You could call him the foreclosure king of Florida.
As lawyer for several major banks, David J. Stern handles 20 percent of all foreclosure cases in the nation's fourth most populous state. It is from Stern's law firm that well over 100,000 Floridians, including many in the Tampa Bay area, have received the dreaded notice to pay up or face losing their homes.
The foreclosure business has been good to Stern, who lives in a $15 million Fort Lauderdale mansion and reaped $58.5 million by selling his back-office operations to a new public company in which he is a major shareholder.
But as his case load has grown, so have the controversies.
This spring, a Pasco County judge threw out a foreclosure case against a Wesley Chapel man after ruling that Stern's firm had submitted a clearly fraudulent document.
In South Florida, a foreclosure defense lawyer discovered more than 20 mortgage documents submitted by Stern's firm that bore notary seals that did not exist at the time the documents supposedly were notarized.
The Florida Bar reprimanded Stern in 2002 for overcharging and misleading clients, and is now considering a complaint questioning whether he should be allowed to farm out so much of his firm's business to nonlawyers.
Stern declined to be interviewed for this story.
"We're in a tough business,'' said Christopher Simmons, Stern's manager of investor relations. "We're sort of the negative side of the American dream, so oftentimes it's not best to comment.''
Stern's firm is not the only example of what critics derisively call "foreclosure mills.'' The Florida Default Law Group in Tampa, the Marshall Watson law firm in Fort Lauderdale and Lender Processing Services in Jacksonville also handle thousands of foreclosure cases.
But "I think they symbolize what's wrong with the foreclosure process,'' said Louis Silber, a West Palm Beach lawyer who is suing Stern's firm on behalf of homeowners. "They do nothing but foreclosures, and maybe because of the large volume, there are corners that are cut that shouldn't be cut.''
$2.1 million payment
Stern, 50, graduated from Houston's South Texas College of Law and in 1994 started what would become one of the nation's biggest foreclosure law firms.
Foreclosure rates were already creeping up for many reasons, including the trend toward "securitization'' — packaging loans into securities and selling them to investors. That hurt the once-close relationship been banker and borrower in which lenders might be more lenient with homeowners who fell behind in their payments, a study by the Federal Deposit Insurance Corp. found.
By 1999, Stern's firm represented banks in foreclosure actions against more than 10,000 homeowners, according to records in a class action lawsuit filed in federal court in Tallahassee. The suit alleged that the firm overcharged homeowners for title searches, postage and other expenses, then submitted "false and fraudulent'' invoices to support the charges. The case was closed in 2000 with Stern agreeing to pay a total of $2.1 million to homeowners.
He next drew scrutiny from the Florida Bar over complaints that his firm had misled its own clients as well as borrowers.
Because of the competition among lawyers to handle foreclosures, Stern agreed to charge lenders a flat fee, generally $1,000 per case. But to get around that cap, he created his own title company, Professional Title, that issued invoices for as much as $400 for title searches that were actually done by another company for $150 or less.
Stern failed to "fully inform'' clients of that arrangement or that some of the work purportedly done by attorneys was handled by nonlawyers, the Florida Bar said.
Additionally, Stern's firm made it so hard for homeowners to contact the lawyer assigned to their case that late fees and other costs mounted, making it even more expensive for people to reinstate their mortgages.
Because of these and other actions "contrary to honesty and justice,'' the Florida Bar said an "appropriate sanction'' could be suspension of Stern's license to practice law. Given his cooperation, though, it publicly reprimanded him in 2002 and fined him $999.
Despite the reprimand, Stern's law firm ballooned along with the foreclosure rate. From its headquarters in the Fort Lauderdale suburb of Plantation, it now handles nearly 100,000 foreclosure cases at any one time and has a client list that includes Bank of America, Wells Fargo and Citigroup.
"It's a beehive,'' said Thomas Ice, a West Palm Beach lawyer. "You see people running around with documents and huge rolling carts as tall as a person, loaded with file folders.''
Ice, who represents homeowners, noticed something curious on 21 assignments of mortgage filed by Stern's firm. Florida notary commissions are good for four years, yet these assignments purportedly had been notarized five or six years before the expiration date on the notary seals.
"So there was no way they could have had a notary stamp on the day they said they were notarizing,'' Ice said. "They would have had to time-travel back in time.''
Assignments of mortgage — which transfer ownership of a loan from one party to another — are key in determining who has the legal right to foreclose. A back-dated assignment could mean that the bank didn't own the note at the time it started foreclosing, or worse, that the assignment was created to show ownership that didn't actually exist.
"It is a deliberate falsification of a legal instrument for the specific purpose of evading the consequences of filing their case before securing the right to sue,'' Ice said. The consequences? Dismissal of the foreclosure case.
A Stern employee who Ice deposed last year about the assignments acknowledged the back-dating and blamed it on "sloppiness.'' She said the firm had changed procedures to keep it from happening again.
But Tampa lawyer Ralph Fisher found the same problem this year on a mortgage assignment submitted by Stern's firm in foreclosure proceedings against a Pasco County homeowner. The assignment was notarized in 2007, though the signer didn't get her notary commission until 2008.
Circuit Judge Lynn Tepper was outraged.
"The purported assignment was … fraudulently backdated in a purposeful, intentional effort to mislead the defendant and this court,'' Tepper said in dismissing the case with prejudice — meaning the bank cannot file the case again.
Stern's firm later released the homeowner from all claims and paid him $6,900 for legal fees.
As officers of the court, "we attorneys cannot allow fraudulent documents to be introduced, and we have an obligation to withdraw those documents,'' Fisher said. "I don't see that … going on in Stern's law firm. I don't see somebody saying to the judge, 'This isn't right.' ''
A new complaint
At a time when 20 percent of Florida mortgages are at least 90 days past due, Stern and his wife live mortgage-free in a 16,500-square-foot waterfront home with a tennis court in Fort Lauderdale's exclusive Harborage. They also own a $5 million condo in the Harborage and four boats of recent vintage.
Stern himself is something of an enigma. Other than references to his law firm and a sketchy biography, there is almost nothing on the Internet about him. No photos are available.
"He is a very energetic and charming guy that built the company from scratch,'' said Christopher Nolan, a research analyst for the Maxim Group of New York, an investment banking, securities and investment management firm. "He's very dynamic."
Stern and Nolan met when the analyst began following the stock performance of DJSP Enterprises, the public company to which Stern sold his "nonlegal'' operations in January. Stern is among the biggest shareholders in DJSP, whose stock hit $13.65 in April on the NASDAQ before closing Friday at $5.70.
The company, which had $260 million in gross revenues last year, is registered in the British Virgin Islands but is based in Plantation and gets more than 90 percent of its business from Stern's law firm, according to a statement filed with the Securities and Exchange Commission. That could be a problem in light of state laws and Florida Bar rules that prohibit fee-sharing and the unlicensed practice of law, the statement acknowledges.
"How can a nonlawyer, publicly traded company be permitted to generate $19.6 million in revenues from foreclosure fees if it is not in fact providing legal services?'' St. Petersburg lawyer Matthew Weidner asked in a recent complaint to the Florida Bar.
Weidner, who represents homeowners, wants the Florida Bar to investigate exactly which "nonlegal" activities the company is handling and whether transferring so many foreclosure functions to nonlawyers could lead to "potential abuse of consumers and the court process.''
In its statement to the SEC, the company lists other risks to growth. Among them: the possibility that Stern's $58.5 million payout could "reduce his incentive'' to drum up new business.
In general, though, DJSP Enterprises predicts a fairly bright future for itself. While loan modification programs may temporarily slow the pace of foreclosure, "we believe these programs are simply delaying the inevitable,'' the statement says.
And as more Americans lose their homes, Stern's spinoff company is developing a promising new business — helping banks sell all those foreclosed houses and condos.
Times researchers Carolyn Edds and Natalie Watson contributed to this report. Susan Taylor Martin can be contacted at firstname.lastname@example.org.