Foreclosure mill's revenue skyrockets

The housing crisis has been good for Florida's biggest processor of foreclosure lawsuits: Its revenue has multiplied sixfold since the housing bust began.

In recent years, the Law Offices of David J. Stern, a Broward County-based foreclosure law firm, has become the largest filer of foreclosure suits in Florida. It also is the biggest filer in Hillsborough County, according to local court records.

Along the way, though, it has picked up critics across Florida for the factorylike way it removes homeowners from homes. One circuit court judge in Pasco County recently accused the law firm of fraudulently backdating a mortgage document.

Stern's law firm isn't alone. Across the country, the unprecedented housing bust and backlog of foreclosures have turned specialty law offices such as Stern's into efficient paper processors called "foreclosure mills." In Stern's case, he's grown so large that he recently spun off part of his foreclosure law firm into a publicly traded company.

In January, Stern separated his firm's lawyers from the back-office clerks that prepare foreclosure paperwork, research title documents and do other duties that don't require a lawyer's touch. This back-office staff now is called DJSP Enterprises and trades on the Nasdaq-GM stock exchange.

It's separate from Stern's law practice, but Stern still is chairman and chief executive officer of DJSP Enterprises, and Stern's law practice relies on DJSP to process all its paperwork and handle its real estate duties.

Because it is publicly traded, DJSP must file financial reports with the Securities and Exchange Commission. These reports provide a glimpse into Stern's foreclosure empire.

According to DJSP Enterprises' recent annual financial report, the back-office operation had profit of about $44.6 million in 2009 on revenue of $260.3 million. That means the company's revenue increased sixfold as the foreclosure crisis worsened.

In 2006, the company reported profit of $8.6 million on revenue of $40.4 million, its recent SEC report states.

The SEC report does not include financial information for Stern's separate law practice, which is not publicly traded and does not report its financial information.

DJSP's chief financial officer, Kumar Gursahaney, confirmed the amount of his company's profit and revenue in the SEC report. Stern could not be reached for comment.

In its financial report, DJSP says the booming number of foreclosures in Florida fueled its growth. So, too, did the huge backlog of homes that banks have taken back from delinquent homeowners. DJSP Enterprises helps lenders dispose of these homes.

Today, the company processes more than 5,800 foreclosure files a month and more than 70,000 a year on behalf of the Law Offices of David J. Stern, its SEC filing states. As of Dec. 31, the company had 950 employees and offices in Plantation and Louisville, Ky. It also outsourced work to the Philippines.

DJSP Enterprises' stock closed at $13.45 a share on Wednesday.

Locally, DJSP Enterprises and Stern's law practice handle the most foreclosure cases in Hillsborough County. The Tribune looked at 1,994 initial foreclosure documents filed in October to see which foreclosure firms were the busiest.

Stern's office filed 352 cases in Hillsborough County that month, beating out second-place finisher Florida Default Law Group of Tampa, which filed 323 cases.

Even with its business boom, companies such as DJSP and its chief customer, the Law Offices of David J. Stern, are picking up more critics lately.

Dubbed "foreclosure mills," these firms are known for steering foreclosure lawsuits through the court system as efficiently as possible. They often charge a cut-rate price to their banking and mortgage-servicing clients, typically about $1,200 for a foreclosure. Most of the legwork of filing lawsuits is handled by clerks and paralegals rather than lawyers.

The process occasionally has led to sloppy legal work, or worse, as the mills strive for efficiency, critics say.

April Charney, a lawyer with Jacksonville Area Legal Aid who represents distressed homeowners, faults foreclosure mills for bringing foreclosure actions against people when they don't have all the necessary paperwork.

When homeowners fight these foreclosures, they've had some success proving that banks and other lenders don't have the original mortgage documents showing they have the legal standing to foreclose on a home.

Charney said she was not surprised that DJSP Enterprises had $260 million in revenue.

"But Florida is not unique, and neither is this foreclosure debt collection business model," she said. "There is a 'David Stern' or more than one operating in every state."

Recently, Lynn Tepper, a circuit judge in Pasco County, singled out the Law Offices of David J. Stern for criticism.

The Wall Street Journal wrote last week that Tepper accused Stern's law firm and a banking client of submitting a fraudulent document in a foreclosure case.

According to the article, the judge found Stern's office presented a mortgage document with a falsified notary stamp. In an interview with the Tribune on Monday, Tepper said it appeared the document had been backdated to give a bank legal standing to foreclose on a home.

Forrest McSurdy, the in-house legal counsel for Stern's law practice, told the Tribune it was not intentional.

"Really, it was a mistake by the notary, and it was something that was not caught at the time of the hearing," McSurdy said.

Tepper thinks otherwise.

"This isn't a clerical error," the judge said. "It wasn't a mistake. A notary isn't supposed to notarize that someone swore an instrument in front of them if, in fact, they didn't sign it in front of them."

In a roundabout way, a significant investor in DJSP Enterprises appears to be the U.S. government.

When the Wall Street crisis hit, the government bailed out insurance giant AIG. The government remains the company's biggest investor. According to the Bloomberg business news service, AIG owns stock in DJSP Enterprises worth about $4.6 million through a mutual fund.

An AIG spokesman didn't have information this week on whether AIG is an investor in the company.