Hundreds of mortgage mediation cases in the Tampa Bay area and other parts of Florida have been put on indefinite hold because of growing problems at a law firm that once represented many of the nation's biggest banks.
Beset by allegations of sloppy and fraudulent documentation, the David J. Stern Law Firm has lost some of its lender clients and must withdraw from their foreclosure cases. Until the banks hire new lawyers, efforts to mediate agreements with homeowners in those cases cannot continue.
The delay is a mixed blessing for the homeowners. They will be able to stay in their houses longer, though likely at the cost of mounting interest and late fees.
But the need to withdraw from so many cases marks another chapter in the stunning decline of the Stern firm, which once handled a fifth of all Florida foreclosures and made its founder a multimilllionaire.
"The mediations are supposed to occur within 120 days, and that's the problem the David Stern issue has created. We're having to continue those beyond the 120 days,'' said Dick Rahter, president of Mediation Managers Inc. in Clearwater. "The borrower is not going to lose their opportunity to meet with the bank, but the mediation might not occur as quickly as we want.''
Rahter's company, which has handled mediations in Pinellas and Pasco counties since July 1, has been forced to cancel or continue 15 mediation sessions in cases involving Stern's firm.
"He probably has 400 or 500 cases in our program, but a lot are still working their way through the system,'' Rahter said.
Lawyers from the firm attended two mediations in Hillsborough County the week before last, but the county's program is new enough that not many cases have reached that point, said Darlene Kelly, executive director of the Hillsborough Bar Foundation.
A spokesman for Stern, who lives in a $15 million waterfront mansion in Fort Lauderdale, did not return calls seeking comment.
With so many homeowners complaining of problems contacting their lenders, the Florida Supreme Court late last year ordered virtually all residential foreclosures involving homestead property to be referred to mediation. The statewide program operates on a 120-day timetable under which the homeowner must get financial counseling before sitting down with the lender, a mediator and an attorney for the law firm that filed the foreclosure documents.
Of the 400,000 or so foreclosure cases pending in Florida, about 20 percent were filed by Stern's law firm. But amid controversy over its practices, the firm has lost major clients — including mortgage finance giants Fannie Mae and Freddie Mac — and can no longer represent them in mediation.
In Pinellas and Pasco, the firm has been slow to withdraw itself from foreclosure cases. And judges haven't received many motions for substitute counsel, meaning no new lawyers have been appointed to take over the cases.
"What we're seeing is multiple cases where it's set for hearing with the Stern firm, but they don't send the paperwork like they're supposed to, either to withdraw or for summary judgment (of foreclosure),'' said Chief Judge Thomas McGrady. "So we've had court time set aside that they request, but they didn't bother to call us and notify us. They just don't show up.''
Another problem: Because of the severe slump in business, the Stern firm and a spin-off company, DJSP Enterprises, have laid off more than 700 employees. Even in some cases in which the firm still represents a lender, it has no one to attend hearings.
"My understanding is that a significant amount of their staff was let go so they would not have any representation at the mediation,'' said Chris Bailey, deputy director of the Collins Center Mortgage Foreclosure Mediation Program. The Tallahassee-based center handles mediations in six judicial circuits, including Sarasota, Polk and Miami-Dade.
Bailey said the center put 400 Stern cases on hold while it waits for other law firms to be appointed.
"It may be only a couple of weeks; it may be an additional month,'' he said.
As thousands of foreclosure cases clogged the court system, defense attorneys charged that Stern's firm and other "mills'' were winning final judgments of foreclosure based on documents rife with errors and fraudulent information. The Florida Attorney General's Office is investigating the Stern firm and three others.
In January, Stern reaped $58.5 million by selling his back-office operations to a new public company, DJSP. But as allegations flew and clients withdrew their business, the company's independent accounting firm and most of its top officers resigned. From a high of $13.65 early this year, shares closed Monday at 43 cents.
Another Stern subsidiary, DAL Group, is in default on a $12 million Bank of America credit line. And last week, a Sarasota County homeowner facing foreclosure filed a class-action suit, alleging, among other things, that Stern's firm had charged excessive amounts for process serving and attorney fees.
"Maybe collapse is too severe a word,'' Rahter said, referring to Stern's beleaguered companies, "but there are a lot of issues there.''
Susan Taylor Martin can be reached at email@example.com.