For the first time since the start of the robo-signing crisis, a senior executive has been indicted on criminal charges of forgery and faces jail. The forgery charges against a mortgage processing executive come as the nation's largest banks attempt to close the books on a civil investigation into widespread document fraud and could spark further federal criminal cases.
A grand jury in Missouri handed up the 136-count indictment late last week charging Georgia-based DocX -- a subsidiary of the massive mortgage processor Lender Processing Services -- and its founder and former president Lorraine O. Brown, with forgery. The indictment alleges that DocX employees fabricated signatures on hundreds of real estate documents, some used in foreclosures.
"This is the first time any grand jury in the country has indicted a corporation or a high-level executive at a corporation for 'robo-signing,'" Missouri Attorney General Chris Koster told The Huffington Post. "The grand jury is alleging that the documents have false signatures on them, that the notarizations are fraudulent and that it was all done with an intent to deceive. If that’s true, it makes the [foreclosure] documents forgeries."
A lawyer for DocX did not immediately return a call seeking comment. A lawyer for Brown told The New York Times she intended to plead not guilty and had no criminal intent.
The indictment stands in sharp contrast to the settlement shaking out over so-called "robo-signing" allegations between the state attorneys general and five of the nation's largest banks. So far, more than 40 states have agreed to what could amount to a $25 billion settlement with Citigroup, Bank of America, Wells Fargo, JPMorgan Chase and Ally Financial over allegations they forged documents and incorrectly foreclosed on homeowners.
As those settlement negotiations turn to questions of whether banks should receive immunity from future charges of fraud, in Missouri Brown faces up to seven years in prison as well as fines if convicted, according to Koster. "The broader question is, 'Did the banking system begin to move so fast that they lapsed into criminality? And if that occurred, do we as Americans care?' I believe the unquestionable answer to that is yes absolutely we care."
"You're beginning to see criminal prosecution here of outright fraud," said Ira Rheingold, executive director and general counsel of the National Association of Consumer Advocates, which lobbies against deceptive business practices. "I think it may foreshadow some other cases and I wouldn’t be surprised if you see some federal indictments."
The Missouri indictment may have implications for homeowners whose housing documents are found to be tainted by fraudulent signatures, since it would effectively render those documents void, according to Attorney General Koster.
"If they are nullities, than these documents are no more significant than a child drawing on construction paper with crayon," Koster said.
The indictment isn't the first time that DocX has come under scrutiny for its mortgage processing practices. In December, Nevada’s attorney general filed a civil suit against DocX and its parent Lender Processing Services alleging consumer fraud, accusing the companies of engaging in "a pattern and practice of falsifying, forging and/or fraudulently executing foreclosure related documents, resulting in countless foreclosures," according to an announcement of the suit that month.
Lender Processing Services closed DocX in 2010.
Though terms of the state robo-signing settlement haven’t yet been announced, some banking executives have recently expressed concern that the final agreement may leave them exposed to criminal prosecutions.
The Missouri indictment comes after "60 Minutes" aired a segment in August in which it alleged that Doc X had been forging bank documents for client financial institutions. Some of the documents mentioned in the "60 Minutes" piece are at issue in the indictment.
But for those hoping that Missouri’s indictment might spark criminal actions against executives at financial institutions, some caution that the ramifications could be limited. If the state attorneys general or the federal government "use this for more prosecutions up the chain [to executives at DocX parent Lender Processing Services] and top mortgage servicing entities," then this is significant, according to David Angle, a former assistant attorney general in Missouri now in private practice. "But if it’s a one-off, this indictment is meaningless."
CORRECTION: A previous version of this post mistakenly included a photo of a REDC foreclosure sign. The company, currently known as Auction.com, has no affiliation with Doc-X.