Bankruptcy Trustee Joins Debtors In Fight Against Mortgage Companies

U.S. bankruptcy trustee Locke Barkley has joined forces with a Chapter 13 bankruptcy family who lost their home to foreclosure .  The family and the bankruptcy trustee are suing a mortgage servicer accusing them of allegedly charging the family fees that were improper, illegal and not properly disclosed to the bankruptcy court.

The couple alleged the firms engaged in “illegal” fee-splitting, or sharing fees for client referrals. According to the complaint, Johnson & Freedman contractually agreed to split legal fees with Lender Processing in return for cases Lender Processing sends to Johnson & Freedman. Additionally, they claim that Prommis and Johnson & Freedman split legal fees. According to the lawsuit, the undisclosed fee-splitting arrangements are improper because fees designated as legal fees are being shared with companies that aren’t authorized to practice law.

The couple said these fee-splitting contracts are disguised as “administrative fees, document review ‘views,’ document download fees, document execution fees, technology facilitation fees,” according to the lawsuit.

Lender Processing Services Inc. is one of the largest mortgage-loan and foreclosure technology providers in the U.S., with 8,900 employees. Its computer systems and software is used by lenders, banks and mortgage servicers to maintain monthly mortgage payments and process foreclosures. The work closely with Prommis Solutions Holding Corp., which specializes in foreclosure processing, and foreclosure law firm Johnson & Freedman.  If the illegal fee-splitting accusation is true it is clearly probable that this could be a widespread problem that could prove to be even bigger than the robo-signing scandal. Any company found to systematically and/or maliciously fail to properly disclose fees in a bankruptcy case could find themselves facing harsh sanctions by the bankruptcy court.