PERSON OF THE WEEK: The world of default attorney firms has been particularly tumultuous over the past year. With greater regulatory scrutiny aimed at the space and high expectations for the coming year to be legislation-heavy at the state level, MortgageOrb this week checked in with Caren Castle, founding partner of Denver-based Castle Stawiarski and president of attorney network USFN.
Q: All 50 state legislatures are in session this year, and expectations are high that lawmakers will introduce, and perhaps pass, a dizzying array of new rules targeting servicers. What trends do you see taking hold among the states?
Caren Castle: We believe one of the biggest trends this year will be in the documentation necessary in a foreclosure, such as providing an original note or copy, front and back, with all endorsements to the current mortgagee, or a full chain of assignments to the current mortgagee. Additionally, there will most likely be a continued push toward more mandatory mediation, both in judicial and nonjudicial states, as well as some sort of requirements to ensure lenders have offered and exhausted loss mitigation alternatives prior to either commencing foreclosure and/or conducting a foreclosure sale.
Q: The default servicing industry is still undergoing QA tests as part of the fallout from last year's robo-signing reports. How can legal providers in the field help restore confidence in the default and foreclosure processes while minimizing delays and mitigating costs to servicers?
Castle: First and foremost, by ensuring that law firms are adequately staffed and trained. Proper procedures need to be documented, and meaningful lawyer involvement and review is critical. It is necessary that we educate and demonstrate to the courts that foreclosures, bankruptcies and other legal events are not just ‘assembly line" processes, but are legal actions, although some of these certainly may allow for some standardization. Default legal service providers need to assure the powers that be that they take their ethical and legal obligations seriously, and that their pleadings, processes and preparation show that.Â
Q: Many servicers have enlisted outside law firms to audit their default attorney firms. Do you believe there are risks associated with these third-party audits of default servicing firms?
Castle: Auditing files and law firms absolutely serves a purpose. There is always room to improve processes, communication and procedures. The concern surrounding the audits, that I have heard voiced by many groups, is the time each audit involves for the law firms, as well as the time and money for each servicer or government-sponsored enterprise (GSE).
I am president of USFN, and one of the ideas that USFN has been thinking about is the identification of an agreed-upon auditor for the various GSEs/servicers. Each represented party would provide a list of files to be audited, but instead of the multitude of individual audits/auditors, each law firm would be audited once or twice a year by a central auditor. The audit report would serve as certification attesting to that firm's compliance with legal and industry standards. Certainly, the length of time required for this type of audit might be longer, but we believe it would be far more cost-efficient in the long run for all parties involved.Â
Q: There appears to be consensus that the outsourcing of default legal work – at least, in many cases – moved too far into the realm of assembly-line vendor tasks. What will it take for the industry, as a whole, to reverse that trend?
Castle: Outsourcing certainly has its place in the industry. That being said, perhaps too much emphasis was placed on speed. In a fixed-fee environment, efficiency is a key element in providing services in a profitable manner. The industry needs to focus on efficiencies but should never lose sight of the fact that, in most states, foreclosures are a legal process. Bankruptcy and evictions are always legal processes. Therefore, quality can never be substituted or forgotten.
The industry as a whole needs to ensure that documents being filed are accurate. As one in-house counsel recently stated, there is no room for any type of error at this time, regardless of how small or insignificant. Not only must the "i's" be dotted and the "t's" be crossed, but the procedure for making sure this is done must be documented, and the training to accomplish this must be documented. We should all review and revise when appropriate.
The focus over the last few months has been on the errors of legal procedure, regardless of the accuracy of the information. We need to tighten up the procedures so that the focus can again be on the accuracy of the information.
The industry will only regain the trust of the courts, legislators, the public, the media, etc., when the norm is, once again, that files are being appropriately prepared and reviewed for accuracy and for appropriate document inclusion. I believe that once we get over the "hump" of this current intense scrutiny, the industry will absolutely be in a better place. The pain of climbing the hill is significant, but the enhanced policies and procedures will have undergone a complete and intense review, and thus, be strong and reliable. Efficiency and quality will be valued well above speed, as it should
