One of the nation's largest mortgage servicers filed a lawsuit on Tuesday against Lender Processing Services Inc., a top mortgage-industry technology-and-services vendor, alleging that the firm improperly signed mortgage documents on its behalf and triggered millions of dollars in legal expenses as a result.
American Home Mortgage Servicing Inc. said in the lawsuit that it had incorrectly processed more than 30,000 mortgage assignments when seeking foreclosure on properties in all 50 states as a result of the work by an LPS subsidiary.
The lawsuit was filed Tuesday in a state court in Dallas County, Texas, and seeks unspecified damages worth millions of dollars. LPS, based in Jacksonville, Fla., does business with many of the nation's largest mortgage servicers.
An LPS spokeswoman didn't have an immediate response to the lawsuit on Tuesday morning. In 2009, LPS shuttered the DocX LLC unit that was responsible for preparing mortgage filings after allegations surfaced that it had fabricated signatures and documents.
Last fall, mortgage servicers were forced to suspend and correct foreclosure filings after they were accused of "robo-signing," or allowing employees to sign off on thousands of documents without reviewing their contents. Tuesday's lawsuit is one of the first by a servicer to attempt to put back losses for those document-handling improprieties on an outside vendor.
American Home, based in Coppell, Texas, and a unit of WL Ross & Co., doesn't make loans but instead handles the day-to-day management of those mortgages on behalf of investors in mortgage-backed securities. It is the 15th-largest mortgage servicer and manages $72.5 billion in mortgages.
American Home alleged in the lawsuit that LPS did not dispute that it had improperly executed, notarized, and recorded thousands of assignments that American Home used to process foreclosures. But American Home said that LPS has refused to indemnify the servicer for millions of damages that resulted from the shoddy work by arguing that it wasn't under an enforceable contract when the breaches occurred.
American Home designated certain LPS employees as "special officers" of the company in 2009 to process certain foreclosures, according to the lawsuit. But American Home said that LPS then allowed other unauthorized employees to sign the names of the approved "special officers" on foreclosure filings.
"Upon learning of this unauthorized use of surrogates, we terminated the services of DocX and promptly conducted an extensive, 50-state remediation effort to address any issues caused by this problem," said Jordan Dorchuck, American Home's chief legal officer. American Home said that it brought the lawsuit after it failed to recover losses after a year of negotiations with LPS.
In April, LPS signed a consent order with the Federal Reserve following an investigation into the document-handling practices of 14 mortgage servicers. American Home wasn't involved in those reviews because it isn't part of a federally regulated bank.
LPS stock fell by 41 cents, or 2.4%, to $17.06 in afternoon trading Tuesday on the New York Stock Exchange.
