One of New York state’s biggest foreclosure law firms will revamp its practices and pay a $2 million fine to settle a six-month probe by the Southern District U.S. Attorney’s Office.

In a settlement agreement announced yesterday, the firm, Steven J. Baum, P.C., of Amherst, will implement a series of internal controls including a pledge not to bring foreclosure actions without reviewing the original promissory notes or reviewing a copy of the note from its client or custodian of the document.

The thrust of that condition is similar to an order issued almost a year ago by Chief Judge Jonathan Lippman directing lawyers for lenders to file an affirmation that they have taken reasonable steps to verify the accuracy of papers they file to support residential foreclosures (NYLJ, Oct. 21, 2010).

The law firm will:

• Inform courts of the nature of the assignments in pending foreclosure proceedings it is handling.

• Obtain affidavits from clients attesting to the fact that they possess original notes or have conducted a diligent search and the original note could not be found.

• Have experienced attorneys supervise the preparation of pleadings, and review and approve pleadings before they can be filed.

• Implement a 12- to 24-month training program for its attorneys that includes an overview of the foreclosure process in New York state and a review of the litigation procedures expected at the firm.

• Provide immediate notice to the government when objections are raised regarding the accuracy of certain court filings related to mortgage foreclosure proceedings.

• Maintain documentation of its compliance with the settlement.

The 12-page agreement also prohibits the firm’s employees from executing mortgage assignments as officials or representatives of MERS, an electronic mortgage registry system.

“In mortgage foreclosure proceedings, there are no excuses for sloppy practices that could lead to someone mistakenly losing their home,” Southern District U.S. Attorney Preet Bharara said today in a statement. “Homeowners facing foreclosure cannot afford to have faulty paperwork or inadequate evidence submitted, and today’s agreement will help minimize that risk.”

After paying its fine, the Baum firm, which has 87 attorneys, will be released from potential civil claims under the Financial Institutions Reform, Recovery and Enforcement Act of 1989.

According to the agreement released by the U.S. Attorney’s Office, the firm, headed by Steven J. Baum, “acknowledges that it occasionally made inadvertent errors in its legal filings in state and federal court, which it attributes to human error in light of the high volume of mortgage defaults and foreclosures throughout the state of New York in the wake of the national subprime mortgage crisis.”

The settlement agreement does not constitute a finding of wrongdoing or unlawful practice by the firm, says the agreement, which is the first time the Southern District U.S. Attorney’s Office entered an agreement with a mortgage foreclosure firm to reform its practice.

The settlement also applies to Pillar Processing, a separate entity that handles back-office responsibilities for the Baum firm, like human resources, accounting and information technology.

The agreement will be in effect for three years, though it can be extended for up to two additional years, to a five-year maximum, if a federal district court deems there have been violations of the settlement.

“We have agreed to changes in our foreclosure practice that go over and above what current law requires,” Mr. Baum said in a statement. “This settlement allows our firm to resolve complex procedural issues raised by the U.S. Attorney’s Office which are common to all New York law firms that practice in the mortgage foreclosure area. As our law firm soon enters our fortieth year, we will continue to adhere to the highest ethical standards and represent our clients with great professionalism and dedication.”

Mr. Baum said in an interview that he did not anticipate the requirements “to have significant impact” on the firm’s processing of foreclosures.

“The changes that we have made should really be the set of best practices for other law firms,” he said.

He said that for several months now the firm has been obtaining original promissory notes. Meanwhile, associate training and the overview of pleadings by experienced attorneys were already occurring before the investigation, he said.

Assistant U.S. Attorneys Pierre G. Armand and Lara K. Eshkenazi represented the U.S. Attorney’s Office.

Elkan Abramowitz of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer represented the Baum firm.

Like his client, Mr. Abramowitz said in an interview that the Baum firm had already implemented many of the stipulated practices before the investigation.

For example, the firm stopped having employees assign mortgages on behalf of MERS in June 2010, Mr. Abramowitz said.

One new practice for the firm, he said, is the requirement to notify the court that a Baum employee has filed a mortgage assignment as a corporate officer of MERS in pending foreclosure and bankruptcy actions.

Mr. Abramowitz said the Baum firm was going beyond legal and ethical requirements by ending assignments as MERS officers. He pointed to several judicial opinions and a December 2010 New York State Bar Association opinion authorizing the practice.

Rebecca Case-Grammatico in the Empire Justice Center’s Rochester office is the supervising attorney for the office’s foreclosure prevention unit. With just about half of the unit’s 150 active cases handled by the Baum firm, she called the settlement “huge news.”

Shortly after the settlement was announced, Ms. Case-Grammatico said that several listserves for lawyers representing homeowners were already relaying the news.

“I hope it serves as a model for other firms across the state because I believe the foreclosure firms have a general practice of doing things that are sloppy,” she said.

David Bookstaver, a spokesman for the Office of Court Administration, noted that the settlement agreement acknowledged no wrong doing and said the state courts would not investigate any possible errors in Baum foreclosure actions because “it is not the role of the court system to undertake investigations into the practices of law firms or lawyers.”