Posted on Wednesday, November 17, 2010
Companies led by foreclosure defense attorney David J. Stern face a shutdown if a subsidiary is unable to repay a credit line worth about $12 million, according to a filing with the Securities & Exchange Commission. Bank of America gave DAL Group, a unit of Plantation-based DJSP Enterprises, a Nov. 26 deadline to repay the credit line after the unit missed a $549,000 loan payment Nov. 1.
DJSP Enterprises has also received a notice of default from its office landlord for failure to pay rent, the company said in a filing with the commission.
DAL, through three subsidiaries, provides foreclosure processing services to loan servicers and banks. DJSP owns the majority of DAL. Stern is a minority owner of DAL and president and chairman of DJSP, once one of the nation's largest foreclosure processing companies.
The companies are negotiating with lenders. But if DJSP and DAL are unable to reach an agreement with Bank of America and other creditors, "it will not be able to continue its business operations," it said in Monday's filing.
DJSP, formerly part of the Law Offices of David J. Stern, has seen its revenue drop significantly following allegations by consumer advocates and defense lawyers of irregularities in paperwork filed with the courts. Fannie Mae and Freddie Mac, the government-sponsored mortgage giants, last month ended their relationship with the Stern law firm, which uses DJSP to process tens of thousands of foreclosure files for the law firm and its clients.
Jeffrey Tew, a lawyer for Stern, declined comment.
The Stern law firm is one of four in Florida under investigation by the Florida attorney general's office. The AG is investigating allegations that the firms forged signatures and fabricated documents to push through residential foreclosures. DJSP last month said it had launched an internal investigation into the allegations.
DJSP is struggling with a drastic drop in foreclosure cases and sinking revenues. The company has shrunk from nearly 1,200 employees to about 400 following layoffs in October.
On Friday, Bank of America agreed not to take action against DAL until Nov. 26.
"DAL intends to seek longer term forbearance agreements with the bank and its other creditors as it implements plans to restructure its ongoing operations to reflect its significantly reduced revenues and operations," according to a DJSP filing with the SEC.
"There can be no assurance that DAL will be able to obtain forbearance agreements with the bank or its other creditors, develop ongoing operating plans that will be acceptable to its creditors or successfully develop and implement those plans in a timely manner."
DAL does business through three companies: DJS Processing, Professional Title and Abstract of Florida, and Default Servicing. Their assets are the collateral for the Bank of America's line of credit. DJS Processing also pledged as collateral the accounts receivable resulting from an agreement it signed with the Law Offices of David J. Stern to process the foreclosure files.
Because of the default, the Bank of America asked DAL to stop paying other holders of subordinated debt, including Stern.
When Stern took the nonlegal operation of his law firm public in January, DJSP and DAL issued about $103 million of debt, in addition to the Bank of America line of credit, to pay Stern.
Stern is owed about $87 million, according to SEC filings. Stern also received $58.5 million in cash for the deal.
The subordinated lenders agreed not to go after their money until after Dec. 31, according to the SEC filing.
DJSP also is behind on rent payments for its headquarters at 900 S. Pine Island Road. The law firm also stopped paying its rent, as both companies share the space.
"A notice of default has been received by the Offices of David J. Stern, the prior tenant, under one of the leases and by DJS Processing LLC under another lease as a result of the non-payment of rent," according to the SEC filing.
The line of credit default comes nearly two months after many DJSP top executives resigned and Stern stepped down as DJSP chairman.
DJSP Enterprises, the beleaguered foreclosure processing company, could shut down if a unit doesn't repay a credit line worth about $12 million.Paola Iuspa-Abbott