March 8, 2011 6:01 PM

Florida Foreclosure King to Shut Firm by End of March

Posted by Brian Baxter

Former Florida foreclosure king David Stern's rise was swift, and his fall has been equally fast. Stern announced this week that he would shut down the foreclosure practice at his Plantation, Fla.-based firm by the end of March, according to the Daily Business Review, a sibling publication.

DJSP Enterprises, a publicly traded mortgage processing company Stern spun off from his law firm a year ago, stated in an SEC filing on Monday that it "does not expect to receive any further file referrals" from the Law Offices of David J. Stern. With the loss of its largest customer, the DBR reports that DJSP could be forced to shut down. (On Tuesday, DJSP informed the SEC of its intention to voluntarily delist the company's shares from the Nasdaq Stock Market.)

Stern stepped down as president and CEO of DJSP in November to focus exclusively on his law firm, which handled foreclosure proceedings for big banks and took in a whopping $260 million in 2009. Stern made $60 million by spinning off his firm's back office mortgage-processing operations in January 2010, according to SEC filings. As Stern's caseload soared, his staff tripled to 1,200 employees, and a satellite office in the Philippines hummed along crunching foreclosure data during off hours in the U.S.

But concerns about how Stern and other Florida foreclosure mills were handling mortgage records and other documents used in court proceedings grew. In August, former Florida attorney general Bill McCollum announced an investigation into potential irregularities in mortgage paperwork by Stern and three other foreclosure shops. McCollum, a former Baker & Hostetler partner who lost out in his bid for the state's governor's mansion, was succeeded by Pam Bondi. She is pursuing the state's probe into Stern, the Florida Default Law Group, the Law Offices of Marshall Watson, and Shapiro & Fishman. No charges have been filed against any of the four firms and all publicly denied wrongdoing.

The investigation caused Stern to lose major clients like Fannie Mae and Freddie Mac and much was written--The Associated Press and The New York Times both recently ran long stories on Stern--about the stunning downfall of the foreclosure king following the collapse of the U.S. residential mortgage market several years ago.

It's worth noting just how profitable Stern's firm was before it imploded. DJSP went public last year after its combination with Chardan 2008 China Acquisition Company, a special purpose acquisition vehicle. Loeb & Loeb advised Chardan, while DJSP turned to Dykema Gossett. Some investors were bullish on the new company. SEC filings reveal that DJSP, a holding company for three subsidiaries specializing in residential real estate foreclosure and related legal actions, brought in $260.3 million in gross revenue for 2009.

A review of SEC filings shows that the firm's total revenue increased $61.1 million--or 30.7 percent--from 2008 to 2009. The uptick in revenue resulted primarily "from the increase in the number of mortgage foreclosures taking place in the principal market of the business, Florida, and as a result of the expansion of [lender-owned real estate] activities,” according to SEC filings by DJSP.

The $260 million revenue figure put Stern's shop on par with some of the nation's highest grossing law firms. In 2009, for example, Manatt, Phelps & Phillips earned $261.5 million in gross revenue; that same year, Jackson Lewis earned $256.5 million.

Stern's attorney, Jeffrey Tew of Miami's Tew Cardenas, says that before the DJSP spin-off on January 15, 2010, any revenue from entities controlled by his client would have been considered law firm revenue.

"The law firm had fee revenue from its lawyers and paralegals, and before January 15, there was no separate processing entity," Tew says. "These were all legal fees, all of David's firms' revenue before the public transaction were law firm fees."

But DJSP became its own business, albeit one whose shelf life appears to be limited, the foreclosure crisis exploded last October, Stern's clients fled, and DJSP subsequently began laying off hundreds of employees. Some of those ex-employees are seeking to bring a class action over their abrupt departures against Stern and DJSP on behalf of 700 former workers, according to the DBR.

The AP reports that payment on a $12 million line of credit with Bank of America is late, as is the rent on Stern's Plantation headquarters.

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