Law Suits & Courts

Lenders, servicers scramble to shift cases to new firms

Posted on Friday, December 17, 2010

As the one-time largest plaintiff foreclosure law firm in Florida, the Law Offices of David J. Stern at its peak handled 20 percent of all foreclosures in the state, processing more than 70,000 foreclosure cases on behalf of major lenders like Fannie Mae, Freddie Mac, Bank of America and JPMorgan Chase in 2009.
Now that the Plantation law firm has been dropped by a number of lenders and servicers including Fannie Mae and Freddie Mac, ex-clients are scrambling to find law firms and lawyers to fill the void.
Stern’s law firm and his back-office foreclosure processor, DJSP Enterprises, have nosedived since the Florida attorney general’s office began investigating allegations of improper shortcuts on foreclosure paperwork. Within the last year, 900 people have been laid off from the firm and DJSP employment at both businesses peaked at 1,200.
But the replacement law firms haven’t found it easy to find enough qualified law firms to take the work, and the transition has slowed a system already clogged with overwhelming numbers of cases. Some judges are not willing to delay cases due to the change in attorneys as Stern files are turned over to new lawyers. More and more counties are requiring in-person rather than telephonic hearings.
"We are very frustrated," said Thomas Ice, a defense foreclosure attorney with Ice Legal in Royal Palm Beach. "We’re having all these problems setting hearings. We call up Stern’s office and say, ‘You haven’t withdrawn from the case.’ They just don’t show up. Sometimes the judges will go forward, but many times they won’t reset it. We don’t want delays. We want resolution."
Other banks that have assigned transition counsel are Aurora Mortgage and Bank of New York, which are using Broad and Cassel; Wells Fargo, which is using Carlton Fields; and Bank of America, which had been using Yoss LLP, Ice said.
Attorney Shortage
Some of the laid-off Stern lawyers have gotten jobs with clients’ new law firms. That’s the case with Plantation-based Kahane & Associates, which hired at least three former Stern attorneys, and McCalla Raymer, the foreclosure giant from Georgia and Alabama, which appears to have picked up a Stern office in Orlando and its five lawyers. The firm also is advertising for paralegals and lawyers in Tampa, Fort Lauderdale, Miami and Orlando.
Jonathan Broder, who heads coverage attorney company, has been swamped with requests for attorneys to appear at foreclosure hearings. There’s a shortage of attorneys that already know the ins and outs of residential foreclosure law, he said.
"At the end of the day, these firms need people who know what they’re doing and know case law," Broder said. "It’s hard to start from scratch. Who is prepared to get 14,000 files in two weeks and be prepared to be at trial the next day?"
Adding to the challenges is the fact that more and more counties are requiring in-person hearings. Broder said he is getting inundated with calls for coverage attorneys for foreclosure hearings in Ocala, Gainesville and Pensacola.
Bumpy Transition
Judging by one hearing, transitioning cases from Stern’s firm to others has not been seamless.
Some banks have assigned their main counsel as transition firms to farm out the work. That is the case with CitiMortgage, which handed Akerman Senterfitt 30,000 residential foreclosure files.
According to a Nov. 23 hearing transcript obtained by the Daily Business Review, Edmund Whitson III, a Tampa-based Akerman attorney, pleaded with a Punta Gorda judge for a postponement on a 2-year-old foreclosure case, and the judge wasn’t happy.
Whitson explained his firm just took over the avalanche of cases "that have been pulled from David Stern’s office."
"We are now trying to digest and allocate resources to that many files on very, very short notice," he said. "I respectfully request and almost beg your honor to continue this."
Circuit Judge George C. Richards responded: "What happens with every other case of David Stern’s office that is set for trial? Am I going to have to continue every other one?"
Replied Whitson: "Your honor, I can’t speak to those. Our office is essentially trying to act as transition counsel right now to find other law firms to handle it."
Akerman declined comment on the matter and its plans for the Stern files.
Broward Chief Circuit Judge Victor Tobin, for his part, said he has heard of no transition problems due to the Stern changeover, and his judges are relatively amenable to working with parties switching lawyers "at the last minute."
"I don’t know of any problems," he said. "We’re accommodating of that. At any rate, it’s very quiet the last two weeks of December here anyway."
But in Palm Beach, there have been reports of problems on former Stern cases, said Chief Circuit Judge Peter Blanc. He is aware of some foreclosure sale cancellations because no party showed up to represent the lender.
"I don’t even know who the new firms are," said Blanc, who pledged to investigate the matter this week.
Stern’s office lost its foreclosure contracts with Fannie Mae, Freddie Mac, Bank of America as well as CitiMortgage following allegations by defense lawyers and consumer advocates of faulty and incomplete foreclosure filings and the practice of "robo-signing," or the mass signing of document verification by low-level employees,
Fannie Mae and Freddie Mac sought request for proposals from new law firms and chose nine throughout Florida. Most were small firms that already were dabbling in plaintiff foreclosure work, including Kahane & Associates, which reportedly took over 1,500 Stern case files. Kahane & Associates did not return calls for comment, nor did Greenspoon Marder, which also was hired.
Several large law firms said they would not take the high-volume, low-paying cases, which would require the hiring of lower-paid associates or staff attorneys to make a profit.
Orlando-based GrayRobinson went through the Fannie Mae bid process but ultimately took a pass on the work. Firm chairman Byrd "Biff" Marshall said Fannie was offering $1,300 per file through mediation and $175-an-hour afterward.
"Based on those two things, we didn’t feel it made sense for us to do them," Marshall said. "I understand some firms have hired associates at $60,000 a year so they can handle the files economically. We didn’t feel it was in our interest to hire low-paid associates because when you do that high a volume, mistakes inevitably are made."
Getting To Know You
An attorney for another prominent South Florida law firm who did not want to be identified also expressed an unwillingness to participate.
"One, it’s always a mess taking over someone else’s case," he said. "Two, you have the big issue of who owns the mortgages. It’s a big mess. We’re getting so much high-end work from the banks, and that’s what we want to focus on."
But one well-respected law firm, Fort-Lauderdale-based Tripp Scott, was one of the nine that signed up with Fannie and Freddie. The firm, which already had been doing "high-end" banking work, was approached by the mortgage companies.
Firm managing partner Ed Pozzuoli said he wasn’t told how many cases he is getting, but his firm has been promised it will get primarily the complex, contested cases that pay higher fees. He said he’s confident he can make the economics work without hiring low-paid associates.
"We don’t pay our associates $60,000," he said. "Any case has its risks. But we think it’s a good opportunity, and we will not diminish the quality of our work at all."
With a national uproar over aberrant foreclosure practices, Fannie and Freddie have apparently taken a strong interest in their new legal help. Broder said the lenders have been sending representatives to sit in on law firm interviews with prospective hires, and Pozzuoli said company representatives made two site visits during the interview process with his firm.
"They wanted to ensure that they knew us and our operation," Pozzuoli said. "We showed them how important technology and infrastructure is to us."
Julie Kay

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