Two lawsuits allege illegal fee-splitting involving two large outsourcers in the mortgage industry, reviving a long-running debate about fee arrangements between outsourcers and the attorneys who work with them. In a case filed Sept. 30, a couple involved in a Chapter 13 bankruptcy in Mississippi has filed a class-action complaint against Prommis Solutions Holding Corp., its majority owner, venture capital firm Great Hill Partners; and the law firm of Johnson & Freedman. The suit also names as defendants Lender Processing Services (LPS), which provides a variety of third-party mortgage services, and its wholly owned subsidiary, LPS Default Services. The suit seeks class-action status for people who filed for bankruptcy protection in the Northern District of Mississippi in which the defendants were involved in various legal motions. The lawsuit alleges that the mortgage outsourcers have secret contracts with attorney firms with fee-splitting arrangements “disguised as administrative fees, document review ‘views,’ document download fees, document execution fees, technology facilitation fees, etc.,” according to the lawsuit, filed on behalf of Johnathan R. and Darlene S. Thorne, who are in Chapter 13 bankruptcy proceedings. The suit contends the allegedly secret agreements constitute fee-splitting with non-lawyers, which is illegal, as well as the unauthorized practice of law. Ultimately, the borrower allegedly gets saddled with inflated fees, which gets charged back to their loans, according to the lawsuit. The model used by firms such as Prommis and LPS, in which the outsourcer uses a network of attorneys who are paid a flat fee but who in turn receive fees from attorneys working foreclosure cases, has enabled such companies to generate “billions of dollars in fees since this system was implemented,” the complaint alleges. Kentucky lawsuit The second case involves a borrower in the Bourbon Circuit Court in Kentucky. In that case, William Stacy countersued Wells Fargo (WFC) in a foreclosure action, claiming that the bank did not own his mortgage note due to improper assignment. Stacy also names as defendants the law firm of Manley, Deas, Kochalski LLC, LPS and LPS Default Solutions. The case alleges that the mortgage assignment allowing Wells to foreclose was “a sham, a fabrication, a forgery and a fraud upon the court.” But buried in the lawsuit is the same allegations of illegal splitting of fees as in the Mississippi case, this time between Manley Deas, LPS and LPS Default. Its allegations are similar, as well, claiming that fees are disguised as other things and are ultimately charged back to the borrowers. The Wooten Law Firm in Auburn, Ala., is listed as “of counsel” to the plaintiffs in both cases, with a post office box listed as a mailing address on both legal filings. Nick Wooten owns the firm, which has operated since 1998, according to Wooten’s LinkedIn page. The firm focuses on wrongful foreclosure and predatory lending cases, and sources suggest to HousingWire that Wooten has been extremely active in filing motions to contest foreclosure actions within Alabama during the past year. Wooten told HousingWire that he keeps a low profile, doesn’t even have a firm website, but is fairly well-known among consumer lawyers for his work involving MERS, LPS and structured finance litigation. He does not currently have any similar class-action cases, he said. “There are a lot of depositions floating around that I have taken, and the folks in the industry are aware of what I’m doing,” Wooten said in an e-mail to HousingWire. “Barring something unforeseen, we expect these cases to move quickly,” he said, adding that he’s been gathering information on the cases for three years. According to lawyers and other legal experts that spoke with HousingWire on condition of anonymity, both legal cases take a so-called ‘shotgun approach’ to a lawsuit. “In both cases, an entire book of claims has been thrown up against a wall, in an effort to see if any of it sticks,” said one attorney experienced in class action lawsuits, who reviewed the cases and asked not to be identified. “Typically, this is done out of the hope that something survives past summary judgment, because if so, the borrower and their counsel will just have hit paydirt.” A summary judgment is a pretrial dismissal of claims. LPS declined comment on both lawsuits, saying that it has been served with neither and that, as a general rule, the company does not comment on pending litigation. Dick Volentine, corporate counsel for Prommis, was reached by e-mail late Tuesday. Volentine said he was familiar with the lawsuit in Mississippi, but said Prommis has yet to be served. “I can’t comment on this litigation other than to say that we will vigorously defend ourselves against these claims,” he said. A voice message was also left with Ted Manley, a partner in the Manley Deas law firm. Old issue, new wrinkles The issue of fee-splitting isn’t new. It has arisen before, including in a 2008 Houston bankruptcy case involving Ernest and Mattie Harris. The couple said its loan servicer, Saxon Mortgage Services, never told the court it had hired Fidelity National Information Services as its agent. (LPS was spun off from Fidelity in 2008.) The borrowers claimed that Fidelity’s involvement resulted in higher legal fees. Fidelity steadfastly denied wrongdoing in that case, arguing that its business model created efficiencies that lowered costs for all. HousingWire magazine wrote about the case in its inaugural issue, in September 2008. While Fidelity/LPS prevailed in that case, an attorney familiar with the two new lawsuits said outsourcers may have a harder time defending themselves against such suits going forward. Part of the reason is a shift in courts’ view of the mortgage industry, as high-profile cases of abuse continue to hit the airwaves and newspapers. Courts are currently turning a more friendly ear toward consumers’ complaints about the way the industry operates, the attorney said. The Harris case, however, was dismissed by a Texas federal court in December 2008. Judge Lynn N. Hughes also barred the Harris’ from refiling similar claims against LPS at a later date. At the time, that case had been seen by industry insiders as a litmus test for the firm’s core business model. Write to Kerry Curry.