The Fall of Florida's 'Foreclosure King' Will Create Huge Waves
David J. Stern of the eponymous Florida law firm has seen better days. Once known as the "foreclosure king," Stern was high-flying enough to buy his employees houses and cars, while snapping up several multimillion dollar homes for himself. Now his company's stock (DJSP) trades for pennies and faces delisting; his firm faces multiple lawsuits and an ongoing investigation by the Florida attorney general's office; and his companies have lost major clients and shed hundreds of employees.
The Florida AG's investigation also includes ProVest, a firm that tells homeowners they're being foreclosed on and Stern used so heavily that it shared office space with his company. According to at least one former Stern employee, problems with giving homeowners notice of the foreclosure were rampant, and related documents were falsified.
The most recent bad news for Stern includes a Florida appellate court just ruling that one of the lawsuits against his firm can continue as a class action. That suit claims Stern told homeowners hoping to avoid foreclosure to pay inflated and improper fees, including for ProVest's serving notice of the foreclosure. A call to the firm requesting comment wasn't returned by publication time.
Orphaned Cases
Other than delivering the joys of Schadenfreude, Stern's fall is newsworthy because of its impact on pending Florida foreclosures and what the firm's underlying conduct means for the future of the state's real estate market. As Kimberly Miller of the Palm Beach Post reported, the massive downsizing at Stern has led to many functionally orphaned cases, as thousands of foreclosures once brought by Stern are no longer handled by the firm. A Florida foreclosure defense blog describes the results this way:
"At its peak [Stern's] firm was handling more than 70,000 foreclosure cases and now that it no longer handles many of those cases, no one is showing up for the hearings from the lenders. Some foreclosure defense lawyers are having trouble setting hearings or even finding someone from the other side to even speak to about the cases! In those instances where other law firms have picked up Stern's old cases the firms are typically asking for continuances so that they can get up to speed, further delaying the foreclosure process."
Of course, the allegations about what went on at Stern's firm made in sworn statements by former employees are so grotesque that it's no wonder the firms that take over the files need extra time to sort things out.
One other consequence of Stern's fall that Miller reported: The banks aren't bidding on their properties at the foreclosure sales, leading to properties at least temporarily selling for as little as $200. Temporarily, because Stern's failure to represent the banks extended to failing to give proper public notice of the sales.
Why Not Do Things Right the First Time?
Given that Florida is also investigating three other "foreclosure mills" in the state, it's hard to imagine that Stern's firm will be the only one to get slammed. If that's so, it's hard to see the end of the Florida foreclosure mess. The practices at the Stern firm, like the robo-signing scandal nationwide, are proving to be classic examples of pennywise, pound foolish measures.
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When all the dust settles, years from now, it's impossible to imagine that the final tally for straightening out all the consequences of the banks' and their attorneys' disregard for the rules will be cheaper than just having done things right in the first place. Of course, that's hindsight talking, and just a short while ago, things looked very different.
For example, when Louis Silber filed the 2007 class action that was recently given a green light by a Florida appeals court, Stern's firm was such a foreclosure juggernaut that Silber explained to the Palm Beach Post: "People told me you will never get anywhere, this is the way it's done, who are you trying to fool."
