'Foreclosure Mill' Law Firms Cash in Big on Homeowner Woes

Who loves a depressed real estate market? A certain shady brand of law firm, that's who.

As countless Americans suffered the sting of mortgage foreclosure, the obscure Amherst, N.Y., law firm of Steven J. Baum, P.C., made millions in fees from the some of the nation's largest banks. Known as one of a handful of regional "foreclosure mills," nicknamed for their voluminous, repetitive transactions, Baum processed 12,551 lawsuits in New York City and its suburbs in 2009 -- nearly 48 per day.

According to the New York Post, the suburban Buffalo firm's business practices are now being scrutinized, thanks to a governmental legal action taken by the U.S. Trustee in Manhattan against JP Morgan Chase Bank, which retained Baum to process thousands of foreclosures, sometimes erroneously. In the worst cases, the complaint alleges, the firm filed blatantly false evidence to courts in an effort to hasten foreclosures.Nationally, foreclosure filings have averaged around 300,000 per month over the last year, according RealtyTrac. Law firms, in addition to Baum, accused at one time or another of acting as foreclosure mills include Barrett Burke in Houston; Florida Default Group in Tampa; and John D. Clunk Co. LPA, in Hudson, Ohio. States such as Nevada and Florida, which report the highest numbers of foreclosures, are a breeding ground for such firms.

Typically, foreclosure mills use lower-paid paralegals and support staff to handle the details on the large volume of foreclosures they process. One firm employed in Florida employed 6 to 10 paralegals and other employees for each attorney, creating an assembly line of teams to handle title documents, prepare the suit, and deliver documents, among other tasks, according to the Tampa Tribune. With attorney fees from $650 to $1,200 per filing, some real estate attorneys claim these firms must focus on volume just to make a profit. But do the math: 12,551 lawsuits multiplied by $1,200 equals enough millions to keep an upstate law firm fat and happy.

So-called foreclosure mills have existed for decades, at least as long as the practice of pooling home loans into securities. But in periods of increased foreclosures, the complicated structure of these securities makes it difficult for borrowers who are no longer able to make payments to renegotiate terms, since it is often hard to identify who holds the mortgage notes. Foreclosure mills prey on this chaotic, rapidly moving environment, attempting to hasten foreclosures rather than negotiate refinancing with borrowers' lawyers, a drawn-out procedure that slows down the production line.

In November 2007, a federal judge in Ohio dismissed 14 foreclosure cases brought by Deutsche Bank National Trust Company. Deutsche, which was trustee of a pool of mortgage-backed securities, claimed ownership of mortgages without any proof other than documents showing an intent to convey the loans. Judge Christopher A, Boyko of Federal District Court in Cleveland wrote, "The institutions seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliances. Finally put to the test, their weak legal arguments compel the court to stop them at the gate."

The specific complaints against Steven J. Baum, P.C., in Buffalo include filing a claim that a borrower in White Plains, N.Y., was behind in her payments, after ignoring receipts proving the payments had been credited to the borrower's account. Other accusations allege falsely notarized legal documents and foreclosure filings riddled with "a number of glaring discrepancies and unexplained issues of substance," according to a Suffolk County, N.Y., judge who investigated another filing.

Baum, run by the 41-year-old heir to his father's law practice, has around 500 employees and also owns a legal-document processing company. The firm has worked for many of the nation's best-known mortgage lenders, among them Bank of America, Chase, Wells Fargo, HSBC, US Bank, GMAC Mortgage, Deutsche Bank, Sovereign Bank, Citibank, OneWest, M&T Bank, and Bank of New York Mellon.

The U.S. Trustee, part of the Department of Justice, is requesting punitive fines for banks that do business with Baum.

While the law firm has not been found to have committed fraud, it has not been given any awards by the local chamber of commerce, either.
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