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Foreclosure attorney David J. Stern sidesteps Fannie arbitration, GSE alleges

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An arbitrator — not the courts — should decide what, if anything, is owed to former foreclosure attorney David J. Stern, the government-sponsored enterprise Fannie Mae alleges in court filings. The Law Offices of David J. Stern filed more than 25 lawsuits against servicers in recent months alleging they owe the law firm more than $34 million in unpaid invoices. On Monday, it filed its latest case, a suit against Lender Processing Services (LPS), a firm that provides mortgage processing and technology services. Fannie filed motions to intervene in several of the lawsuits that involve Fannie Mae servicers. It asked the courts to stay the proceedings pending the outcome of an arbitration case between it and the Stern law firm. The lawsuits were filed after Fannie, Freddie Mac and the nation's largest mortgage servicers unceremoniously dumped the firm last fall in the midst of an attorney's general investigation into foreclosure practices at several Florida default services firms and a national scandal over robo-signing of foreclosure affidavits. Since then, the Florida AG's investigation began to unravel and the robo-signing controversy faded, but not before Stern's firm was decimated, declining from a high of 1,400 employees last summer to just six attorneys today, according to the attorney representing Stern in his court battles against servicers. "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, during an interview with HousingWire last week. In a followup interview about Fannie Mae's allegations, Tew said the firm opposes Fannie's attempts to intervene and stay cases involving the GSE's servicers. "The Stern law firm has opposed Fannie's motion on the grounds that Fannie isn't legally entitled to intervene or to stay the court action," Tew told HousingWire. Tew has filed motions to that effect as well. "Fannie Mae argues that, somehow, this lawsuit 'interferes with Fannie Mae’s right to arbitrate its claims,' and that Fannie Mae therefore has a significant interest in this lawsuit and satisfies the criteria for intervention. As of the date of the filing of this response, however, this lawsuit has not, in any way, interfered with Fannie Mae’s right to arbitrate its claims," a motion filed May 6 in the Nationstar Mortgage case alleges. "The arbitration is proceeding without interruption." Fannie claims that Stern shouldn't be allowed to use the courts "to evade its agreement to arbitrate." It made those allegations in a motion to intervene in a case against IBM Lender Business Process Services. Fannie retained the Law Offices of David J. Stern in some 24,000 foreclosure cases in Florida.  About 45 servicers were servicing Fannie Mae cases through the Stern firm, court documents indicate. Fannie's written agreement with the firm required the firm the arbitrate any disputes, according to court filings in the cases. "The arbitration proceeding will determine whether the Stern firm's services complied with applicable law and professional standards and what, if anything, the Stern firm is owed as a result of the damages that Fannie Mae has suffered — and will continue to suffer — from the Stern firm's conduct," Fannie's motion to intervene in the LBPS case said.  "The Stern firm is filing lawsuits — such as this one — against Fannie Mae's servicers involving the exact amounts at issue in the arbitration." Fannie also noted that its servicing guide required servicers to retain a firm listed in Fannie's "retained attorney network" so when Fannie dropped the firm from the network, the servicers also had to drop the firm. Under the agreement, attorneys in the network bill the servicers who then seek reimbursement from Fannie. Under the agreement with Stern, Fannie reserved the right to review and audit any invoices, even after payment. Fannie also noted that its servicers might be inclined to pursue "a quick settlement" with the Stern firm, which might not be in the best interest of Fannie. Servicers, it claims, will have no knowledge of the arbitration case, which is private, but they know that they have a contractual right to seek reimbursement from Fannie for money paid to the Stern firm, Fannie noted. "As such, (servicers) may be less interested than Fannie Mae in pursuing the forensic accounting to determine the damages cause by the Stern firm's conduct," Fannie said in court documents. In a statement to HousingWire, Fannie said it has "the right and responsibility to protect the interest of Fannie Mae and taxpayers." Write to Kerry Curry. Follow her on Twitter @communicatorKLC.

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