BLOG VIEW: A Default Outsourcing Shake-Up?

Monday, MortgageOrb reported that Connecticut Attorney General[/b] Richard Blumenthal is investigating the structure of the state's foreclosure attorney business. As part of the investigation, Blumenthal wrote to Fannie Mae, Freddie Mac and Lender Processing Services (LPS) requesting information about their attorney networks. According to Blumenthal's letters, his office has received complaints that borrowers are not receiving proper foreclosure notices and are being charged excessive fees. Additionally, he claims that the bulk of Connecticut's foreclosure litigation is concentrated in a small handful of firms. Furthermore, "astronomical fees" are being paid to a small group of state marshals in connection with foreclosure actions, he wrote. LPS spokesperson Michelle Kersch notes that her company, unlike Fannie or Freddie (which have lists of designated counsel), is not an investor. In an e-mail to MortgageOrb's sister publication, [b][i]Servicing Management[/i][/b], she explained that investors and servicers have the contractual right to select local counsel of their choice. "Law firms that utilize LPS' technology are selected by the servicer or designated by the investor," she wrote. "As such, LPS' network of attorneys comprises the law firms that are selected by its servicing clients." The company says it has contacted Blumenthal's office to clarify the misunderstanding. A report by The Hartford Courant said that nearly two-thirds of the state's foreclosure actions are handled by two firms, Hunt Leibert and Bendett & McHugh. In 2008, the two firms combined gave nearly $3 million in business to a small group of marshals led by John Fiorello, according to the Courant, which investigated Connecticut's foreclosure attorney "monopoly" last year. It's reasonable to ask whether other firms even want to perform foreclosure work. The nuances can be complex, as any attorney will attest, and the processes involved can be tedious. Then again, the business of foreclosure, for better or worse, can also be highly profitable. What supersedes both of these points is not whether Hunt Leibert, Bendett & McHugh and The Witherspoon Law Offices (which was added to Fannie's preferred attorney list last November) are the only firms actively seeking foreclosure work, but the risks that such concentration means for Connecticut borrowers generally. It's one thing for a small group of individuals to be profiting off foreclosures – that's a sad reality of the business. It's an entirely different problem if borrowers are missing out on opportunities to remedy their situations. In other words, if a large number of foreclosures being handled by a relatively small number of attorneys is causing notices to go undelivered, that is simply unacceptable. For borrowers, that means one fewer chance to save their home. For servicers, that equals major headline risk. At this point, Blumenthal is simply reviewing the allegations and requesting information. No Connecticut law firm has yet been determined negligent, and borrowers' claims have not been proven. But with at least one highly influential state attorney setting his sights on attorney networks, who's to say others won't follow? We all witnessed the pack mentality that state AGs have when it comes to the mortgage industry (case in point, the explosion of suits brought against loan modification scams over the past year). Is this possibly the next wave of investigations? – John Clapp, editor, [b][i]Servicing Management[/i][/b] (Please send any comments on this blog to clappj@sm-onli


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