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David J. Stern launches legal battle against nation's biggest mortgage servicers

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[[Update 1: Adds comment on May 18 from the CEO of DJSP Enterprises]] Foreclosure king no more, David J. Stern is fighting back against former clients whose business once elevated him to one of the richest and most well-known default services lawyers in the country. The fight is taking place largely in state and federal courtrooms via 25 lawsuits where Stern alleges that the biggest names in the mortgage industry owe him more than $34 million in unpaid invoices. The fight includes at least two major mediation cases, as well. Bank of America (BAC) and its servicing arm, BAC Home Loans Servicing LP, owe a combined $10.7 million, the lawsuits, all filed in South Florida courtrooms, allege. Aurora Loan Services allegedly owes Stern more than $5.3 million, and Citigroup (C) clocks in at more than $4.4 million, the lawsuits allege. Stern, the sole partner of the Law Offices of David J. Stern, also sued Freddie Mac, alleging the government-sponsored enterprise owes the law firm more than $1.3 million. It would have sued Fannie Mae, too, but the GSE beat Stern to the punch by filing an arbitration case seeking damages. Stern filed a counterclaim in that case alleging that Fannie owes his firm $800,000. Bank of America and Freddie Mac declined comment for this story. Fannie Mae issued a statement to HousingWire confirming that it has initiated an arbitration case against the Stern firm, but declined to answer questions. "We have the right and responsibility to protect the interest of Fannie Mae and taxpayers," a Fannie Mae spokesperson said in the statement. Several attorneys for mortgage servicers who were sued said they needed to check with their clients before commenting on the litigation. But at least one has fired back at the courthouse. Nationstar Mortgage — which Stern alleges owes the firm $386,175 — denied the allegations in court documents and alleged that Stern's claims are barred because the invoices attached to the complaint are "incorrect as to both amount and entitlement." Nationstar also filed a counterclaim accusing the firm of legal malpractice. It said it notified Stern by email on Nov. 12, 2010, of its decision to remove all its cases and got no response. On Dec. 3, 2010, it said it sent an email to Stern's counsel about the handling of Nationstar's cases and also got no reply. Then on Dec. 9, 2010, it asked for an invoice on work performed and was met with silence, according to court records. Finally, on Dec. 15, 2010, Nationstar directed the Stern firm to transfer all of its cases to its substitute counsel. Stern's counsel responded five days later by saying it would retain the files until all invoices were paid, according to court documents. Nationstar also alleged in its court filings that any claims against it are barred because of the removal of the Law Offices of David J. Stern from the list of law firms approved by Fannie Mae and Freddie Mac. The fall of the firm The fall of the Law Offices of David J. Stern began when four large Florida default services law firms — derisively called foreclosure mills by consumer advocates — became the target of then Florida Attorney General Bill McCollum for alleged sloppy foreclosure practices. Besides Stern, McCollum targeted Shapiro & Fishman, Florida Default Law Group and the Law Offices of Marshall C. Watson for alleged improprieties in the handling of foreclosure cases in Florida. By October and November, some of the nation's largest servicers, along with Fannie Mae and Freddie Mac, began began pulling their foreclosure cases from Stern's law firm. The rapid downfall came amid a national scandal in the mortgage servicing sector, dubbed robo-signing, where employees at foreclosure law firms were accused of signing foreclosure affidavits and other legal documents en masse with no knowledge of the validity of the claims in those documents. "When the banks and servicers withdrew their files in November 2010, they refused to pay the outstanding invoices," said Stern's attorney, Jeffrey Tew, partner in the Miami law firm of Tew & Cardenas LLP. At that time, Stern's firm — which then employed 1,400 people — was the ninth largest employer in the Fort Lauderdale metro area, and the largest default services law firm in all of Florida, Tew claims. Today the firm employs just six attorneys and no support staff. The staff will decline further in June, Tew said, declining to give further details. He singles out McCollum, who was running for governor at the time the foreclosure investigation was launched, for an extra dose of criticism, noting that the now former AG's subpoena against Shapiro & Fishman was recently quashed. "After all the whooping and hollering … turns out they didn't have legal justification," Tew said. He declined to comment on the Stern subpoena, which was also appealed, because the case is still pending. In the Shapiro case, a trial court judge ruled McCollum used the "wrong tool" by relying on the Florida Deceptive and Unfair Trade Practices as the basis for his investigation. On appeal, the 4th District Court of Appeal upheld the ruling. Stern's whereabouts and holdings Hushed gossip that Stern fled the United States to avoid civil lawsuits and potential criminal charges proliferated in the months after the firm began to implode. Not true, contends Tew, who says Stern can be seen regularly in his courtside seats at the Miami Heat basketball games. Then came a report — completely false, claims Stern's attorney — that he'd put one of his multimillion-dollar yachts on the sales block. Advocates for the thousands of homeowners who have lost their homes to foreclosure at the hands of the firm began to snicker, suggesting that Stern himself might soon receive his comeuppance. The erroneous media report on the yacht sale came about because the Italian firm that made the custom yacht asked him to loan it out for a boat show, which he did, Tew said. Tew confirmed, however, that Stern has residences in Colorado and South Florida currently listed for sale but contends the homes were listed prior to problems at the firm. Stern remains a resident of Fort Lauderdale where he lives with his spouse and children, Tew said. The fate of DJSP Enterprises In early 2010, Stern spun his back-office processing operations into DJSP Enterprises, which was a publicly traded company on the NASDAQ until being delisted in March. Stern netted about $58 million from that transaction, according to regulatory filings. Just recently, a DJSP Enterprises' subsidiary that provided REO property disposition agreed to terminate its relationship with its sole business customer, according to a regulatory filing last week. The latest filing is a sign of more trouble for the foreclosure processing arm of the Law Offices of David J. Stern. DJSP said it didn't expect to get any additional business from the Plantation, Fla.-based law firm. Stern was the only major client of DJSP, a foreclosure servicer with processing and title affiliates. Whether DJSP is on the verge of closure is unclear.  Stern resigned as the chairman of DJSP last fall as the investigation of his law firm heated up. If regulatory filings are any indication though, DJSP's future is certainly in doubt. The firm has also been the target of  lawsuits, including one from former employees who claim they didn't receive proper notice before mass layoffs ensued. It's a case that Tew has vowed to fight, alleging that the Stern firm never should have been named as a defendant in the case. In its latest regulatory filing, DJSP said its subsidiary Default Servicing LLC entered into a termination agreement with its sole customer, which was not identified. President and CEO Stephen Bernstein said in a voice mail that the customer was a third party not affiliated with DJSP. "Pursuant to the agreement, DS LLC will continue to provide services to the customer on certain REO properties owned by the customer through Sept. 30, 2011, and, in the case of certain REO properties currently on hold pursuant to the customer’s self-imposed suspension, for certain periods beyond that date." As for the Stern law firm, it ceased handling foreclosure cases March 31 as its troubles mounted. It has never clarified whether it would remain open for other legal work. "Right now we are focusing on collecting the money on what is owed to the law firm," Tew told HousingWire, when asked about the firm's future. "I haven't talked to David on what he wants to do going forward." Write to Kerry Curry. Follow her on Twitter @communicatorKLC.

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