It’s really something that we have to get the scoop on foreclosure mill con artist David J. Stern from the AP and not some police blotter, but that’s life in post-rule of law America. The story provides a service, however, profiling a man who’s really a symbol for the foreclosure fraud crisis. Stern sought to corner the market in shepherding foreclosures through Florida’s courts. He saw them as a growth opportunity and he wanted to increase profits. He did so through cutting corners along every step of the way, becoming an expert in the kind of skills needed to keep the foreclosure train moving – document fraud, fabrication, forgery, etc. He and his firm were very good at what they did, which was basically commit crimes against homeowners and state courts. And it paid off with a suite of cars, yachts, fabulous homes and all manner of luxury goods. His possessions increased in a direct relationship to the repossessions his law firm were illegally pushing through the courts.

As Yves Smith points out, the article intimates that the foreclosure mills came up with robo-signing as a cost-cutting measure, and that fits with how Stern ran his business. The key for him was volume, processing as many foreclosures as possible. So he would naturally welcome the idea of having one employee sign off on all the foreclosure documents as a dedicated job every day. This benefited the servicers as well, since they didn’t want a whole lot of scrutiny on verification and would rather the question of whether or not they own the mortgages go unexplored. Stern was the perfect role player for this era, because he was always basically a garden-variety crook:

Almost from the beginning, Stern faced trouble. In 1998, he was named in a class-action lawsuit alleging that he padded fees on foreclosed homeowners. Stern settled for $2.2 million. According to legal testimony at the time from a Fannie Mae official, Fannie was warned about troubles at the Stern firm. But Fannie continued referring cases to Stern. Fannie Mae spokeswoman Amy Bonitatibus says, “At all times, Fannie Mae has had a reasonable expectation that our servicers and the law firms adhere to proper procedures and conduct under the law. In instances where we learn that servicers or law firms are not adhering to our requirements or applicable law, we immediately engage and take appropriate action, which may include termination.”

Soon after, Stern was sued again, this time for sexual harassment. A former paralegal alleged that Stern created a “sexually-laden” atmosphere in which he routinely “touched and grabbed and subjected to simulated intercourse” his employees. Stern settled that suit in 2000 for an undisclosed amount.

By this time, lawyers and homeowner activists were also warning lenders, federal regulators and the Florida Bar about Stern. In 2002, the Florida Supreme Court reprimanded Stern for submitting “potentially misleading” fee affidavits.

Even a built-for-speed operation like Stern’s firm could not keep up with the volume of foreclosures. As the article explains, law firms typically get a flat fee per foreclosure, but must get the foreclosure done within a set time frame, usually around six months, to collect. This led to the need for a solution that streamlined the process as much as possible.

Employee depositions paint a picture of a firm under constant pressure from the banks to move faster. The longer it took to foreclose, the more money the banks stood to lose. Like so many in the industry, Stern had a strategy to cope with all the volume and velocity: robo-signing. One employee testified that Stern’s chief lieutenant, a one-time file clerk named Cheryl Samons who rose to become the firm’s chief operating officer, signed as many as 1,000 foreclosure affidavits a day without reading a single word. The employee said Samons’ hand got so tired that she told three other employees to forge her signature. Samons also signed numerous mortgage assignments with a notary stamp that didn’t even exist at the time of signing. Notary stamps are only valid for four years. The only way Samons could have signed mortgage assignments at the time they were supposedly notarized was if she had been capable of time travel.

Stern rewarded Samons with a new BMW SUV every year, paid all her bills and took care of the mortgage payment on her home, according to testimony from two employees. Samons did not respond to request for comment.

The people getting foreclosed upon were an inconvenient facet of this scheme. And when Stern showed how this model could work, the servicers undoubtedly pressured every other firm they worked with to operate in the same fashion. This keeps fees to a minimum and benefits the servicers by giving them an out rather than modifications, which aren’t cost-effective for them.

The servicer model never had to deal with a flood of delinquent loans before the popping of the housing bubble in 2006; they were too new to ever need to confront such a problem. And the resultant chaos proved that they simply could not handle the flood without cutting corners massively and maximizing profits through forms of abuse like illegal fee increases. The foreclosure mills worked in concert with this.

This kind of profile, quite rare for the AP, exposes the clear fraud at the heart of the mortgage servicing, modification and foreclosure system. Stern’s company is now a penny stock, he’s being investigated by the state Attorney General and federal prosecutors, his staff has shrunk from 1,200 to 200, banks have abandoned him, and his headquarters is in default. He hasn’t gone to jail yet but he’s a likely candidate.

However, if we are to learn anything from this episode, it’s how depressingly normal Stern’s machinations were.

David Dayen

David Dayen