Foreclosure Mess Draws in the Lawyers Who Handled Them

October 15, 2010
By BARRY MEIER

With the rash of foreclosures across the country in recent years, many lawyers have specialized in the lucrative business of handling cases for banks and loan servicers. And now that flaws are being acknowledged by big lenders in the processing of foreclosures, some of these lawyers are finding themselves in the cross hairs of investigators — and scorned by their former clients.

Consider the case of David J. Stern, a lawyer in Plantation, Fla., whose firm handled an estimated 20 percent of foreclosure-related proceedings in Florida, one of the states hit hardest by the housing crisis.

Mr. Stern is under investigation by the Florida attorney general and is a defendant in several lawsuits brought by homeowners. And in recent days, lenders and mortgage holding companies that had used Mr. Stern’s services, including Citigroup and GMAC Mortgage, said they would no longer do so.

Mr. Stern has not been charged with any wrongdoing and a lawyer representing him, Jeffrey Tew, said that he had done nothing wrong. But a former employee recently testified that Mr. Stern’s firm, in a rush to file and complete thousands of foreclosures, routinely violated procedures by having foreclosure-related documents notarized that were never checked for accuracy — all with the lawyer’s knowledge.

“Everything was about getting the judgment entered because we had to report back to the banks,” the former employee, Tammie Lou Kapusta, testified in a deposition last month given to the Florida attorney general, Bill McCollum.

Along with Mr. Stern, other lawyers affiliated with so-called foreclosure mills — the processing centers run by law firms — are coming under scrutiny. In addition, recent lawsuits filed in Mississippi and Kentucky have charged that lawyers handling foreclosures entered into illegal fee-splitting arrangements with two publicly traded companies involved in mortgage-related services, Lender Processing Services and Prommis Solutions. Officials of both companies deny the accusations.

In a lawsuit filed in Federal District Court in Manhattan, a major foreclosure lawyer in New York, Steven J. Baum, was recently accused by a homeowner of filing fictitious and false documents in foreclosure-related proceedings. Mr. Baum, whose firm is located in Amherst, a suburb of Buffalo, has come under repeated criticism by state judges for his practices.

Mr. Baum did not respond to a telephone call seeking comment. A spokesman, Earl V. Wells III, stated in an e-mail that Mr. Baum’s firm followed “the rules and regulations regarding the various processes involved in a foreclosure proceeding” and that it took “the utmost care” to do so.

Lawyers who knowingly file fraudulent documents or fail to properly oversee subordinates involved in the preparation of such records can face criminal charges or professional sanctions ranging from disbarment to suspension, said Raymond H. Brescia, a professor at Albany Law School in New York State.

The current furor over the submission of fraudulent or improperly signed foreclosure-related filings was ignited in September when GMAC Mortgage, now a part of Ally Financial, acknowledged that it had submitted inaccurate documents. The nationwide investigation announced this week by the country’s 50 attorneys general is expected to focus in part on the role of lawyers in the submission of allegedly fraudulent mortgage records signed by robo-signers.

But there have been other instances in recent years in which lawyers have been accused of submitting false, inaccurate or incomplete documents in foreclosure-related proceedings so as to churn through cases and collect fees.

Kathleen C. Engel, a professor at Suffolk University Law School in Boston, says she believes that banks have been long aware of such questionable legal practices but choose not to challenge them for fear of slowing the pace of foreclosures.

“Instead of putting their money into cleaning up their acts, they put the money into salaries and bonuses,” Ms. Engel said in a telephone interview.

Years ago, lawyers once handled and verified most of the paperwork involved in a foreclosure. But the advent of mortgage securitization a decade ago, financial experts say, gave rise to a parallel legal industry. In it, a law firm is paid a flat fee by loan servicers to handle a foreclosure, which is lucrative for lawyers who process a high volume of cases.

“This is a very profitable business model,” said O. Max Gardner III, a lawyer in Shelby, N.C., who defends homeowners in foreclosure proceedings. “You’ve got five lawyers and four hundred people without legal training working for them.”

In an interview last month, Mr. Stern, the Florida lawyer, accused Mr. McCollum, who is standing for re-election as attorney general, of political motives in opening the inquiry into his firm and others.

“I can’t speak for the other firms but I can assure you that there has not been submission of fraudulent documents,” Mr. Stern said.

According to the lawsuits filed this month against Lender Processing Services and Prommis Solutions, plaintiffs’ lawyers accused the companies of using various mechanisms to steer legal work to foreclosure mills, then splitting legal fees with the lawyers running those operations.

In many states, it is illegal or unethical for lawyers to split fees with nonlawyers. Both Lender Processing and Prommis essentially act as informational middlemen between mortgage servicers and law firms doing foreclosure work. Both have denied being involved in such practices.

11 Responses

  1. Very nice post. I simply stumbled upon your blog and wished to say that I’ve truly loved surfing around your blog posts. After all I’ll be subscribing to your rss feed and I hope you write again soon!

  2. YOU RIGHT gwen caranchini ! The whole system is rigged !!!!!!!

  3. @Rosetta,

    Isn’t GOD good girl. I just pray that I live to see the day they all go to jail or out of business one….Like I always say…GOD still sits on the throne

  4. Don’t you worry yourself, Fein, Such & Crane’s day is coming. So is Rosicki, Rosicki & Associates.
    Steven Baum is already getting his. Won’t be long now!! The best was saved for last. BELIEVE ME!!!

  5. Nice, now that I have all these forged documents, and I lost my house, what recourse do I have? Now that I am broke how do I get it back without going to jail for killing these pricks.

  6. been fighting wells fargo. They have counsel in bankruptcy and a seperate firm in adversary. They have stepped on a rake and submitted two diferent notes. One is endorsed to wells fargo the other is blank, comments or suggestions

  7. In Mass. the known’s are Harmon Law ,Albit Law, and Stanton and Davis may have some legal issues. All have conducted fraudulent documents and carried out illegal forclouser acts. I am sure there are more but we need to file suit agaisnt each and every enitity that has touched any part of “the process” from it’s inception. The list is very long when you think about it.

  8. RIGHT ON !!!!!!! gwen caranchini RIGHT ON.

  9. THANK YOU GOD!!! AND GOD BE TO GLORY!!! IT’S NOT ONLY STEVEN J. BAUM IN NEW YORK THAT SHOULD BE CHARGED WITH FRAUD. IT’S ALSO ANOTHER LAW FIRM FEIN, SUCH & CRANE LLP LOCATED IN ROCHESTER, NY AND A LOCATION IN NEW JERSEY THAT STEVEN J. BAUM IS IN COLLUSION WITH…..THEY ARE ALL A BUNCH OF LOW LIFE CROOKS WITH NO MORALS. BUT ONE THING THEY FORGET IS THAT THE GOD I SERVE STILL SITS ON THE THRONE….AMEN

  10. If anything can be done about the attorneys involved with the fraudulent documents, Litton Loan Servicing needs to get into the spotlight. Although they may not have churned thru the same quantity of foreclosures as the places like DOCX and LPS, Litton Loan has certain signers and certain notary signatures that very a great deal. Also, I question the signatures that I am aware of that show Debra Lyman, who is a Litton ATTORNEY, with signatures that very substantially on assignments of the Deed of Trust.

    BTW, one assignment Lyman signed would put a loan that is LONG in default INTO a POOL which I have to presume was following REMIC requirements. This loan is almost 5 years beyond the date it should have been in the pool for either the PSA or the REMIC requirements. The assignment is dated in 2010 and filed with the county.

    I would think the investors in the CWABS pool would be able to use this as proof that the Trustee had not acted in accordance with the PSA. Under NORMAL circumstances, who would accept a loan that is in default without a large discount? (We all know there area reasons these pools have been manipulated, so we do not have ‘normal’ circumstances.)

  11. Nothing new here–did any of you read the 1700 page opinion on the tobacco companies from a judge on the East coast???? Shook Hardy & Bacon, the biggest tobacco defendr lawsuit who has its offices in KCMO, had almost 30 pages devoted to its “practices”. Did anything happen to it? No. Did any lawyer get invesigated? No. Did any lawyer get sanctioned? No. Did any lawyer loose his/her license? No. I will bet nothing will happen to these folks–it never does. Its only the sole practitioer representing the little guy who gets hurt. Witness what happen to the civil rights lawyers in the 80’s after Rule 11–they got beatup, sanctioned, runout of business and disbarred. And most of those folks were women lawyers! See Third Circuit Study of 1989-1991. I’d like t think something will happen, but I think they have the money to get out of it.

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