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Foreclosure Fraud: First Criminal Charges Filed In Nevada Over Robo-Signing

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The Nevada attorney general has indicted two midlevel staffers at a mortgage document company, Lender Processing Services, on a whopping 606 counts of felony and gross misdemeanor for directing employees to forge signatures and falsely notarize documents used to illegally foreclose on Nevada homeowners.

Nevada's is the first criminal indictment since last year's discovery of the nationwide "robo-signing" scandal, in which mortgage servicing companies and banks were processing foreclosures en masse at lightning speed by signing documents they neglected to review and falsifying information.

"The grand jury found probable cause that there was a robo-signing scheme which resulted in the filing of tens of thousands of fraudulent documents with the Clark County Recorder's Office between 2005 and 2008," said Nevada's chief deputy attorney general, John Kelleher, in a statement.

The indictment against the two employees, Gary Trafford and Gerri Sheppard, describes them as LPS title officers and California residents. Neither has been arrested, but the court has set bail at $500,000 each.

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In a Thursday release, LPS said that it's cooperating with the investigation. It also asserted that no homeowners have been harmed: "Based on the company's reviews, LPS acknowledges the signing procedures on some of these documents were flawed; however, the company also believes these documents were properly authorized and their recording did not result in a wrongful foreclosure."

Prentiss Cox, a law professor at the University of Minnesota and a former assistant state attorney general, said it was admirable for Nevada Attorney General Catherine Cortez Masto to pursue the robo-signing case. But, he added, "When criminal prosecutions are done for robo-signing, I would hope the target of those prosecutions would be the people who designed the system and profited from it, not just the low-level people doing what they were told."

A spokeswoman for Masto declined to confirm or deny whether the attorney general's office is pursuing an investigation into higher-level LPS employees. As for the company's clients, Kelleher told American Banker, "We simply don't know if the major banks were aware of what these individuals were doing." Kelleher added that the state would consider future actions if it were to discover that banks had sanctioned robo-signing.

The Nevada indictments come as a coalition of state law enforcement officials and the Obama administration are pursuing a settlement with big banks over their role in robo-signing and other alleged mistreatment of struggling homeowners.

After the existence of robo-signing came to light in October 2010, attorneys general from all 50 states banded together with the federal government to punish five large financial institutions -- Bank of America, JPMorgan Chase, Citigroup, Wells Fargo and Ally Financial -- for mortgage-related misconduct, including robo-signing and failing to provide mortgage modifications to eligible homeowners. As it now stands, that punishment would take the form of a $25 billion civil settlement. The deal would reform the mortgage servicing industry and require banks to offer relief to homeowners in the form of modifications, principal write-downs and refinancing, among other options.

The negotiations, led by Iowa Attorney General Tom Miller, hit a snag this summer when several attorneys general -- most notably Eric Schneiderman of New York and Beau Biden of Delaware -- objected that the deal was too narrowly focused on robo-signing and mortgage servicing and that it would release banks from liability for too much potential wrongdoing. Schneiderman and Biden called for a more thorough investigation of how home loans were originated and sold to investors. In October, Biden sued MERS, a company that has served as big banks' private national mortgage registry, and Schneiderman subpoenaed the company.

Masto said on MSNBC earlier this month that she applauded Biden's MERS lawsuit. But, she added, "Some of us are attacking in different areas -- that doesn't necessarily mean we won't all get to the same litigation."

Geoff Greenwood, a spokesman for Miller, said the deal's terms would not preclude state law enforcers from pursuing criminal charges like the ones against Trafford and Sheppard. "We've made it very clear we are not negotiating criminal immunity, and states are free to file criminal cases," Greenwood said.

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