David J. Stern, the Florida Foreclosure King, Is Under Investigation — and Doing Layoffs

Back in September, we wrote about David J. Stern , “Florida’s Foreclosure King,” who earned our Lawyer of the Day title for his ascendancy from the fourth tier to the lap of luxury. At the time, we sang Stern’s praises. Stern, a graduate of South Texas Law , employs 900 people, made $17.8 million in 2008, owns $60 million in real estate, and collects yachts.

Thanks to the New York Times , we knew back then that Stern may have been a shady character. But we kind of brushed off those pesky little questions about his “ethics” and “questionable practice methods.” I mean, come on, how many lawyers can say that they drive a Bugatti?

Well, maybe we shouldn’t have overlooked these issues so quickly…

In September, Bill McCollum , Florida’s attorney general, disclosed that his office was in the process of investigating three of the busiest foreclosure practices in Florida, comparing them to puppy mills. McCollum believed that the firms “submit false documents, fabricate the documents, or the documents don’t exist.”

Stern’s firm was one of the three being investigated — after all, his firm did file 70,283 foreclosure cases last year. Stern, however, claimed total innocence in his interview with the New York Times :

I can’t speak for the other firms, but I can assure you there has not been submission of fraudulent documents. We feel a lot of it is politically motivated. We have done nothing wrong and are going to cooperate fully.

Apparently “doing nothing wrong” has a different meaning in the world of foreclosure law. One of Stern’s former paralegals, Tammy Lou Kapusta, recently claimed to attorneys for the Florida AG’s office that Stern’s firm “signed paperwork without reading it, misdated records, and skirted rules protecting homeowners in the military.”

According to Kapusta’s allegations, Stern’s hiring process basically consists of filling seats with warm bodies. I’m sure a lot of unemployed law grads would love to be one of those warm bodies, but maybe not at the expense of fraudulently taking away someone’s home.

Kapusta claims she was fired after refusing to violate federal laws concerning foreclosures on the homes of military servicemembers. Stern’s attorney chalked up Kapusta’s allegations as “a statement by a disgruntled employee.”

You’d think that Stern’s problems would end there, but that’s not all, folks. When it rains, it really pours for poor, poor Stern. Facing a possible moratorium on foreclosures, and with all of these accusations, large lenders have become wary of using Stern’s law firm to process their foreclosure cases.

In fact, Citigroup recently dropped Stern like a bad habit: they won’t refer another matter to Stern’s firm until the AG’s office reaches an outcome in its investigation. As a matter of fact, Stern’s attorney has admitted that “several key lenders” have stopped sending work to the firm.

So, with his clients refusing to send work, what has Stern done in order to keep his firm afloat? Did he sell one of his $20 million yachts? Or maybe one of his two waterfront properties worth $17 million? Or perhaps a car from his $3 million collection?

Of course not – why give up your things when you can force others to give up theirs? Stern recently laid off “probably less than 100” employees. No big deal.

At the end of the day, Stern has stated that “minor mistakes were made in about 24 cases out of thousands.” In light of the accusations made against his firm, we have to wonder what Stern considers to be a minor mistake. Does foreclosing on a house without a mortgage cut it? For Stern, probably not.

Despite the ethical issues and the layoffs, we won’t deprive Stern of his Lawyer of the Day honors. Although we occasionally bestow the LOTD crown on a lawyer for good reasons, more frequently we recognize honorees for, well, less-than-good reasons. With prior Lawyers of the Day like Glenn C. Lewis , Kenneth Kratz , and Joshua Gessler , we think that David Stern will fit right in.

Florida’s High-Speed Answer to a Foreclosure Mess [New York Times]

Florida Officials Told by Ex-Worker of Foreclosure Firm Lapses [Bloomberg Businessweek]

Citigroup Stops Using Foreclosure Law Firm Facing Florida Probe [Bloomberg]

Stern Foreclosure Firm Confirms Layoffs [South Florida Business Journal]

Man Who Had No Mortgage Faced Foreclosure Anyway [Bloomberg]

Earlier : Lawyer of the Day: David J. Stern, Fourth-Tier Law Grad Turned Multimillionaire