Plantation attorney David J. Stern, whose office is under investigation for allegedly fabricating documents in foreclosure cases, laid off 70 percent of his staff Thursday as his major clients abandoned him.
In a memo e-mailed to employees, Stern said the "recent turbulence in the mortgage industry" had cut referrals of new business by 90 percent over the last six months. "These developments mandate we take immediate action," he said of the move, which eliminated about 560 jobs.
Mortgage giant Freddie Mac this week pulled its pending foreclosures from the firm, which handles paperwork and court filings for lenders and loan servicers. Spokesman Brad German said the move came after Freddie stopped referrals to Stern about three weeks ago and began conducting its own investigation.
German said the foreclosures would be given to other firms, not yet chosen, "so they can be completed in compliance with state law." The Florida Attorney General is investigating Stern, who at point claimed he handled 20 percent of the state's foreclosures, for allegedly fabricating documents and shoddy paperwork.
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German would not say what Freddie auditors had found or how many foreclosures were involved. But former employees, in court depositions taken by the state's attorneys, said Stern considered Freddie and its mortgage twin Fannie Mae "his babies" and their loans comprised the vast majority of his business.
Fannie, the nation's second largest provider of mortgage financing, suspended business with Stern in late October, saying it would hire new firms to process them, said spokeswoman Amy Bonitatibus. Fannie and Freddie have sent staff to Stern's headquarters, which occupy multiple floors in a Plantation office building, to remove files.
Miami attorney Jeffrey Tew, who represents Stern, said the layoff memo spoke for itself and had no additional comments. He said the remaining cases would continue to be handled by the firm.
Stern referenced Fannie and Freddie's departure in his e-mail. Employees were told to immediately collect their personal belongings, and turn in their company IDs and equipment to human resources representatives stationed at the elevators. Their badges were deactivated an hour after the memo was sent Thursday morning.
At the office park where Stern's operations are located, eyewitnesses said they saw groups of employees leaving the building, some hugging and kissing one another, apparently saying goodbye. It was "heartbreaking," one bystander said.
Employees there who remained with the company declined comment, with one remarking: "Oh, no, I want to keep my job."
Chris Simmons, Stern's head of human resources and investor relations, said the firm will file paperwork required with the Securities and Exchange Commission and other agencies late Thursday or early Friday.
Stern's firm has a publicly traded subsidiary, DJSP Enterprises, which handles the non-legal end of Stern's foreclosure processing. Last week, its public accounting firm, McGladrey & Pullen, left in the latest of a string of executive departures, according to SEC filings.
DJSP named Jewett, Schwartz, Wolfe & Associates as the replacement.
The company also has gone through several downsizings since rumblings about the "foreclosure mill" firms began several months ago. Besides Stern, the Florida Attorney General also is scrutinizing three other foreclosure law practices: the law office of Marshall C. Watson in Fort Lauderdale, Shapiro & Fishman in Boca Raton, and the Florida Default Law Group in Tampa.
Fannie and Freddie has not pulled referrals to the other firms, its representatives said.
Stern's firm as been at the center of an expanding investigation into questionable foreclosure practices in Florida and other states.
Stern's operation was massive by comparison to many South Florida law firms, after going through three years of explosive growth. His practice, worth millions, was built on the foreclosure cases that have flooded Florida's court system. Most of the employees were not attorneys.
The enterprise had 950 employees at the end of 2009 and that figure jumped by 36 percent in the first quarter of 2010, according to various filings with the Securities and Exchange Commission. That would have brought the payroll to almost 1,300 employees, although that figure is not contained in the SEC documents.
Stern's firm reported that it had only 350 employees at the end of 2007.
Like the growth in payroll, the firm had an explosion in foreclosure cases. According to the SEC documents, the firm's foreclosure case load last year was growing by 5,865 a month.
Its total number of foreclosure cases at the end of 2009 was 70,382, up dramatically from 15,332 only three years before. DJSP Enterprises' most recent public earnings report shows revenues at $127.7 million in the first six months of 2010, with net income of $14.18 million.