Attorneys who represent lenders bringing foreclosures are "an easy target for criticism" in the current economic climate, says Steven J. Baum, who runs by far the largest New York state firm offering services to what its website calls the "default industry."
Indeed, Baum and his firm, Steven J. Baum, P.C., have faced increasing criticism with a surge in foreclosures sought by client lenders, who have been struggling to mop up the financial debris from the burst housing bubble.
The once-obscure Buffalo-area firm has become a fixture in courthouses throughout the state. Last year, it sought judicial action in 17,620 foreclosure cases, nearly 40 percent of the 46,572 reported by the court system. (The statewide total has more than doubled from the 22,601 recorded in 2005).
While Baum's business has soared, however, his firm has been reviled as a "foreclosure mill" that tramples on the rights of homeowners.
Critics claim the Baum firm's high-volume practice makes it prone to error and inconsistencies. Adversaries accuse it of "sloppy" work, inadequate documentation for the actions it brings and poor communications. One federal suit even accuses it of knowingly filing "false and fraudulent" court documents.
Several judges have faulted the Baum firm's lawyers for what the judges said was the firm's failure to prove its clients owned properties on which they were seeking to foreclose -- an area that has been muddied by "securitization" of mortgages and their serial assignment from one institution to another.
One state judge compared the firm's explanations for defects in foreclosure papers to the fanciful scenarios authored by Rod Serling, the creator of "The Twilight Zone."
Another judge levied a sanction of almost $20,000 for the "misrepresentation" of statements in a foreclosure petition and "willful carelessness."
"Baum has been professionally irresponsible, which has impeded the proper administration of justice," the judge concluded.
And at least two bankruptcy trustees have suggested sanctions against the firm.
Baum declined to be interviewed for this article, but he did provide written answers to questions posed by the Law Journal. He used those responses to defend what he said is his firm's professional approach to an "extremely complex" area of the law.
"The term 'foreclosure mill' is offensive," he said. "Yet we don't see firms being called 'securitization mills' for the vast number of mortgage securitization work they did. If what we did was easy, there would be hundreds of firms doing it, yet there are about a dozen who actually practice in the area."
Responding to a federal court suit, Baum said in a statement to the Buffalo News that "we follow the rules and regulations regarding the various processes involved in a foreclosure proceeding and take the utmost care in doing so."
He wrote the New York Law Journal, "We practice throughout the state and there are hundreds of judges who have no issue with our work."
Baum's firm is not alone in facing criticism as lenders and their attorneys have come under increasing scrutiny nationwide.
Investigations are under way by all 50 state attorneys general, Congress and mortgage loan guarantors Fannie Mae and Freddie Mac. Several large banks, some of them Baum clients, briefly suspended foreclosures last year in the wake of spreading allegations of "robo-signing" and other irregularities.
Meanwhile, Chief Judge Jonathan Lippman has ordered all attorneys bringing foreclosure actions in New York to submit an affirmation attesting to the accuracy of the documents they file -- a requirement that sources say Baum and other attorneys active in the New York State Bar's Real Property Section sought to soften.
"The affirmation requirements have required law firms to work with their clients in an effort to comply with the new rules," Baum said in his e-mailed statement. "Clients of the firm are working with us to achieve this goal."
And the affirmation rule is not the only change those clients and their attorneys are confronting.
"What has changed is the vast amount of regulations, court rules and statutory changes," Baum wrote. "Settlement conferences are relatively new; 90-day notices and registration with the New York State Banking Department are in place. Bankruptcy courts have a host of requirements for loss mitigation and lender worksheets; various courts have specific forms they want used and various judges have requirements for submissions. There is no one uniform way to do foreclosures across the state. I can't speak to the number of mistakes [in foreclosure actions], but like any business, it is important to keep up with the changes and adjust to them."
These days, Baum said that he finds his legal specialty "less rewarding, and I don't know who wouldn't. At various times in our history, different attorney groups have been under pressure. There were new rules for matrimonial attorneys some years back that caused a stir; then came new rules for guardians. Our system of justice allows for legal representation, and that is what we do -- represent clients to the best of our abilities."
STEADY GROWTH IN BUSINESS
The Baum firm was founded in 1972 by Marvin R. Baum, Steven Baum's late father. Marvin Baum was a well-known real estate attorney in western New York and onetime chair of the state bar's Real Property Law Section. In fact, a "Marv Baum Lunch Group" of about 20 attorneys has been meeting in the Buffalo area for the past 30 years.
Steven Baum, 49, graduated from Syracuse University and the University at Buffalo Law School. He was admitted in 1987 and immediately went to work for his father.
"Few attorneys who graduate today get the chance to have a mentor like I did," said Baum. "My dad had an amazing knowledge of the law and always had answers that you couldn't find in a law book."
Marvin Baum died in 1999, and Steven took over the firm and renamed it in 2002, with himself as its president. In addition to foreclosures, it handles creditor-based bankruptcy work, evictions, real estate transactions, litigation and commercial loan closings.
Driven by the collapse in subprime mortgages, business has been good for the last several years.
According to court statistics, the firm filed more than 3,000 new foreclosures in 2002. Only four years later, it filed 9,000. By 2009, it was filing more than 25,000.
The firm has filed cases in all of the state's 62 counties except one -- Hamilton. It brought so many cases in Suffolk County, more than 2,000, that one judge set aside an entire day each week to hear them.
Baum's clients have included the cream of the banking industry: JPMorgan Chase, HSBC, Deutsche Bank, Bank of America, Citimortgage, GMAC Mortgage and other institutions that have lent money to homeowners at terms they could not meet.
"Steve is very personable, he's a good lawyer," said Joshua Stein, a commercial real estate attorney in Manhattan who has known Baum for 10 years and considers him a friend. "He's also very good with people and that's important for business development."
"Our clients value the quality of the work we perform," said Baum.
However, the firm's foreclosure filings slowed last year to 11,266 in the wake of the state affirmation rule and criticism of the foreclosure process that prompted several banks to suspend foreclosure activity. Some institutions have been writing down their bad mortgage debts.
Plunging foreclosures have forced large-scale layoffs at the business of David J. Stern in Florida, another firm often criticized as a foreclosure mill. Baum declined to discuss how the challenges facing the mortgage industry have affected his own firm's finances.
"This is a business with very little, if any predictability," he said. "There isn't a cause-and-effect nature to it. Write downs don't automatically mean a loss of business. Banks hold off on referrals for a variety of reasons, the most pressing being that they do want to keep borrowers in their homes, regardless of what is written about the banks. While someone may say it is never enough, I know that our clients are doing everything they can to work with borrowers."
Baum said that less than half of the actions his firm initiates end with the homeowner losing his or her home in a foreclosure auction.
Baum has about 70 lawyers on his payroll at the firm's Amherst and Westbury, L.I., offices, assisted by paralegals and other support personnel.
Back-office operations such as human resources, accounting and information technology are outsourced to Pillar Processing LLC, which Baum established and sold in 2007 to Tailwind Capital, a New York City hedge fund. Pillar occupies a separate suite in the Amherst office building where the Baum firm has its headquarters, but it and the law firm apparently have a close relationship.
In February 2008, Southern District of New York Bankruptcy Court Judge Cecelia Morris complained that Pillar had submitted papers in five cases filed by the Baum firm on behalf of four financial institutions.
"[I]n each case, Steven J. Baum, P.C. appears to have attempted a delegation of its representation of the secured creditor to 'Pillar Processing, LLC,' a Limited Liability Corporation that does not appear to be a law firm," Judge Morris wrote in In re McCourt, 05-38803. She denied all five motions and warned that she would reject future applications by "non-lawyer entities."
Neither Baum nor Tailwind would discuss Pillar.
A 'MANAGED CARE' APPROACH?
To control costs, institutions with tens of thousands of loans in their portfolios typically pay law firms a flat rate, rather than an hourly rate, to handle uncontested foreclosures, which are the majority of cases. For example, Fannie Mae, a dominant force in the secondary mortgage market, authorizes fees of $1,400 and $2,000 for a typical foreclosure in New York City and nearby counties.
The cost for contested mortgages are higher -- up to $25,000, according to two sources. Fannie Mae reimburses mortgage servicers for "reasonable attorneys' fees necessary to resolve issues caused by unexpected events." These include "additional court appearances due to borrower delay or court-initiated continuances"; "litigation activities, including discovery practice, motions, trial and appeal."
However, Fannie Mae will not pay for "actual or alleged error or lack of diligence on the part of a servicer-retained attorney or trustee" and a "lender's failure or alleged failure to satisfy its duties and responsibilities as a servicer."
Raymond Brescia, an Albany Law School professor who monitors the current credit and foreclosure crisis, calls the lenders' approach "a managed care model."
Speaking generally and not about the Baum firm in particular, he said that payment method creates an incentive for law firms to "minimize the legal services provided in each case, to maximize the payment received per hour for the services rendered," he said in an e-mail.
"What you get is the foreclosure mill, the factory that produces the most widgets at the least cost," he said in an interview.
One attorney who recently left a firm similar to Baum's said that the processing of mortgage loan foreclosures "really is like an assembly line and run like a mill and it's not geared toward the value of the work, it's more toward the volume of the work."
Baum rejected the suggestion that law firms like his cut corners in their foreclosure work.
"Just as a doctor has an obligation to his patient, so does an attorney have an obligation to their client," he said. "Lawyers are under an ethical obligation to represent their client zealously, and Professor Brescia's comment would be counterintuitive by insinuating that firms are minimizing legal services."
Baum also argued that flat fees benefit borrowers who reach an arrangement with lenders to modify and/or pay off their loans and usually are held responsible for "reasonable" attorney's fees.
Given the high hourly rates of attorneys, especially in New York City, "It is not entirely unreasonable to assume legal fees in the tens of thousands of dollars for a single case," he said.
CRITICISM FROM ADVERSARIES
But attorneys representing homeowners have been highly critical of the Baum firm, claiming that the documentation it submits is at times inadequate.
"Their business model is high-volume and that means sloppy practice," said Lynn Armentrout, director of the New York City Bar's Justice Center Foreclosure Project, which frequently squares off against the Baum firm.
"This is a deliberate business plan and earns them lots of money," said Armentrout, who nevertheless added that she has forged cordial and respectful relationships with some Baum attorneys.
"In my experience, when it's the Baum firm on the other side, I would say that easily in 98 percent of the cases, the documents are questionable in origin and validity," said Linda Tirelli, a bankruptcy attorney based in White Plains who also inspects documents for debtor law firms.
She said that the problems include missing documents or documents that require further explanation.
When they spot gaps in foreclosure paperwork, attorneys for homeowners claim they have had difficulty contacting Baum attorneys to resolve the issues.
Rebecca Case-Grammatico, a senior attorney at the Empire Justice Center's Rochester office, supervises a foreclosure unit with at least 135 active cases. Baum's firm appears for the bank in about 75 percent of those cases. In an effort to "bridge communications," she and 10 representatives of legal services providers from western and central New York, along with four others on a conference call, met in Amherst with the Baum firm's managing attorney and several of its litigation attorneys.
According to Case-Grammatico, the legal services and Baum attorneys agreed that many of the demands for paperwork that the agencies claim slowed the process were made at the request of the banks and were beyond the Baum firm's control. But the firm agreed to designate a single person for homeowner attorneys to contact with questions and concerns.
Case-Grammatico said that the Baum attorneys were "shocked and appalled" at the perception that the firm was unresponsive.
Baum, who did not attend the meeting, said in a recent statement to Bloomberg News that "consumer activists and attorneys representing homeowners have their own agenda in this process, including degrading the legal work we conduct on behalf of our clients by using terms like 'foreclosure mill.'"
Stein, the Manhattan real estate attorney, acknowledged that mortgage foreclosure paperwork is often late or incomplete by the time it is handed over to a law firm.
"A lot of the sloppiness happened before the loan came to him [Baum]," he said.
While most of the criticism against the Baum firm has involved allegations of simple carelessness or sloppiness, a putative class action RICO suit filed last August in the Eastern District of New York goes further, accusing the firm of a fraudulent conspiracy to "unlawfully extract money and property from desperate homeowners throughout the State of New York."
The suit by homeowners in Brooklyn and Sullivan County, Campbell v. Baum, 10-3800, alleges that the firm filed faked documents to safeguard what attorney Susan Chana Lask of Manhattan claimed was a "reliable" source of income. Lask, who filed the suit, pegged the firm's annual revenues at $200 million.
Baum's attorneys at Kaufman Dolowich Voluck & Gonzo of Woodbury moved to dismiss what they called "simply nonsensical" claims.
"This case represents an aggressive and unfounded attempt by two homeowners who have defaulted on their mortgages to block their foreclosures by claiming that their failure to pay was brought about by a massive conspiracy" among mortgage lenders, servicers, the MERS electronic mortgage registration system and the Baum attorneys who handled the two actions, the firm argued.
Eastern District of New York Judge Jack B. Weinstein observed that the firm's motion has "considerable merit." A pretrial conference has been set by Magistrate Judge James Orenstein for March 25.
Meanwhile, Baum last November filed a defamation action against Lask in Erie County Supreme Court, Baum v. Lask, 012048/2010, seeking $6 million for comments Lask has made, outside her court papers, in a press release, on YouTube and in newspaper interviews. For example, she told the Buffalo News that the Baum firm was guilty of "the biggest fraud in history" and, "They're making up their own rules, and that's what frauds do."
Vincent E. Doyle III of Connors & Vilardo in Buffalo, the president-elect of the state bar, is representing Baum. He declined to comment, but alleged in his defamation complaint that Lask's accusations were false and malicious, that the Baum firm "did not change or alter public records" and that Lask knew that. Moreover, he said her estimate of Baum's revenues was inaccurate.
According to the complaint, Baum "had come to enjoy and did enjoy a good name and reputation in the community and the practice of law." But he said that Lask had seriously damaged that reputation with statements available to millions on the Internet.
Lask told the Law Journal that her statements were based on fact and Baum's suit was frivolous. She said on Feb. 15 that she had not yet been served.
Baum also is facing a second potential class action suit in the Eastern District of New York. Filed in November by Manhattan attorney Randall S. Newman, Menashe v. Steven J. Baum P.C., 10-cv-5155, it alleges that the Baum firm charged Great Neck resident Jacob Menashe $350 for appearing at a settlement conference in violation of state law.
"The unlawful attorneys' fees demanded by Baum only increase the amount that financially strapped New York homeowners must raise to reinstate or pay off their mortgages and thereby avoid foreclosure," the lawsuit argues.
The Baum firm responded that the suit is based on a "flawed interpretation" of an amendment to court regulations, which barred such fees. However, the firm argues that the foreclosure action at issue had started a month before the new requirement.
"What is important now is that all parties attempt to work together to resolve issues amicably," Baum said in a statement to Bloomberg. "The barrage of accusations and litigation does little to help the underlying problems."
But as Baum himself has pointed out, foreclosure attorneys are not very popular right now. And his friend Stein observed that, "When you're not a popular guy, if somebody comes in and applies a magnifying glass to you, they're going to look for bad stuff and chances are they are going to find something that's imperfect and that's what they write about."
More and more judges have been applying that kind of scrutiny to Baum's cases.
After denying a motion to evict the occupant of a cooperative apartment, Nassau County District Court Judge Scott Fairgrieve found five "falsities" in a 10-paragraph "computer-generated" petition filed by the Baum firm on behalf of the Federal Home Loan Mortgage Corp. (Freddie Mac), which purportedly had been assigned the mortgage by Wells Fargo.
The judge sharply criticized what he described as the firm's unavailing attempt to demonstrate that its "willful carelessness" and "dishonesty" was not material.
"The misrepresentation of the material statements here was outrageous," the judge wrote in Federal Home Loan Mortgage Corp. v. Raia, 29 Misc. 3d. 1226 (A). "If not for the false statements, this case could have been dismissed more easily for lack of standing. Baum has not convinced this court that they have acted professionally responsible either in submitting truthful documents or accepting accountability for their mistakes."
The judge also noted that Baum should have known better since his firm "is highly versed on issues of standing as evidenced by the firm's abundance of litigation in this area" and had previously been warned about similar conduct.
Judge Fairgreve ordered the Baum firm to pay $14,532 to the Volunteer Lawyers Project of Hempstead for attorney fees and costs and a $5,000 fine to the Lawyers' Fund for Client Protection.
The firm filed a notice with the Appellate Term, 2nd Department, to challenge the ruling but recently withdrew it. Baum told the Law Journal that the firm is "rarely" sanctioned. "We have paid very little."
The Baum firm also has been criticized on several occasions by Brooklyn Supreme Court Justice Arthur D. Schack, who is known for his tough stance on lenders. One May 2010 case, in particular, has attracted the notice of the firm's adversaries.
First, the judge found that the firm's attempt to cure previously noted defects in a motion in HSBC v. Yeasmin, 34142-2007, was 204 days late. But even if the renewed motion had been timely, he said that the firm's explanations were "so incredible, outrageous, ludicrous and disingenuous that they should have been authored by the late Rod Serling, creator of the famous science-fiction TV series, The Twilight Zone. Plaintiff's counsel, Steven J. Baum, P.C., appears to be operating in a parallel mortgage universe, unrelated to the real universe."
The Baum firm also has faced questions from Justice Schack and in bankruptcy court about the relationship between it and MERS, an electronic registry that holds a mortgage as a nominee of the financial institutions before assigning the delinquent loans to their owners so that they can be foreclosed.
For example, Northern District of New York Bankruptcy Trustee Tracy Hope Davis noted in December that the assignment of a mortgage from MERS to GMAC Mortgage had been signed by Elpiniki M. Bechakas, as assistant secretary and president of the Mortgage Electronic Registrations System Inc.
"Undisclosed to the Court by GMAC or its attorneys Steven A. Baum, P.C. (the 'Baum firm') is the fact that Ms. Bechakas is an attorney with the Baum firm," Davis wrote in In re Bevins, 10-12856. "This raises a conflict of interest issue because the Baum firm appears on both sides of the mortgage assignment."
In October and November, Suffolk County Supreme Court Justice Melvyn Tanenbaum issued about 50 orders that adjourned foreclosure actions handled by the Baum firm. The orders faulted the firm for not submitting motions in the proper format and also questioned submission of forms by a non-attorney.
"The Court deems plaintiff's counsel's actions to be an intentional failure to comply with the directions of the Court and a dereliction of professional responsibility," the judge wrote.
In January 2010, Southern District of New York Bankruptcy Trustee Diana G. Adams sought sanctions against JPMorgan Chase for filing "documents that appear to be either patently false or misleading" in connection to the bank's motion to lift a stay in In re Nuer, 08-14106. Adams also reserved her right to seek sanctions against the Baum firm, which represented Chase in the case.
A March 2010 stipulation let Chase withdraw its motion and file a replacement. Discovery is under way to determine if sanctions should be levied against the bank or its attorneys, said Tirelli, the White Plains bankruptcy attorney who represents Silvia Nuer. The trustee's motion notes that Chase has retained the White Plains firm of Teitelbaum & Baskin to review all the bank's pleadings in the Southern District.
Meanwhile, Davis, the trustee in the Northern District, has supported sanctions against the Baum firm in two cases. In Bevins, she argued that the firm filed a proof of claim incorrectly displaying GMAC and Deutsche Bank as "secured creditors by virtue of the Note and Mortgage." In In re Szumowski, 10-12431, she complained that the firm filed a proof of claim by BAC Home Loans Servicing, L.P., but there is no documentation showing that the note or mortgage were assigned to that entity.
While the Baum firm has been the subject of sometimes harsh judicial criticism, Erie County Supreme Court Justice Timothy Walker said its attorneys are helpful, prompt and responsive.
"I've not seen any issues that would cause me concern dealing with that firm," he said.
Baum argues that the negative comments about the firm by judges actually represent a very small part of its caseload.
"Few reporters take the time to understand some of the decisions rendered where a certain judge may criticize our firm," he said. "Rather than reading a lengthy decision, it is easier for them to lift acerbic comments and print them."
Baum said that the firm often disagrees with the decisions that go against it, but few clients "are willing to appeal due to the time and cost involved. We practice throughout the state and there are hundreds of judges who have no issue with our work."
But Baum is frustrated by the firm's dealings with a few judges.
"In my father's time, you never saw the judicial disrespect for attorneys that you see now; it was unheard of," he said. "Bench and bar worked together. We are fortunate to have so many excellent judges in New York, but it is a small yet vocal minority who show incredible disrespect towards counsel for lenders."