What will become of Steven J. Baum -- the reviled King of Foreclosures in New York
Written by Craig D. Robins, Esq.
Will Steven J. Baum, King of New York Foreclosures, Lose His Crown?
Foreclosure entrepreneur Steven J. Baum is somewhat of a curiosity here in New York.
I, for one, have my own fascination of the man and his law firm, as evidenced by having written three lengthy blog posts about his escapades, dealings and bungling in the New York court system.
As a foreclosure defense attorney, I regularly defend clients who were served with foreclosure pleadings that his firm prepared.
Secondly, Baum has developed a reputation for not being a good king, but rather, a wicked king. To me, taking illegal shortcuts to evict people from their homes is truly heinous.
Constantly criticized by the courts for sloppy and shoddy foreclosure practices, he does not enjoy a stellar reputation. He has been sanctioned, criticized and lambasted by the courts. A Long Island judge recently described his conduct as “out of the Twilight Zone.”
But if Baum is King of Foreclosure here in New York, he should take heed of the fate of David J. Stern, the King of Foreclosure of Florida, who is currently in a viscous free fall from grace, and in the process of losing his crown in the Sunshine State.
Before addressing Baum, lets look at his brethren King in Florida.
Florida King of Foreclosure – David J. Stern – Loses His Kingdom
David J. Stern, for a time, seemed to have it all. In 2009, his Florida firm handled an incredible 70,000 foreclosures – about five times more than Baum here in New York. The Stern firm brought in $260 million in revenue that year.
The firm had 1,200 employees which enabled Stern to enjoy a lifestyle that included grand mansions, flashy sports cars and a yacht named Misunderstood. Money was flowing big-time. It was reported that one of his 13 or so exotic luxury cars is a $1.85 million 2008 Bugatti Veyron.
Stern owns a $15 million mansion on an island in Fort Lauderdale, a $6 million beachfront condominium in the city, and another $6 million home.
But here’s some news most people did not know, as reported in this week’s New York Times. Stern actually took his foreclosure mill public by selling his foreclosure operations to a newly-formed, publicly-traded corporation, set up by investors just to securitize Stern’s business of providing foreclosure services. The company is listed on NASDAQ.
Stern pocketed about $60 million from this transaction and still retains a large percentage of stock in the newly-formed company, known as DJSP Enterprises. Stern became chairman of the new company and still receives a handsome salary. The company even has a fancy website: http://www.djspenterprises.com/.
Here’s the Working Relationship Between the Public Corporation, DJSP, and Stern’s Foreclosure Law Firm
The corporation now owns the law firm’s “back office operations.” The corporation then sells these services back to the law firm. The law firm’s clients, consisting of big banks with large mortgage portfolios, then pay fees to the law firm to bring foreclosure proceedings. Finally, the law firm shares these fees with the corporation. Investors who have invested in the corporation receive dividends on their stock, and the value of the stock can rise or fall.
If that sounds weird, it should. Imagine if I took my law firm’s paralegals, sold them to a company for a profit, and then bought back their services, this time from the company. What kind of investors would be foolish enough to fall for something like that, especially when one can argue that such an unconventional arrangement constitutes an illegal splitting of legal fees?
Incidentally, DJSP states that it out-sources a large part of its paperwork and document preparation services to the Philippines. So, many of those who were foreclosed upon in Florida were served with foreclosure pleadings that were prepared in Manilla.
Stern must feel that there’s nothing like enlisting help from foreigners abroad to assist in evicting our own citizens.
The Kingdom Comes Crashing Down
We are all aware that our country’s mortgage meltdown mess was created by the securitization of mortgages that were sold and traded like stocks on the secondary mortgage market. Now we have one of the country’s largest mortgage foreclosure law firms going public by securitizing itself into publicly-traded stock.
However, in the past few months, there have been revelations that the Stern foreclosure mill had engaged in what appeared to be a massive, wholesale robo-signing foreclosure enterprise involving documents that were falsified to speed up the foreclosure process. Not exactly good news for the corporate investors or Stern. The business is now under major scrutiny.
The Florida Attorney General began an investigation into possible mortgage foreclosure fraud. Numerous homeowners began asserting various fraud and robo-signing defenses. Several foreclosure defense attorneys brought class actions against the firm. Embarrassing videos of depositions of foreclosure mill employees admitting to robo-signing went viral on Youtube.
To add to Stern’s woes, here’s some recent happenings:
● The Stern firm lost its biggest clients – Citibank and Fannie Mae
● Many of the firms’s executives left
● The firm laid off 80% of its employees (that’s 800 people)
● Shares in the company went from $14 to 50 cents
● The company is facing lawsuits from its investors alleging they were defrauded and misled
● Employees who were laid off have sued, arguing the company broke federal laws
● There may be issues as to whether the scheme to sell the company is really an illegal scheme to split profits, which attorneys are prohibited from doing
● It has been revealed that some of the ”consultants” and investment bankers who developed this deal have a history of run-ins with regulators and the S.E.C., and previously settled charges of engaging in fraudulent transactions in other deals.
Will Baum Lose His Crown Too? How Much Is At Stake?
First, let’s put a value on Baum. If Stern received $60 million for his law firm and still retained a substantial interest, not to mention an impressive salary, and also knowing that he made many, many millions before that time, then by my most unscientific measure, Steven J. Baum has got to be worth at least $50 million or more – money that he made by evicting New Yorkers from their homes.
Now, let’s ponder if Baum could be headed into similar trouble.
Baum, too, has a production-line foreclosure mill, more similar to a factory than a law firm.
The Baum Firm Has Placed Some of Its Back-Office Operations into a Separate Legal Entity – Pillar Processing, LLC
Like Stern, Baum, too, appears to have turned a large part of his back-office operation into a separate, but private company – Pillar Processing, LLC. However, no one seems to know how many millions of dollars Baum received for selling it.
Since Pillar Processing is not a publicly-traded corporation, there is little info about this company. What we do know is who purchased it – Manhattan heavy-hitter private-equity firm Tailwind Capital LLC. This is an independant private equity firm, which, according to its website, is focused on controled investments in middle-market healthcare, media/communications, and business services companies.
The firm, which was founded in 2003, manages about $2 billion.
As a bicycle racer, I’ve heard of the firm before. A former partner of Tailwind Capital, Thomas Weisel, started Tailwind Sports, which was one of the sponsors of the United States Postal Service Bicycle Team – the world-famous team of Lance Armstrong who won the Tour de France seven times, several of which he was wearing a jersey that listed Tailwind Sports as one of the sponsors.
Like Stern’s corporation, DJSP Enterprises, Pillar Processing has its own website – http://www.pillarproc.com/. The website states: Pillar Processing LLC is a leading provider of business process outsourcing services to the default management sector of the residential mortgage industry.
Also, doing a quick WHOIS internet domain search reveals that Pillar Processing is the registrant of the Baum Law Firm website.
The Baum relationship with Tailwind is not necessarily good for homeowners, as it means that there is now $2 billion of muscle behind the drive to evict New York homeowners from their homes.
Baum, Pillar Processing and Chase Mortgage Get in Trouble
In a 2007 bankruptcy case pending in New York City (SDNY) before Judge Cecelia G. Morris, Baum’s firm brought a motion for relief from the stay. After the court raised some issues with the mortgage and scheduled an evidentiary hearing, Pillar Processing filed a letter with the court advising the court that the lift-stay motion “has been withdrawn.”
Judge Morris was understandably quite upset as Pillar Processing was a total stranger to the court. The letter did not identify or explain its relationship with the Baum firm, nor was it a part of any court record for any case. The letter was filed by a Baum attorney.
Judge Morris refused to recognize the letter and instead denied the pending lift-stay motion. She also issued a decision as a warning that the conduct here amounted to an abuse of process and she sanctioned the mortgagee (Chase) for the debtor’s actual expenses incurred in response to the motion. (In re: Schuessler, SDNY 07-35608).
What Will Be the Fate of the Baum Firm and Pillar Processing?
Will Baum suffer the same fate as the fiendish Florida Foreclosure King?
Stay tuned. At the rate his firm is going, with class action suits, ongoing criticisms from the courts, new revelations about possible robo-signing conduct, and more, the answer is possibly yes.
Read More About the Steven J. Baum and his Foreclosure Mill
In that post I discussed the numbers of foreclosure cases he filed, the concept that his firm is really a factory, and some of the questionable conduct that he has engaged in including filing botched papers and failing to divulge information.
Also see my continuation of this article — Steven J. Baum Foreclosure Firm Pursued with Same Laws Used to Go After Organized Crime.
In this other post, I reviewed many of the court decisions that have criticized Baum’s practices including the now famous Judge Schack Twilight Zone case.