Implosion of Foreclosure Mill Leaves 100,000 Cases in Limbo

Florida, as the ground zero of the foreclosure crisis, is arguably further along in seeing how some of the uglier aspects of this mess will work themselves out. The foreclosure mill abuses were so bad that even a not terribly venturesome AG, Bill McCollum, went after them, and his Republican successor, Pam Bondi, is reported to be keen to keep the heat up on mortgage arena miscreants.

As the cases against the big foreclosure mills have moved forward, clients have exited, and that is generally a death knell for a law practice. Normally, when law firms get in trouble, partners who have books of business not involved in the scandal plus senior associates capable of handling client relationships grab as much of the old business as possible and reconstitute under another name. But the foreclosure mills were very high leverage operations, with very few partners and much of the work handled by paralegals or junior attorneys. So there is no one to pick up the pieces when a firm like that falls apart.

The imminent closure of the biggest player in Florida, the Law Offices of David Stern, is leaving a lot of cases in the lurch. From the Palm Beach Post Money (hat tip Lisa Epstein):

The status of nearly 9,000 Palm Beach County foreclosure cases is in question following attorney David J. Stern’s announcement that he is closing his foreclosure shop at the end of the month and dropping the files.

Statewide, as many as 100,000 cases need to be officially withdrawn from by Stern attorneys, but with a decimated staff, Stern told judges in a March 4 letter that he simply doesn’t have the manpower to file the correct paperwork….Hundreds of employees were subsequently laid off, leaving the transfer of foreclosure files to new firms in disarray…

“Florida Rules of Civil Procedure require that attorneys file a proper Motion to Withdraw from any case which they no longer plan to represent,” said Eunice Sigler, a spokeswoman for the 11th Judicial Circuit Court in Miami-Dade County. “We are currently researching various options, including any remedies available through the Florida Bar.”

Palm Beach County Chief Judge Peter Blanc said this week he’s also trying to figure out how to proceed.

“Stern has provided notice he will no longer be attorney of record, but the court is unable to recognize it,” Blanc said. “I’m told we’re getting more stipulations of substitute counsel but not anywhere near the number we should have.”

Blanc said he’s never seen a move like Stern’s before – sending a letter to judges that says “treat the pending cases as you deem appropriate.”….

Foreclosure defense attorney Tom Ice, of Ice Legal in Royal Palm Beach, has about 100 former Stern foreclosure cases.

He said chief judges shouldn’t get involved in what to do with them.

“It’s entirely improper for Stern to be communicating with the chief judge and asking him to decide what to do with my cases behind my back,” Ice said.

The Stern firm, by all accounts, was way out of compliance with professional standards. The state bar association failed to take any interest in numerous complaints made about foreclosure mills until the state AG and legislators took interest. Even then, its posture was largely obstructionist (as in insisting that the matter was one to be handled by the bar and the judiciary, which is technically correct, but given the obvious lack of interest in taking up the case, hardly reassuring).

Now the bar is going to look, after the horse has left the barn and is in the next county, into what to do about Stern now that he has dumped a ton of untransferred cases on the court system? The math for him looks awfully easy. Assume $20 per case to transfer it properly (I’m sure this is low, but even this estimate makes the point). Wrapping up things properly would cost him at least $2 million. With at least that much at stake, he can afford to have the bar throw him out of the legal profession and have fun trying to fine him.

I can only hope this proves to be such a large scale embarrassment that it forces the Florida and other state bar associations to be more vigilant, but I am probably being way too optimistic.

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41 comments

  1. attempter

    Statewide, as many as 100,000 cases need to be officially withdrawn from by Stern attorneys, but with a decimated staff, Stern told judges in a March 4 letter that he simply doesn’t have the manpower to file the correct paperwork.

    I don’t understand. Capitalism is supposed to work better than this, isn’t it? Advocates of capitalism are welcome to reply, and while you’re at it, explain corporate welfare please.

    But seriously, why aren’t these vermin immediately held in contempt of court and jailed? Oh, I forgot – I was thinking of the courts and “democracy” I was lied to about in school. Not the real thing.

    1. psychohistorian

      Thanks…after a while it is hard to raise the bile to a level worth responding….I am just glad I own my 167K hovel free and clear at this stage of my life…..and got reputable title insurance.

    2. Psychoanalystus

      Indeed, attempter, indeed. At this point, capitalism is an entirely discredited system of running a society, and it needs to be quickly dismantled. What we see now in the US is the full bloom of this malignant form of economics. Its unfairness, injustice, illegality, and plain pathology is on display for all to laugh and marvel at. As we have seen in Wisconsin, Michigan, and other such places, capitalism is now attacking democracy itself and the very rule of law, making it even more urgent for us, the people, to rapidly dismantle this system, redistribute the stolen wealth, and jail the oligarchs. It is as simple as that.

      Psychoanalystus

        1. Psychoanalystus

          Man, it sounds like you’ve got pretty strong feelings about this…LOL

          Psychoanalystus

        2. Capitalist Sooner

          Capitalism only works when the Rule of Law is upheld. The failure of District Attorneys nationally to prosecute criminal fraud by banks, lenders and servicers, as well as other attorneys, is a symptom of corruption. Capitalism is not an ideology, it is an economic system. When you violate it’s rules, you have something else. I think of it as Crony-ism, personally. Also, it is worth noting that attorneys attempt to place themselves beyond prosecution other than by the bar. This needs to end.

  2. Ben Abbott

    Attempter, I don’t think capitalism makes claims of being error free. It may well be more error prone that some alternative (esp. in specific cases). What it is good at is correcting errors and turning them into successes. Collectively it generally accumulates more successes, but not necessarily in each specific case.

    1. attempter

      If capitalism works, why aren’t we all living comfortable, secure middle class lifestyles, fully employed, working 10-20 hours a week? For many decades now there’s been more than enough wealth for that. So what went wrong? If capitalism is anything other than organized crime, then after all this time why don’t we have a decent civilization yet?

      Just a few more years, right?

      But seriously, we know capitalism is nothing but lies and crime.

      1. Ralph Dratman

        “But seriously, we know capitalism is nothing but lies and crime.”

        Seriously? Not only capitalism, but most human affairs, are nothing but crime and lies. To live as most ordinary humans do, you must tell many lies and commit your fair share of crimes. That is just the way the game is played.

        1. youniquelikeme

          Seriously?

          Not all people live lives of crime and dishonesty … and certainly not the ordinary ones. That is it becoming more ordinary cannot be denied, however, being ethics have been thrown out the window.

          Here we are speaking about a a law firm that had obligations to not just follow procedures but uphold the law, yet were allowed by the legal system (judges also were complicit) to disregard the process.

          What game are you playing so I can make sure I avoid it? It certainly isn’t the game plan of life of any ordinary person I know, or would want to know.

    2. ScottS

      Doesn’t it? Capitalism specifically claims to be perfect. What else do you call the “invisible hand?” it’s the will of God, and you defy it at your own peril. Capitalism is nothing more than the idea that anyone can set a price on anything, and by someone agreeing (or not agreeing), the interaction is virtuous. If I agree to the price, I willingly submit to the forces of the market, and must suffer the consequences.

      Therefore, according to capitalism, no good or service should be prohibited, just priced appropriately. Prostitution, child pornography, environmental depredations, resource hoarding — everything is okay as long as no one stands in the way of price discovery.

      The other consequence is caveat emptor. If McDonald’s food ruins your health, it’s on you. If your car is defective, you should have done your homework, and you had the illusion of choice to pick another, equally unsafe car.

      If it isn’t obvious that the goal of capitalism is to favor the rich, you are being willfully ignorant.

      1. PatrickNM

        There has never been a free market, only a rigged market. The rich get richer, the middle class weakens. Sounds like it favors the rich. The free market will solve everything is a fairy tale

        1. ScottS

          Right. Well obviously you have to keep out the riff-raff.

          Privatising public assets at firesale prices still fulfills all the requirements of capitalism. A level playing field isn’t required. You should have studied harder in school, or been born to a richer family — then you too would have to opportunity to bribe a public official to extract rents on taxpayers. See? It’s fair.

    3. Psychoanalystus

      Rumors of capitalism’s successes have been greatly exaggerated. Let us not forget that it was the communist Soviet Union that put a man in space first. It was also the Soviet Union that established the first universal health care system (an accomplishment that “the richest and most exceptional country in the world” still has trouble achieving), it was the Soviet Union that provided 100% of its population with access to education, and the list goes on and on.

      And, by the way, last I heard, those old Soviet-design rockets are still the only ones now able to reliably deliver people and supplies into space.

      Psychoanalystus

      1. Psychoanalystus

        I forgot to add to my post above, that now, in 2011, it is China, a communist nation, that is uniquely able to provide the manufacturing and logistic infrastructure of producing over 50% of the world’s goods, is building a truly 21st century infrastructure, and has built the best education system in the world.

        This while the “most advanced, powerful, and exceptional nation in the history” seems completely impotent to even repair its decaying third world-ish roads and bridges.

        As such, let us all put this “capitalism is successful” bullsh!t mantra to rest once and for all, arrest the criminal oligarchs, jail them all, confiscate their stolen wealth, and just move on to better and more successful forms of economics.

        Psychoanalystus

        1. rd

          China is not communist these days. Mao tried to truly make it communist. Didn’t work out so well.

          It is totalitarian with a developing fascist streak.

          1. Psychoanalystus

            >> It is totalitarian with a developing fascist streak. <<

            Sounds like they are aspiring to become more like the US…

            Psychoanalystus

      2. ScottS

        I’m not ready to sing the praises of communism either. At least as it has been practiced, it’s equally authoritarian, rigid, and extractive — benefitting a priviledged few.

        Private property, within reasonable limits, and universal welfare (education, healthcare, sustinance) is the ideal. The reason it isn’t our steady state is the generationally wealthy are in competition, and we are their pawns.

        Moderation seems to be a distinctly unsexy “ism,” unfortunately.

  3. Middle Seaman

    Decent capitalism exists mainly in Europe. It is not an ideal system, but the middle class is comfortable and poverty is low. Our capitalism mirrors the communism of the Soviet Union in breath taking speed. At the top, we find the party members, i.e. the rich, and the rest of the population is poor, ignored and voiceless. In our case, we are getting there.

    Missing from the post are the homeowners. What happens to them should also be a major issue in this case. Leaving hundreds of thousands of people hanging is a national emergency.

    1. Psychoanalystus

      >> Our capitalism mirrors the communism of the Soviet Union in breath taking speed. At the top, we find the party members, i.e. the rich, and the rest of the population is poor, ignored and voiceless. <<

      That, my friend, is plain bullsh!t. It is Cold War-time American disinformation and propaganda spewed over the airwaves by disinformation agencies such as the Voice of America and Radio Free Europe that has worked so wonderfully, even 22 years after the fall of communism it is still repeated by haplessly brainwashed individuals everywhere.

      I have relatives who lived in the communist block during the 60s, 70s, and 80s, and the reality was nothing like what you are describing. Communist countries were fair, just, safe, and orderly societies. Nobody lacked food, there was no homelessness or illiteracy, anybody willing to work would be provided with an adequate and fitting job, and crime was almost nonexistent. Yes, the people at the top did have it better, but the rest of the population had a civilized, safe, and adequate life as well. There was none of the inequality we see here in "the most exceptional nation in history".

      And, by the way, as far as justice goes, all that one had to do in order to resolve an injustice was to appeal to the labor unions or to present his or her grievance directly to the Communist Party, and justice would be swiftly served and the grievance would be corrected. The laughable "legal" services provided by scumbags like David Stern, mentioned in this article, and this corrupt and vicious American legal system do not even come close.

      Psychoanalystus

        1. Psychoanalystus

          I go to Hungary often — I was there just last month. Why don’t you go there and ask them how do they feel TODAY about the effects of neo-liberalism, the shock doctrine, illegal privatizations, and the crony capitalism that has been inflicted on them for the past 20 years? And, while at it, why not ask how many of them are still pro-American?…

          Psychoanalystus

  4. Psychotic

    And behind all of this is Fannie F%cking Mae, spraying our tax dollars on these hapless attorneys to go get “them houses” back. G-damn fannie mae, g-damn them to hell.

  5. ohioralph

    Attempter: But seriously, we know capitalism is nothing but lies and crime.

    Really, what we have is corporatism which can be defined as lies and crimes. If we had capitalism which at a minimum would be market regulation via competition we could have your 10-20 hours per week full employment. Capitalism has not been practiced in this country or Europe for more than 100 years.

    1. attempter

      Capitalism has not been practiced in this country or Europe for more than 100 years.

      Or for a long time prior to that. Or anywhere else.

      Which is the point. Capitalism has been in the deployment stage long enough and universally enough that whatever it’s always been in practice is what it really is.

      It’s ironic that pro-capitalists accuse others of utopianism. What could be more utopian than ivory tower notions of “capitalism”? Nothing has been more completely disproven.

  6. escariot

    From the front lines here in Florida I will tell you this is a nightmare. There are horror stories in my office this past month about folks paying cash for stuff that is netting well in excess of the mortgage balance but the sellers were late or somehow got their file sent to the Stern shop of horrors and now in Stern’s pile of crap and it is IMPOSSIBLE to get a payoff from the bank. It is literally a case of the paperwork being stuffed in some cardboard bankers box in some now abandoned office somewhere in Broward/Dade county.

    If the upshot of this is the street thinking that the provenance of their foreclosure and short sales is going to be open to question we are good and truly f*^ked and will be looking at inventory that would be better buried than on the market. No one is accountable. The seller isn’t being accountable for not keeping up his payments (of course there are unmitigated conditions that are unfortunate in most cases that make it impossible for them to pay, but still, those were the rules when you borrowed) but to have a way out be barred because no one has the will or the incentive to get it done is the worst. I have zero confidence that any of the current players are interested in solving this.

  7. lizinoregon

    Let me see if I have this right. It is an absolute outrage for an underwater homeowner to give the collateral back to the bank in compliance with her contract, but this scumbag can walk away from 100k cases without transferring them as required by law?

    When the only rational course is for the average person to act like the amoral banking giants and corporations, it has to be obvious our system to totally broken. Or we have chosen the wrong system.

    1. attempter

      All non-rich people should go on a permanent Work to Rule strike.

      This means that while we non-rich, non-corporatists must treat one another as human beings, in all our dealings with the rich, corporations, corporatists, statists, and government we should purge all non-capitalist behavior.

      Since “anarchism” is a crackpot notion that doesn’t work, let’s do away with all anarchist behaviors in our dealings with the power structure and its supporters, and see how long it continues to stand.

  8. Armchair Revolutionary

    How much fun has that got to be for the attorney with about 100 defense cases where Stern was on the other side?

  9. OligarchMe

    Chumps, why don’t you just take it with dignity. We got you by the balls, so just take it. We got OUR laws, we got OUR governors, we got OUR president, and we got OUR Congress. So take it! No more whimpering! No more bitching! No more complaining! Capiche?!

    Just hand over the keys to your homes to ME and go crawl under a bridge where I won’t see you from my speeding armored limo, because I can’t stand the sight of losers like you. And you smell bad too. So take a dive in the river because your stench ruins MY ozone layer.

    My caviar is here. Gotta scoot!

    Oligarch Koch

    1. Psychoanalystus

      Hey Oligarch, I don’t see caviar on the Guantanamo Cafe’s menu. Do you think you could develop a taste for chicken and beans too?

      And, by the way, the warden says you might have to share the bathroom with Abdul, who is gay. Is that OK with you?

      Psychoanalystus

  10. Richard S

    The upshot is that due process in the USA has gone the way of the Geneva Convention – It’s now quaint and a curious relic. Thus sayeth the Lord Rick Scott!

  11. rd

    What is claimed to have happened with the Law Offices of David Stern is not possible. No rational, self-regulated economic being would have performed its work so poorly as to undermine the solvency of the firm itself. Bad process only occurs in highly-regulated, and therefore inefficient organizations, especially if the staff are unionized.

    BTW, I assume that David Stern landed much of the original work by being the low bidder. I wonder if the procurement teams at the servicers ever saw the cartoon about the strapped in astronauts ready for launch saying “This is when I remember that the low bidder won the contract to build this.”

    I remember working with an engineering office in Florida where one of the senior staff told me that they had just won a big low-bid program with many small sites. He told me “We will lose a small amount on each site but make up for it with volume.” The office was closed within two years and the staff laid off.

    1. Psychoanalystus

      >> Bad process only occurs in highly-regulated, and therefore inefficient organizations, especially if the staff are unionized. <<

      Indeed, recent history has shown that only highly deregulated banks, Wall Street firms, oil, gas, and coal corporations, and nuclear power plants are able to deliver the highly efficient and positive outcomes we have come to expect in our fine economic system…

      Psychoanalystus (rolling on the floor, laughing)

      1. Ray Forthuber

        In the Universe the true “Constant” is Change.Ask any expert on Wall St.Black Scholes has yielded to Black Holes.Invisibility is becoming omnisciense, with ever increasing velocity.For we homo-sapiens, Darwin saw the key to survival is Adaptibility to changing environment. Cogito ergo sum…BUT action must make change occur:innovate,coop- erate,communicate. Begin upon birth to ask a few simple questions:What?Where?When?Who?How?WHY?!Seeking wisdom from accumulated experience over a few million years led us thru E=mc2,past Quantum, thence to CHAOS. We’re nearly home;Amen

        1. Psychoanalystus

          My friend, as much as I enjoyed reading your post, I have to disagree. The Universe is not as much defined by change as it is by cycles. Life and history are too. Yes, one hundred years ago we figured out that E=mc2 because 100 years ago we were in a different cysle. But TODAY, 100 years and 2 world wars later, we have embarked upon a cycle that will take us into a new Dark Age period. This is the dawn of unreason, dogmatism, fanaticism, and fear. It is also the dawn of circuses, of hedonism, and increasing hubris. Last time that our species entered this cycle was upon the collapse of the Roman Empire, and the Dark Age cycle lasted for 1000 years. So forgive me if I am not as jubilant as you.

          Psychoanalystus

          1. Skippy

            Hay is that the same 1,000 years of biblical utopia some bandy about?

            Skippy…back to so dumb you’ll believe anything some one says if the have a big house, building, send you to hell if you don’t agree?

  12. davidgmills

    As a lawyer I am curious about this. Presumably the banks could easily substitute in new counsel. It is what they would have to do if Stern was/is disbarred. If they want to foreclose they need counsel to do it in a judicial foreclosure state like Florida.

    I don’t see any unsolvable problem here. Just get counsel to substitute in. Stern has put the judiciary on notice that he will no longer be representing the banks.

    If they don’t get counsel soon, the suits will be dismissed for lack of prosecution.

    1. Yves Smith Post author

      I think under FL law, Stern is supposed to hand off the case.

      And he’s left the files in massive disarray. How is the bank supposed to find the case files if Stern has just abandoned his offices, or shipped the case files in no particular order to a warehouse? He was probably trying to extort the banks for additional payment to hand matters off in an orderly fashion, and I’d guess they weren’t willing to play ball.

  13. Procopius

    One of the best books I have ever read is “Nonzero”, by Robert Wright. Well, maybe not so good, because the conclusion he comes to is not very useful, but it’s very interesting. He summarizes and organizes a lot of anthropological research, and shows that societies can be usefully assigned to categories, based on development level. “Development” in his view is the increasing creation of non-zero sum games in a society, usually in the field of commerce or organization. One of the things he notes is that in most of the societies that have been studied, there is an elite segment of the society, and they usually keep most of the best for themselves. Thinking about it that way, we aren’t so badly off. At least they aren’t ripping our hearts out of our chests like the Aztecs.

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