Can I Borrow Your Law License?

COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary COMBO Title and Securitization Search, Report, Documents, Analysis & Commentary

“In its S.E.C. filing, Prommis alerted potential investors that it could face challenges from bar associations, prosecutors or homeowners that its relationship with its law firms constituted the “unauthorized practice of law” or involved “impermissible fee sharing” arrangements.”

“The relationship between the Wall Street specialists and a law firm appears to work like this: A private equity firm, in a transaction worth tens of millions of dollars, buys a wide range of services used by the law firm, like its accounting, computer data, document processing and title search departments. Then, a subsidiary of that private equity firm or an entity it controls makes money by providing those services back to that law firm or other businesses for a fee.”

EDITOR’S COMMENT: It was a just a matter of time. Ask any of the anti-foreclosure mills how long and how much money it takes to build up an effective machine to counter the rush to foreclosure, and it doesn’t take a rocket scientist to realize that Stern, Bosco, Baum, Watson et al were getting their money from someplace, and that someplace HAD to be Wall Street. Wall Street effectively owns the foreclosure mills. Bar prosecutors in many states are taking a hard look at the referral of these cases for UPL (Unauthorized Practice of Law) and conspiracy. It’s a felony in most states and there are actual manuals published in many of these states that instruct prosecutors on how to prosecute UPL. It isn’t sexy, but it has a lot of teeth, as I have mentioned before, comparing to how they got Al Capone on income tax evasion.

So the owner of small law firm gets an offer he can’t refuse. We’ll buy out the guts of your firm whether it exists or not. We’ll put in the money to build it up with people, equipment, space, etc. We’ll lease it back to you at a guaranteed amount of money that will make you rich. Just sit back and do nothing. we’ll do the rest. Combined with the admission that the decision as to whether a homeowner would be declared in default was “outsourced” to a computer rather than a person, the pieces are falling together like a jig saw. That decision-making process was also used to “decide” which institution would foreclose — to prevent the obvious inquiries from more than one foreclosure on the same house initiated in the name of two or more supposedly separate and distinct entities. The purpose is to provide “plausible deniability” to the people involved and technical hair-slitting defenses to keep their licenses, keep the money they made, and maintain control of the biggest title fraud in the history of the world.

October 20, 2010

Foreclosures Profit Some Equity Firms

By BARRY MEIER

With a surge in lawsuits against law firms specializing in foreclosures, a case in Mississippi is casting light on another aspect of the mortgage mess — the connection between Wall Street private equity firms and those law firms, often known as foreclosure mills.

The lawsuit on behalf of homeowners claims that Great Hill Partners, a private equity firm, has benefited from what the lawsuit calls an illegal fee-splitting arrangement between Prommis Solutions and several of the busiest foreclosure law firms it controls. Great Hills is the biggest stakeholder in Prommis, a company that acts as a middleman between mortgage servicers and law firms.

A lawyer for Prommis rejected that claim, and officials of Great Hill Partners did not respond to inquiries. But a review of public filings, company news releases and other public statements shows that several private equity firms or entities they control have stakes in the business operations of some of the busiest foreclosure law firms in New York, California, Connecticut, Florida, Georgia and Texas.

Some of those law firms — like the offices of David J. Stern of Plantation, Fla., and Steven J. Baum of Amherst, N.Y. — are among those that are either under scrutiny by law enforcement officials or face actions by homeowners contending that they used inaccurate or fraudulent mortgage-related documents. Both lawyers have denied any wrongdoing, and neither has been charged with a crime.

The influence, if any, that private investors are having on the practices of the foreclosure mills is not clear. But the issue is likely to be examined in coming months in lawsuits like the one in Mississippi and as a nationwide task force of state attorneys general start their inquiry into the accuracy of mortgage documents.

To maximize investment returns, private equity firms often squeeze down costs in the operations they acquire. And some legal experts suggest that could be a factor in the quality of legal documents generated by foreclosure mills.

“The concern is that you are pushing production down to least-cost producer,” said Susan Carle, a professor at American University Washington College of Law.

Tom Miller, the Iowa attorney general who is heading up the task force investigating questionable document practices, said he was not aware that private equity firms had acquired some foreclosure-related operations. While there is no law against such purchases, Mr. Miller said the issue could prove significant because it expanded the possibilities of where and how the foreclosure system failed.

“If this is happening, this is something we are concerned about and would want to find out more about it,” Mr. Miller said in a telephone interview.

The investors involved in foreclosure mills include a publicly traded investment fund, Ares Capital, as well as other midsized and small buyout firms like Great Hill Partners.

The involvement of private equity firms in the legal industry is not new. But their involvement with foreclosure mills appears to have started about five years ago, just as the housing market was starting to collapse and the number of foreclosure procedures was beginning to boom.

The relationship between the Wall Street specialists and a law firm appears to work like this: A private equity firm, in a transaction worth tens of millions of dollars, buys a wide range of services used by the law firm, like its accounting, computer data, document processing and title search departments. Then, a subsidiary of that private equity firm or an entity it controls makes money by providing those services back to that law firm or other businesses for a fee.

For example, about three years ago, Tailwind Capital, a private equity firm in Manhattan, acquired many of the business-related operations of a law firm near Buffalo run by Mr. Baum, which does one of the highest volumes of foreclosures in New York State. Soon afterward, the fund bought similar operations from one of Connecticut’s biggest foreclosure law firms, Hunt Leibert Jacobson of Hartford.

Ares Capital, which financed the move, is also now a co-investor in those assets, which are held in a Tailwind unit called Pillar Processing, a public filing indicates.

Similarly, a private equity firm in San Francisco, FTV Capital spearheaded a $27 million investment in 2007 in an entity that buys law firm business operations and then uses them to provide services back to firms specializing in “foreclosure, bankruptcy and eviction,” according to a news release issued by the firm.

“We have been keenly focused on the mortgage-default services space,” the buyout fund stated in a 2007 news release. “The space is important to our strategic investors which represent six of the top 10 mortgage investors/servicers.”

In an e-mail, a spokeswoman for FTV Capital said that company officials were not available for comment.

Law firms receive a relatively low fee from companies that service home loans, say about $1,200 a case for handling a foreclosure-related proceeding. But those fees can translate into big profits for lawyers and their private equity partners when tens of thousands of foreclosures are involved. The law firms and the private equity firms have structured these deals with an eye toward avoiding legal statutes and ethical rules like those that bar fee-splitting between lawyers and nonlawyers.

But that relationship has been challenged in the Mississippi lawsuit against Prommis and Great Hill Partners.

Another company, Lender Processing Services, is also accused in the lawsuit of illegally splitting fees with foreclosure law firms; it also denies doing so.

The roots of Prommis, based in Atlanta, trace back to 2006 when the company acquired the back-office operations of McCalla Raymer, one of the country’s biggest foreclosure law firms. Great Hill Partners states on its Web site that it was interested in the acquisition because it reflected a way for it to profit from the housing downturn.

In subsequent years, Prommis expanded its operations nationwide by buying the back-office operations of other major foreclosure law firms, according to a recent Securities and Exchange Commission filing made by the company in connection with a planned initial stock offering.

According to that June filing, Prommis now generates revenue by providing services like document processing to the same law firms that handle nearly all of the foreclosures initiated by the loan servicers with whom Prommis works.

In a telephone interview, Prommis’s general counsel, Richard J. Volentine Jr., said that the company did not split fees with its affiliated law firms and that those fees were paid directly to those firms by the loan servicers.

In its S.E.C. filing, Prommis alerted potential investors that it could face challenges from bar associations, prosecutors or homeowners that its relationship with its law firms constituted the “unauthorized practice of law” or involved “impermissible fee sharing” arrangements.

Prommis also stated in that filing that any steps that slowed the pace of foreclosures, like government programs that helped homeowners renegotiate loans, would hurt its revenue.

Julie Creswell contributed reporting.

10 Responses

  1. I’ve been browsing online more than 3 hours today, yet I never found any interesting article like yours. It is pretty worth enough for me. In my opinion, if all webmasters and bloggers made good content as you did, the internet will be a lot more useful than ever before. Make good use of them… Credits to Jesperj from BHW Last edited by necada; 01-25-2011 at 02:10 AM.

  2. Hmmm…I just had a long conversation today with an employee of McCalla-Raymer …the foreclosure mill that sold my house on the Cobb County (GA) courthouse steps on June 1 of this year. I was trying to find out where the surplus funds from the foreclosure sale were now that 5 months had passed (I owed $60K…no other liens, loans, etc…they sold it for $90K) My loan servicer was Wells Fargo (although my property records indicated that they held the note). I was confused throughout the process that eventually led to my losing my home with only 7 years left on a 30-year mortgage. I was “working with” WF for a HAMP modification…and later some other workout…then a forebearance agreement…etc. All throughout the process, though, I kept getting letters from McCalla-Raymer saying THEY could save my home. I assumed at the time that they were the same programs the bank was talking about, but it did seem confusing that the law firm that was handling the foreclosure wanted me to send my financial information to THEM…and that THEY could “save my home”

    Can anyone recommend a good lawyer in the State of Georgia?

  3. Here’s my example. Indymac taken into receivership by FDIC who sold only servicing right to onewest the foreclosure process continued whilst none of my protests were even adressed other than the FDIC writing to me telling me to drop indymac from the suit since there were no assets and it would be futile and since I did not serve the FDIC also I had not aeved properly. And if I didnot drop them the FDIC would motion to dismiss and send me the bill. But there’s more in the background we have attorney for onewest Bsnk sat in foreclosure mill offices under the guise of Malcolm cisneros law Corp who are also retained by Fannie Mae…. Startingti smell a bit? Well that attorney for onewest AND Fannie Mae AnD the foreclosure milll AND with LPS doing their bit inntjr background working with reo remax to market and sell my home …. Very efficient wouldn’t you say. All unjustly enriched stealing my house ready to screw an unsuspecting purchaser of my home with clouded title. Well guess what I had lis pendens on title and they cannot follow thru with plan A so I know they willl have a plan b they are very creative with their fraudulent business but it is not backed by law and who died and made the banksters king to change that fact

  4. Aaah – private equity – been saying this for a while. These guys are profiting from the hardships – and the government as been promoting it.

    In the words of Alan Greenspan – after 9/11 market collapse (paraphrase) “if it were not for the distressed debt buyers – we would not have pulled out of this – they serve an important role in our financial markets.’

    Mr. Greenspan – they were serving a “role” – before THIS market collapse – by purchasing default debt from the banks – and letting “trustees” claim to be the current creditor. WHY?? because they got away with it – due to deregulation – they never had to report their assets.

    Now – what DO YOU THINK the government intended when they purchased the MBS and whole loans from the banks? They intended that distressed debt buyers (private equity) would purchase these “toxic assets” – IN BULK – at discounts – and – therefore, fix the balance sheets of the “poor” banks- who were “taken” by those “nasty” home owners – would “magically” improve – and all would be fine to the world —

    THIS WAS THE GOAL – my friends. THIS WAS THE GOAL..

  5. Can someone please give me a link to the Florida legal definition of a “credit bid” and an explaination of who is entitled to credit bid. I found

    http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0000-0099/0056/0056ContentsIndex.html&StatuteYear=2010&Title=%2D%3E2010%2D%3EChapter%2056

    but I need the definition … I’m going to bid in a property at the court , I will not be the high bid , high bid will be the “lender” on a credit bid. I intend to contest the higher bid based on a faulty assignment.

    Thanks!

  6. and the FRAUD goes shamelessly on!!!! relentless bastards!! however their time is coming, I’m simply waiting to see it all happen

  7. What about foreclosure mill in NJ?
    Zucker, Goldberg & Ackerman, llc?

  8. it is all about money, it was how they could get you to sign, how to keep you affloat with refinancing deal, pick a payment loans, and now how they can bleed you dry in foreclosure. yes they do have an incentive to foreclose on you.

    the whole thing comes down to it is either your survival or theirs

  9. What about the LOGS network, aka as the Law Office’s of Gerald Shapiro… that operate nationwide?

  10. So when Litton uses “McCalla Raymer”, Wall Street benefits while I can expect even more crappy ‘legal’ work? Any point tracing a Goldman-Sachs connection?

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