000 in fines, from what DoJ describes as “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.” She also acknowledged lying to the FBI and other federal regulators investigating the scheme.

Separately, the state of Missouri, which had previously indicted Brown in the same scheme, announced their own plea agreement with her on fraudulent and forged document filings in his state. Brown will plead guilty to one felony count of forgery, one felony count of perjury, and one misdemeanor count of making a false declaration, which carries 2-3 years in prison. One assumes that she will serve a concurrent sentence on the charges at a federal correctional facility, but we’ll see how it plays out after sentencing on the federal charges. The federal plea agreement explicitly allows concurrent sentencing.

In bringing the charges, Missouri Attorney General Chris Koster highlighted the practice of surrogate signing, where DocX employees, usually temp workers, would forge the name of an authorized bank official onto notarized mortgage documents used in county recorder offices, title insurance companies and state courts. “This agreement brings to justice the person most responsible for these activities and upholds the principle that when you sign your name to a legal document, it matters,” Koster said.

But I would argue that Lorraine Brown and DocX does not represent the person most responsible for the activities of document fabrication. She provided a service, no doubt, and committed crimes in the process. And I’m delighted that she will be brought to justice. But she was a rung in a very large ladder that extended up to the servicers themselves. They had the need for falsified documents because, during the securitization process, they lost track of ownership of the underlying loans. Brown may have directed surrogate signing for the purposes of making more money quicker on document processing, without having to account for accuracy or pay robo-signers more than a pittance. But without the need for fake documents, she has no business to speak of.

Sadly, the federal plea deal strains to hold servicers harmless for this conduct. See this key section, from the “Factual Basis” of the plea:

Brown represented to clients that DocX had robust quality control procedures in place to ensure a thorough and proper signing, notarization, and recordation process. As a result of these representations, clients hired DocX [...]

Unbeknownst to DocX’s clients, the Authorized Signers were instructed by Brown and other DocX employees to allow other, unauthorized, DocX employees to sign, and to have the document notarized as if the actual Authorized Singer had executed the document.

This is just bunk. The idea that servicers – arms of the biggest banks in America – were just duped by Lorraine Brown’s claim of “robust quality control procedures” makes no sense whatsoever. They may not have known the mechanics of Brown’s document fraud, but that’s just because they wanted to insert a layer of plausible deniability – in fact for circumstances just like this. But they definitely wanted documents they could use in court to foreclose on borrowers as quickly as possible. And they didn’t exactly have the ability to do that though any other method than fraud.

The plea agreement says that Brown would “cooperate fully with the United States in the investigation and prosecution of other persons or entities, and to testify, subject to a prosecution for perjury or making a false statement, fully and truthfully before any federal court proceeding or federal grand jury in connection with the charges in this case and other matters.” But the extreme deference given servicers in the finding of facts in the case selects that there will be very few other charges toward co-conspirators. I would like to see the parent company LPS investigated, and perhaps the foreclosure mill law firms. But the servicers who directed and authorized this conduct? Not very likely.

This is so important because we have someone going to jail for falsifying mortgage documents. In other words, foreclosure fraud did not just consist of “sloppy office work,” but real and thoroughgoing crimes punishable by prison time. And this is STILL GOING ON, in ways big and small. The Philadelphia Inquirer has an excellent series today on an epidemic of home-stealing through deed forgeries. This amounts to criminal activity by penny-ante thieves, but it also happens at the highest levels. A ruling in the state of Oregon blocked MERS, the private electronic data registry for transfers of mortgages, from assigning foreclosing authority, basically telling MERS that they cannot facilitate the criminal process outlined by DocX, where a bank official is authorized as an assignee to mortgage assignments. In other words, from the small-time scams in Philadelphia to the systematic, structural use of MERS in Oregon, document forgery, falsification and fakery continues, and it deeply damages the system of property rights in America, with implications for public confidence, the private market of mortgage finance (which will never come back until this gets right), federal bankruptcy rulings, title insurance, property sales and the housing market as a whole.

This is a huge time bomb inside the largest consumer market in the world. Lorraine Brown will go to jail for it. And covering up for the people who hired her just keeps that time bomb lit. It also insures that, without deterrent for the banks, we will see the same kind of schemes, with other Lorraine Browns, in the future. I appreciate accountability for her role in foreclosure fraud. But there’s much work to be done.

Photo by The Lane Team under Creative Commons license.