Unwanted Trips to the Courthouse

Cue Edvard Grieg's "Morning Mood." Every day seems to bring something new in the consumer finance investigation and enforcement world, whether it's concern over whether more judges will find problems in the foreclosure paperwork, dismiss the case and give the house to the borrowers like one court did in New York or wondering who might be the next area of interest for all the government investigators. We've got an idea.

To recap, first the spotlight -- at least the media spotlight -- focused on the lenders themselves. Next came interest in the loan servicers, who were essentially ordered to temporarily halt foreclosures and take time for inner reflection on the legitimacy and propriety of their procedures. Then the Attorneys General wanted to check and make sure that the servicers have done their self-analytical homework, of course, so we've got the previously mentioned 50-state AG investigation getting rolling. Lawsuits brought by hungry plaintiffs' attorneys (to paraphrase Colonel Nathan Jessep in "A Few Good Men," "is there another kind?"), including predictable class actions, were sure to follow, and here we go. But there's a twist.

Several news outlets recently have discussed the rash of litigation against servicers and specifically against LPS. Lender Processing Services, Inc. has found itself on the wrong end of a handful of suits, including in courts in Mississippi, Kentucky and Georgia. But these suits aren't just alleging improper foreclosure practices or documentation on the part of the servicers or processing firms like LPS. They're bringing a new target: the lawyers and law firms who participated in the foreclosure process. The Mississippi case charged LPS and its lawyers with illegal fee-splitting (which probably raises additional state Bar/ethics concerns for those lawyers). And as noted today by the Wall Street Journal, courts are putting pressure on lawyers in Maryland, New York, Ohio and Florida (with other states sure to follow) to verify the accuracy, sometimes under penalty of perjury, of the information they're asking the court to rely on in allowing the foreclosure to go forward, or even in defending their fees connected to the foreclosure. We'll be watching all of these developments.