It was a terrific time to be a foreclosure king during the housing crash. David Stern was the leading foreclosure attorney in Florida, and he lived like an oil tycoon. He amassed a magnificent property portfolio, cruised through town in a fleet of six-figure sports vehicles, and partied aboard an ocean cruiser the size of a small hotel with his bombshell wife. When homeowners defaulted on their mortgages, banks rushed to “foreclosure mills” like Stern’s to expedite their foreclosures through the courts. Stern was the ultimate Repo Man to his megabank clients, including Bank of America, Goldman Sachs, GMAC, Citibank, and Wells Fargo.
Stern’s fortunes improved while the situation for homeowners deteriorated.
When the nation’s foreclosure machine collapsed, bringing Stern’s opulent life crashing down around him. Stern went from being the focus of a glowing magazine story to the target of a Florida probe, class-action lawsuits, and blogger Schadenfreude that the “foreclosure king” had finally died.
The Florida attorney general’s economic crimes division is investigating allegations that three law firms, including Stern’s, created fraudulent legal documents, overcharged homeowners, steered business to companies they owned, and filed foreclosures without proving the bank had a legal interest in the loan. Florida officials describe the foreclosure procedure at these law firms as a “virtual labyrinth” of “false documents,” and Stern’s activities are compared to the TV show “Lost,” but with paperwork instead of people going missing. According to employee testimony, Stern’s staff churned out false mortgage assignments, fabricated signatures, falsified notarizations, and foreclosed on people without confirming their names, the amounts owing, or who held their loans. The attorney general is also investigating Stern’s payment of kickbacks to big banks.
Stern launched his practice in Fort Lauderdale in 1994 after working at a law firm for mortgage lenders. Stern was named to the elite attorney network of the mortgage giant Fannie Mae, a government-backed entity that provides market stability for mortgage lenders four years later. As a result, Fannie Mae and Freddie Mac instructed banks to employ Stern’s firm when foreclosing in Florida. In 1998 and 1999, Fannie was chosen Stern Attorney of the Year. Employees from that era recall a workplace that wanted to get together and have fun. Stern liked to get dressed up for his business parties. He once strutted onto the stage dressed like Michael Jackson.
Stern had problems almost from the start. He was named in a class-action lawsuit in 1998, alleging that he overcharged foreclosed homeowners. Stern agreed to a $2.2 million settlement. Fannie Mae was notified about problems at the Stern company, according to court testimony at the time from a Fannie Mae officer. Fannie, on the other hand, continued to refer cases to Stern.
But all of Stern’s firm’s documentation, which had helped him create this money, would eventually come back to haunt him. The foreclosure industry is a volume business. For each successful foreclosure, banks often pay law firms like Stern’s $1,400. However, if the firm does not successfully foreclose within a particular time window, usually about six months, the banks can pay a lot less.
Stern’s biggest win came in early 2010. He took a portion of his company, DJSP, public, which provided mortgage process services such as title searches and lien monitoring. Stern has made $146 million from the purchase, including $55 million in cash.
At the end of July, Florida attorney Kenneth Trent, who had prevented Stern from foreclosing on a homeowner who was current on his mortgage, filed a federal lawsuit against Stern’s firm under the Racketeer Influenced and Corrupt Organizations Act—or RICO—which is usually reserved for criminals. The Florida attorney general initiated an investigation into Stern’s company and three other foreclosure mills a few days later. The points made by the AG were identical to those made in Kent’s class action.
Stern first railed against the media, claiming that he would defend the corporation and its reputation in the face of the charges. Then, in September, he vanished from view. In October, the megabanks began withdrawing their cases from Stern’s business one by one. Fannie dismissed Stern on October 22. Stern’s 1,200-person staff has shrunk to 200. DJSP’s stock, which was once worth $13 in April, is now worth cents.
The firm’s collapse has wreaked even more havoc in Florida’s circus-like foreclosure courts. Stern foreclosed on a series of residences that sold for $240,000 each during the credit bubble and sold as orphaned cases for $200 at auction. Even Lee County’s fabled “rocket docket,” where judges were reportedly signing off on a foreclosure every 30 seconds, came to a halt recently as the Stern company withdrew from the case after case. Stern’s surviving attorneys appear in court with greasy hair, fleece coats, and food-stained clothing. On the other hand, Stern might face prison if federal and state authorities press criminal charges against him. Stern’s payment on his $12 million Bank of America line of credit is also late. His headquarters’ rent is also on the rise.
He’s in default now.
Mortgage servicers, including divisions of big banks like Bank of America Corp., have been accused of submitting fake paperwork in thousands of foreclosure processes around the country.
Stern is the foreclosure king in Florida, where he runs a major legal office and a foreclosure processing company, and other support businesses that he recently sold. His Plantation, Fla., business is the largest of three under investigation by state Attorney General Bill McCollum for allegedly filing fraudulent documents with courts to speed up the overburdened foreclosure process.
Poster Boy for the Foreclosure Industry
According to his defenders, Stern is a diligent worker who has made large legal profits defending banks and financial services in lawsuits against tens of thousands of delinquent debtors. The paralegal, who worked for Stern for just over a year, detailed an office where notarized document signatures were routinely faked, legal paperwork was routinely outsourced to Guam and the Philippines, and yelling bouts erupted when cases stagnated.
The allegations, made in a sworn declaration filed late last month by the Florida attorney general, come amid growing national outrage over the techniques employed to evict families from their homes.
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