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Law-Firm Backed Default Outsourcers to Merge

American Processing Company, LLC, said Monday that it had signed a definitive agreement to purchase National Default Exchange, otherwise known in the default industry as NDEx -- and it's a transaction that signals a strong shift in strategy among some of the more powerful players in the default management space. The deal involves back-office spin-offs of two well-known creditor's right law firms, Texas-based Barrett Daffin Frappier Turner & Engel, L.L.P. and Michigan-based Trott & Trott, P.C. Both are among the largest firms in the nation that manage foreclosures, evictions, and related legal work for their clients. American Processing Company is tied to Trott & Trott, while NDEx is tied to Barrett Daffin et al -- or, more precisely, David Trott is president of APC and managing attorney at the law firm that bears his name, while Michael Barrett is president at NDEx and managing partner at the law firm that bears his name. Minneapolis, Minn.-based Dolan Media Co. (DM) holds an 88.6 percent stake in APC, while Dallas-based private equity firm Trinity Hunt Partners owns an unknown stake in NDEx. The NDEx purchase by APC will primariy be funded by a $64 million private placement of Dolan Media common stock and by debt from the company's credit facility, the company said on Monday. Big business, as foreclosures surge Although NDEx operates primarily in Texas, California and Georgia, the company has a huge footprint in the Golden State, where it provides trustee services for lenders and servicers. A license to practice law is not required to manage the mortgage default processes in California; in most other states, attorneys must oversee such matters. "This transaction will establish APC's footprint in the state of California, the largest and one of the most active default management markets in the United States," said David Trott. "Our primary focus in the year ahead will be on integrating NDEx with APC and supporting the continued growth of our operations." APC and NDEx each use proprietary automated workflow process management systems, and Trott said the Dallas processing operations of NDEx would be maintained; over time, the best aspects of the APC and NDEx technology platforms would be combined, he said. "The combination of APC and NDEx builds a stronger, more efficient company that is positioned to offer better service to clients," said Michael Barrett. "Now that we will provide default services in six states, we look forward to leveraging our opportunities in technology, customer service and marketing to further drive our business." It's a booming market, to be certain. The number of foreclosures nationwide is expected to surge well past one million this year, with many of those being in the six states that will be served by the combined company. Not that the company is alone in the crowded default outsourcing space; part of the reason for the merger is likely the idea that there is strength in numbers. Attorneys in the default space have been trying to years to put together regional and national operations to capture volume in the flat-fee default services market -- a key competitor in this particular case would be the Illinios-based LOGS Network, which operates a network of attorneys offices and trustees nationwide. Disclosure: The author held no positions in DM when this story was published; other indirect holdings may exist, as well, via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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