The alleged splitting of attorney fees between foreclosure mills and third-party mortgage servicing providers is the subject of yet another lawsuit brought by Alabama-based attorney, Nick Wooten. The latest case involves plaintiff, Susan Marie Harris of Pensacola, against Lender Processing Services, its subsidiary LPS Default Solutions Inc., and the Ben-Ezra & Katz law firm of Fort Lauderdale.
According to the lawsuit filed in the Northern District of Florida – Pensacola Division, LPS would use its close relationship with mortgage servicers to refer foreclosure processing business to certain law firms. Those firms, including Ben-Ezra & Katz, would pay LPS a referral fee, and thereafter secretly pass that cost to homeowners who were being sued for foreclosure.
Harris, who is seeking class-action status of her lawsuit, claims the defendants violated the United States Bankruptcy Code by creating contractual agreements that allowed them to “illegally split attorney’s fees” with law firms that joined LPS Default Solutions’ attorney network.
In her complaint, Harris alleged that the defendants set up a contractual arrangement in which LPS network attorneys compensated LPS Default Solutions by splitting attorney’s fees with the outsourcer. Based upon this compensation model, LPS was able to offer its clients — namely large mortgage servicers – some services free of charge, thereby allowing for an expansion in competitive positioning within the default servicing marketplace.
A spokesperson for LPS stated earlier today that they could not comment on specific litigation matters, but “has been successful in disposing of similar allegations in the past and is confident it will do so in the future.”
Ben-Ezra & Katz is also named as a defendant as the law firm is under contract by LPS in this case. A spokesperson for the Fort Lauderdale, Florida, based Ben-Ezra was not immediately available for comment.
When questioned whether every “in-network” law firm working with LPS Default Solutions could face litigation, Wooten said “at some level, it is likely that each of those law firms will have to address their relationship with LPS.” Wooten contends that more than 200 law firms have contracts with the mortgage servicing outsourcer.
Harris further alleged that “LPS Default and the network (law) firms attempt to disguise what are in fact attorneys’ fee sharing and referral agreements by characterizing the fees paid by the attorneys to LPS Default as administrative fees.” Harris contends that when a bankruptcy court is wrapping up one of the cases handled by LPS and one of its in-network law firms, the law firm applies for attorney’s fees and does “not disclose to the courts that a substantial portion of the fees requested will be paid to LPS Default.”
The result – according to Harris – is a situation where LPS Default and its network law firms “fraudulently mislead the bankruptcy courts, the bankruptcies and their attorneys as well as the bankruptcy trustee as to the actual amount of attorneys’ fees incurred by the creditors.” The complaint accuses LPS, LPS Default and Ben-Ezra with abuse of the bankruptcy process, fraud on the court, contempt of bankruptcy code, contempt of federal rules of bankruptcy procedure, breach of the uniform mortgage covenant, unauthorized practice of law and civil conspiracy.
With half-a-dozen similar cases pending, Wooten expects to file 10 to 12 additional cases in the next 30 days, making similar allegations about what he claims are illegal, split-attorney fee arrangements between mortgage servicing outsourcers and law firms. The cases are concentrated in the Northern District of Florida, the District of Mississippi, and the Southern District of Alabama.
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