Key facts
- Default servicing issues often occur at the handoffs between mortgage investors, servicers, and law firms.
- ICE reported 38,600 foreclosure starts in July 2026, up 23% year-over-year.
- Active foreclosure inventory rose 43% and completed sales increased 14% in July 2026.
- O.L.A.F.'s analysis of over 160,000 invoice submissions found expected collections of 99.43% after write-offs.
- Law firms experience denied fees, servicers see unresolved exceptions, and investors lose visibility due to these breakdowns.
- O.L.A.F. offers a framework to audit five default servicing handoffs: referral to assignment, action to documentation, documentation to billing, submission to resolution, and reporting to escalation.
Default servicing operations are prone to failure not in a single event, but through a series of breakdowns at the handoffs between different parties involved, according to an analysis by O.L.A.F. These breakdowns occur when strategies are not clearly translated, documentation is incomplete, or ownership is unclear, leading to missed milestones and financial losses.
ICE reported a significant increase in foreclosure activity in July 2026, with 38,600 foreclosure starts, a 23% year-over-year rise. Active foreclosure inventory also saw a substantial jump of 43%, and completed sales increased by 14%. This surge in activity pushes more files through complex systems, requiring clear ownership, documentation, and deadlines at each stage.
O.L.A.F.'s review of over 160,000 invoice-submission events across two multiyear engagements found that while expected collections are high, the process is vulnerable. Over a five-year period, expected collections were 99.30%, with proposed write-offs at 0.70%. A subsequent four-year review showed expected collections at 99.71% and proposed write-offs at 0.29%. Combined, O.L.A.F.'s analysis indicates expected collections of 99.43% after all identified write-offs. This figure is notably higher than the 93% average reported in Clio’s 2025 report, which counts received payments, whereas O.L.A.F.'s estimate includes approved but not yet received amounts.
The report emphasizes that these breakdowns manifest as denied fees for law firms, unresolved exceptions for servicers, and a loss of visibility for mortgage investors regarding timelines, advances, and legal strategies. O.L.A.F. proposes a practical framework to audit the five key default servicing handoffs: referral to assignment, action to documentation, documentation to billing, submission to resolution, and reporting to escalation. Each handoff should have a named owner, defined information transfer, a deadline, escalation triggers, and a feedback loop for resolution.
O.L.A.F. offers advisory, shared staffing, and consulting services to address these operational risks. Vice President Michael Messick, Director of Billing Operations Sindy Garcia, and Client Relations Liaison Madison Luckhaupt-Wenker lead teams with expertise in servicing oversight, law firm billing, and client support. The firm's approach focuses on turning downstream evidence of breakdowns, such as denial trends and aging patterns, into upstream controls that can change workflows and prevent future disputes.