The Department of Justice and the state of Missouri have each announced criminal plea bargains with one Lorraine Brown, former chief executive of DocX, the Lender Processing subsidiary best known for its price sheet for fabricating the mortgage documents a servicer, or frankly, anyone would need to claim they had standing to foreclose on your home. Funny how that particular DocX product was mentioned no where in the plea deals.

This admission of guilt by Brown for wire and mail fraud on the federal level and fraudulent and forged document filings in Missouri now allows the Obama Administration to claim it has sent another “executive” to jail. And the bizarre progress of this case was that the Missouri attorney general had sued both Brown and LPS, and you’d expect them to cut a deal with Brown to go after the bigger target, LPS. But it’s likely Brown was not very sophisticated; she apparently went to an interview with the FBI without the advice of counsel. Rule number one is don’t lie to the FBI, and the document release Tuesday show that Brown did. And her attorneys let LPS get in front of her. The firm paid $2 million in fines to Missouri and “cooperated” in going after small fry Brown (rather than the bigger fry of LPS’ clients). Nicely played.

Brown admitted guilt to perpetrating a six-year scheme, from 2003 to 2009 to forge and falsify over a million signatures, including now-infamous practices such as “surrogate signing”, in which other employees, typically temps, would forge the signatures of robosigners. The federal penalties are up to five years in prison plus $250,000 in fines; the Missouri penalties re two to three years in prison.

Several things are striking about this deal. First is that it appears that the Missouri suit against Brown goaded the Feds to join. It’s hardly unheard of for state regulators to embarrass their Federal counterparts into action, and the DoJ probably could not afford to sit out a successful prosecution on its beat, particularly after all the noise the Obama Administration has made about its new, improved anti mortgage fraud efforts. But that makes the second item more striking: how the “statement of facts” presents Brown as deceiving Lender Processing Services about her illegal actions. Brown is thus a rogue executive whose misdeeds presumably don’t have bigger implications for LPS or the industry. It’s nauseating to see the filings take that position and contain statements like this:

When hiring DocX to sign documents, servicers typically issued special corporate resolutions delegating document execution authority to specific, authorized, and trained personnel at DocX. The DocX employees who were given express signing authority from DocX’s clients and who, as represented by Brown, were purportedly trained to ensure that the clients’ documents were properly created, signed, and notarized were

called “Authorized Signers.” These documents were then generally recorded by DocX

with the appropriate local property recorders’ offices throughout the country.

The reference to “notarized” is the big tell that the supposedly proper procedures that Brown was violating were also abuses. A notarized document requires that the signer have personal knowledge of the matters attested to, such as the principal amount of the mortgage or the amount the borrower owes. You can’t simply go though some legal hoops an d give a third party at a completely different organization “signing authority.” They ALSO have to have the requisite personal knowledge. The knowledge requirement makes it impossible in most cases to have someone outside the organization act as a proxy for the party in charge. This whole procedure is a sham, yet the bland language of the plea bargain documents treats it as perfectly legitimate. [Update/correction: the issue here is that servicers outsourced BOTH the signing of affidavits and the related notarization to firms like DocX. I incorrectly bundled both under “notarization” but these are distinct activities. The famed robosigners and surrogate signers were typically signing affidavits; the notaries were simply an additional component of this bogus process. Apologies for the sloppiness].

Indeed, we’ve had explicit “see no evil” statements. From the Palm Beach Post writeup of the plea deal:

In the Florida inspector general’s report, the state’s top economic crimes boss Richard Lawson said the practice of “surrogate signing” is not forgery because it was approved by the company and forgery requires an intent to defraud.

Huh? At a minimum, the DocX client was being defrauded of the service he was contracting for, that of having his authorized agent, and only his authorized agent, sign documents. All fees paid when surrogate signers were used were part of a scheme to provide client less service than they thought they were getting (and that’s before we get to the resulting frauds on end parties, like courts, borrowers, county recorders’ offices). This simply shows that there is no will to clean up this problem; they’d rather put band-aids on gunshot wounds than be required to operate.

In fact, what Brown is guilty of is simply taking the bad practices in the industry to their logical conclusion. After the robosiging scandal broke, banks kept claiming it was mere paperwork “errors” or “sloppiness” when in fact what they were doing was quite deliberately vitiating procedures that go back to the 1677 Statute of Frauds to make sure that documents are signed by legitimate parties. The notion that you can have someone removed from your organization who is paid a mere $15 an hour merrily sign on your behalf is a travesty. None of these managers would ever delegate authority like that over their checkbook, yet they were doing that cavalierly with the single most important asset of most families. Brown’s crime was that she was sloppy about the form of this exercise in form over substance. Having obviously different versions of the same person’s signature floating about raised the question of who was really executing these documents.

Notice also that the officialdom makes this case all about the paperwork, so as to divert attention from the fact that these procedures allowed parties who hadn’t complied with the well established procedures for transferring notes and liens and for foreclosing to circumvent those and other requirements, such as servicing in the best interests of the investors (which would have required servicers to offer more mortgage mods). Notice the language of assistant attorney general Lanny Breuer:

She was responsible for more than a million fraudulent documents entering the system, directing company employees to forge and falsify documents relied on by property recorders, title insurers, and others.

In case you have any doubts, this tells you that this case does not signal a change in Team Obama’s posture towards the banks. There is not a single mention of harm to homeowners, save through erosion of public confidence. There’s no mention of actual harm, like wrongful foreclosures (can’t admit that happens) or title risk to buyers of foreclosed properties.

It’s also hard to buy LPS’s claims that it was shocked that Brown was up to no good. It had to know what her production numbers were; they were the basis of her revenues. The notorious document fabrication term sheet was public. It’s hard to imagine that Brown didn’t tell her superiors that she was improving productivity of her unit. Any executive worth their salt would be monitoring trends in Brown’s unit (such as costs per types of services). And LPS did due diligence at the time of the 2005 acquisition of her firm. They would have gone over how it operated in some detail. If she kept wringing out productivity improvements in what was presumably already a lean operation, I’d certainly want to know, if nothing else, out of curiosity, since this is a highly manual operation, and thus not an obvious candidate for cost reduction.

It’s also clear that the industry engages in even worse abuses on a routine basis. As we wrote earlier this year:

One thing that foreclosure defense attorneys have seen as a huge red flag of servicer chicanery is the use of allonges. An allonge is a separate piece of paper used for endorsements that is required by the Uniform Commercial Code to be “affixed” to the note and used for endorsements when there is no more space left on the note for signatures. Allonges were pretty much never seen until the robosigning scandal, since all the space on a note (meaning the back and the margins) can be used for endorsements. But they have a funny way of showing up out of nowhere and solving all the problems with a particular foreclosure. Of course, if an allonge really was “affixed,” it shouldn’t be possible for it to materialize out of nowhere.

We’ve even come across a firm that advertises “scrubbing” loan files and discussed how it fabricated allonges. Oh, and that firm, SolomonEdwards, is also one of the servicer review firms, meaning it things this sort of chicanery is perfectly kosher.

The mortgage settlement made clear that the officialdom is going to pretend that forgeries and fabrications are no big deal, even though there’s widespread deed fraud in Philadelphia, continuing appearance of bogus documents in foreclosures, and continuing state level challenges to MERS. No, PR and ignoring the problem has worked just fine, so there’s no reason for the Administration to change course.