Ex-paralegal tells Florida AG of questionable practices at foreclosure law firm
A former paralegal told investigators that the Florida-based foreclosure law firm of David J. Stern — under investigation by the state's attorney general — allegedly forges signatures, backdates documents, inflates fees, passes around notary stamps and performs shoddy legal work. The allegations are part of a sworn statement taken by officials within the Florida Attorney General's office; the AG's office released the testimony publicly late last week after receiving an open records request.
An attorney representing Stern's office told the Tampa Tribune on Friday that the former employee's statement isn't true, and expressed dismay about its circulation on several blogs last week.
Jeffrey Tew, a lawyer representing Stern, told the newspaper that he first learned about the statement Thursday, when it was picked up on attorneys' blogs. HousingWire obtained the statement on Thursday, and held it while it made multiple attempts to reach the firm for comment.
"It's terribly unfair to circulate these allegations on the Internet," Tew told the newspaper. He also spoke to Bloomberg BusinessWeek and characterized the allegations as a "one-sided statement from a disgruntled employee."
"I'm a little astounded that the attorney general would proceed this way," he added. "It's not fair that we were not aware of this statement and not given the right to question this statement."
According to the statement, the firm's foreclosure work allegedly relies on an expansive secret firm "bible" with the gospel on foreclosure friendly judges who will quickly sign off on uncontested foreclosure cases.
If true, the allegations, set out in a 92-page sworn statement taken by Florida Attorney General Bill McCollum's office on Sept. 22, leave a damning impression of the default services arena — an industry already under intense scrutiny as big national lenders have admitted to potential problems in the accuracy of their foreclosure documents.
In the latest move in what is now being called the robo-signing controversy, Bank of America on Friday suspended foreclosures in all 50 states. The scandal has taken its name from employees in the mortgage industry who have admitted to signing thousands of documents while claiming to have knowledge of what was in the documents, when they did not. Now, some say the crisis is reaching critical mass for the housing industry and the debate is heated about its effect upon banks and borrowers alike.
The sworn statement comes from a woman who was fired from the David J. Stern law firm after slightly more than a year there, about two weeks after she says she refused to do military-related foreclosure searches in a manner she felt was unethical.
Florida AG McCollum is investigating Stern and at least two other Florida law offices in the state over their foreclosure practices. Stern's firm and another have sought to quash the AG's subpoena in the case, according to the Miami Herald. Late last week, another firm that the AG has been investigating, Shapiro & Fishman, was successful in quashing the AG's subpoena. A hearing on the Stern case is set for Oct. 12.
Among the allegations in the sworn statement:
- Notary stamps that were passed around the office and used by people who were not notaries.
- Claims of proper service of foreclosure papers when in fact service was never performed.
- Falsifying and backdating documents to pass audits from Fannie Mae officials.
- The signing of assignments of mortgages without reading them, without a notary present and via forged signatures.
- Inflation of attorneys' fees.
- Misuse of Social Security numbers in military searches.
- Failure to update affidavits of indebtness, resulting in incorrect documents being filed with the court.
- Signature pages on sworn affidavits that were photocopied from one file and added to other documents if a notarized signature didn't come back from a bank in a timely fashion.
- The identification of a particular person who was signing off on as many as 2,000 foreclosure cases per day with no idea what was being signed off on.
The law firm's primary office is based in Plantation, a suburb of Fort Lauderdale. Stern is the sole shareholder at the law firm, which does legal work for the publicly traded DJSP Enterprises, Inc. (DJSP), where Stern is listed as the CEO and chairman.
Consumer-rights attorneys have alleged that law firms like Stern's are "document mills" that are running roughshod over desperate borrowers caught up in the nation's foreclosure crisis. The legal practices of firms in this field are expected to come under increasingly harsh scrutiny as the nation's robo-signing controversy has spread.
Florida is at ground-zero in the crisis, ranking No. 2, only behind Nevada in its foreclosure rate. One in every 155 Florida housing units received a foreclosure filing in August — 2.5 times the national average, according to RealtyTrac, an online foreclosure data source and marketplace. Nearly 57,000 property owners received a foreclosure filing in August, according to RealtyTrac.
In a September story in The New York Times about the AG's investigation, Stern said there had been no submission of fraudulent documents from his firm.
"We have done nothing wrong and are going to cooperate fully [with the investigation],” he told the NYT at the time.
Notary stamps, Fannie audits
According to the allegations in the sworn statement, the firm commonly passed around notary stamps for usage by people who were not certified as notaries. "As far as notaries go in the firm, I don't think any notary actually used their own notary stamp," the witness said, adding that her work team had notary stamps that she and others would use. Other people on the work team would sign the signature of the notary, allegedly, while witnesses regularly signed notarized documents without the notary in sight. Two other employees of Stern's operation also would regularly falsify the signature of a woman in the firm who was authorized to sign the documents, the testimony alleges.
In reference to the Fannie Mae audits, the GSEs' required procedure is to have all assignments of mortgage (which spell out who owns the note) prepared and recorded before filing a motions with the court to begin foreclosure proceedings. According to the testimony, the law firm would regularly begin foreclosures and then do the other paperwork later, often backdating the assignments to have them match Fannie Mae requirements.
"Assignments would be back-dated to say yes that's what it was. (Fannie) would come in and audit and we'd have to give them chronological … we're just typing what they want to see," the former employee alleged.
In a question about whether Fannie knew that what was being reported to them was different from what was actually happening, the witness said she did not know. Fannie officials could not be reached for comment.
In addition, when calls would come in from borrowers saying the bank name on the foreclosure notice was incorrect, a higher-up would allegedly instruct office staff to proceed anyway.
"(My manager) would say, well it doesn't matter because the bank is buying it back and it's going back to Fannie Mae anyway so who cares," according to the sworn statement.
Stern was named Fannie Mae's attorney of the year in 1998 and 1999, according to DJSP's website. He was the subject of a Florida State Bar disciplinary action in October 2002, and 11 complaints have been filed against him over the past 12 months, according to the bar.
Write to Kerry Curry.