Five giant mortgage firms are shelling out $25 billion to settle claims of "robo-signing" and other foreclosure abuses — but putting anyone in jail is another matter.
In one of only two known robo-signing prosecutions nationwide, a judge last week threw out an entire case, including more than 100 felony counts each against Gary Trafford and Geraldine Sheppard of Orange County. The Californians had worked as title officers for Lender Processing Services, a giant Jacksonville, Fla., firm that helps banks and mortgage servicers generate legal documents.
A mortgage task force assembled by Nevada Atty. Gen. Catherine Cortez Masto had accused Trafford and Sheppard of directing the fraudulent notarization and filing of notices of default, the paperwork used to start foreclosures, on delinquent Las Vegas-area borrowers.
But Clark County District Court Judge Carolyn Ellsworth ruled last week that prosecutors committed misconduct in their presentations to the grand jury that indicted Trafford and Sheppard in November 2011. The missteps included providing "irrelevant and highly inflammatory evidence" about how the evictions affected the homeowners, the judge said.
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The dismissal stands in contrast to the outcome of the second robo-signing prosecution. In that case, Lorraine Brown, founder of DocX, a former Lender Processing Services subsidiary, pleaded guilty to a federal conspiracy charge in Jacksonville and to Missouri state charges of forgery and falsifying documents.
Brown faces a federal sentence of up to five years in prison and a Missouri sentence of at least two years, a spokeswoman for the Missouri attorney general said. The sentences, to be imposed next month, would run concurrently.
Allegations of falsified documents were at the heart of an investigation by state attorneys general and the federal government into foreclosure abuses by Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc. and Ally Financial's GMAC mortgage unit.
The firms settled that non-criminal case by agreeing early last year to provide the $25 billion in mortgage-related assistance to borrowers.
In the Nevada case, Ellsworth also said prosecutors had wrongly used the term "forgery" to describe how a notary public, assured by Trafford that all was well, had signed Trafford's name on the documents notifying borrowers that they were in default and could lose their homes.
At a hearing Feb. 25, Nevada Senior Deputy Atty. Gen. Robert G. Guinta acknowledged that the actions didn't meet the legal standard of forgery and said prosecutors hadn't tried to establish that fact to the grand jurors.
The judge gave prosecutors the option of putting the case back before the grand jury in an attempt to produce a clean indictment — a move that Masto's office said was being considered.
Trafford's defense attorney, John Hueston of Irell & Manella's Orange County office, couldn't be reached for comment Thursday.
At the hearing last week, he argued that the grand jury proceedings and the indictment were "laced and infested with references to forgery throughout," making it impossible to correct the impression that had been created.
The term forgery has "a certain fire to it," Hueston said. "And throwing that fireball out to the grand jury over and over again imprinted a very grave crime on that grand jury that simply did not exist under the facts that truly happened in the case."
Sheppard's lawyer, Kenneth B. Julian of Manatt, Phelps & Phillips in Orange County, said in a statement: "We are grateful for the court's decision and careful consideration of the motions, which were fact intensive."
Defense attorneys also had argued that prosecutors bullied a key witness in the case, Tracy Lawrence, into turning state's evidence and pleading guilty to notarizing the signature of an individual not in her presence.
Lawrence committed suicide on the day she was to be sentenced, a few days after Trafford and Sheppard were indicted.