Demise of foreclosure firm could cost courts | Bradenton Herald

MANATEE -- The demise of Florida’s “foreclosure king” and the free-fall in foreclosure filings could turn the state’s court system into a pauper.

The Law Offices of David J. Stern P.A. announced it will cease foreclosure operations this month, leaving as many as 100,000 Florida foreclosure cases in limbo. Court officials and attorneys say the ensuing delays will further strain a legal system that is running low on operating money because of declining revenue from filing fees.

“I’m not sure how it’s all going to shake out,” said Christopher Forrest, a foreclosure defense attorney in Sarasota. “I’m anticipating it’s going to be a big mess.”

Stern’s Plantation-based law firm was among the most prolific foreclosure filers in Florida, accounting for nearly a third of the state’s 350,000-case backlog. That earned Stern a fortune -- he reportedly has an $18 million yacht docked at his $16 million Fort Lauderdale mansion -- and the “foreclosure king” nickname and led critics to derisively call his law practice a “foreclosure mill.”

His dynasty began crumbling last year amid mounting criticism of the firm’s legal practices. The Florida Attorney General’s Office launched an investigation into whether Stern’s practice and others filed “improper documentation” in thousands of foreclosure cases. Clients, including Fannie Mae and Freddie Mac, dropped Stern’s firm as a result and now have to find new attorneys for their cases.

The firm that employed as many as 1,200 began laying off staff, including attorneys, as business dried up. But it wasn’t enough, Stern said in a March 4 letter to the chief judges of the state’s 20 judicial circuits.

The firm has “been forced to drastically reduce our attorney and paralegal staff to the point where we no longer have the financial or personnel resources to continue,” he wrote.

With the letters, Stern attached lists of his firm’s active cases in that particular court circuit. The local list contained more than 1,700 cases in Manatee County and another 2,300 in Sarasota and DeSoto counties, about a quarter of the 12th Judicial Circuit’s backlog of stalled foreclosure cases.

That backlog likely will worsen with Stern’s withdrawal, 12th Circuit Chief Judge Lee Haworth said.

“It’s going to delay our processing of these cases until new lawyers come on board,” he said. “The foreclosure mills didn’t throw a monkey wrench in the process -- they threw in a whole monkey.”

Haworth said his judges already are taking steps in hopes of minimizing delays. They are scheduling case-management hearings for late April and beyond in the Stern cases. If the lender doesn’t have a new attorney by the hearing, its case will be dismissed.

Those delays will give homeowners more time to try to avoid foreclosure through a mortgage modification, short sale or other option, said Dawn Bates-Buchanan, a former managing attorney of Gulfcoast Legal Services’ Bradenton office.

As for the Stern firm’s demise, she had no sympathy.

“I am glad that it is happening,” she wrote in an e-mail. “It needs to happen to more foreclosure mills.”

But another attorney said delays caused by Stern’s demise could end up damaging the Florida housing market further and postponing any meaningful recovery.

“At the end of the pipeline, it’s just going to end up forcing prices down even more,” said Shari Olefson, a Fort Lauderdale real estate attorney and author of “Foreclosure Nation.” “The longer they’re in the (court) process, the less they’re going to sell for” after foreclosure.

The delays come as foreclosure filings are plunging, resulting in less fee income than state court officials projected.

The state funded the court system through an annual general revenue appropriation until 2009, when it was changed to fee income. Court officials now set annual budgets based on revenue projections.

But those forecasts didn’t anticipate foreclosure filings would drop off as quickly and as early as they did, leading to a projected $8 million deficit in the court system’s operating trust fund this month, the state’s top court administrator said.

“Our deficit is clearly and almost totally the result of mortgage foreclosure filings significantly dropping,” said Lisa Goodner, the state’s court administrator.

Foreclosure activity fell by two-thirds in Florida last month, hitting a four-year low, according to foreclosure tracking service RealtyTrac.

State court officials are drafting a plan that likely will propose using interfund transfers and short-term loans from other state funds to close the gap in the court fund, Goodner said.

Still, the drop in fee income has Haworth and other chief judges preparing contingency plans for a possible shutdown of the court system. But Haworth says he doesn’t see that happening.

“I’m really optimistic that they will find a solution,” he said. “The only other option is to close down the courts, and no one wants to see that happen.”

Duane Marsteller, Herald staff writer, can be reached at 745-7080, ext. 2630.