Foreclosure Fortune Buys Bugatti, Yacht, Mansions for

Attorney
By David McLaughlin - Oct 19, 2010 7:49 AM PT Tue Oct 19 14:49:03 GMT 2010

A screengrab taken from Google Earth shows the home of David J. Stern in Fort Lauderdale,
Florida. The larger boat to the right is his yacht, "Misunderstood". Source: Google
Earth/wbipi.com via Bloomberg

Bill McCollum, Attorney General of Florida. Photographer: Ric Feld/Bloomberg

For Americans, the foreclosure crisis has wiped out fortunes, bringing destitution and
homelessness. For Florida attorney David J. Stern, it has brought mansions, a Bugatti sports car
and a luxury yacht.

Florida has the third-highest residential foreclosure rate in the U.S., and Stern, 50, has made a
fortune off the bust. His foreclosure-processing business has generated hundreds of millions of
dollars in revenue preparing documents for the cases that his law firm brings on behalf of lenders
seeking to reclaim homes from borrowers who can’t pay their mortgages.
Now his business is under scrutiny, as banks suspend foreclosures and evictions amid allegations
that some home seizures were based on fraudulent documents. Attorneys general in every U.S.
state have joined to probe foreclosure practices generally. Stern’s foreclosure firm and three others
are under investigation by Florida Attorney General Bill McCollum.

“Some of these law firms we’re dealing with, we have reason to believe, actually forged
documents, committed fraud, did all kinds of things,” McCollum said in an interview Oct. 15. “We
don’t know where this is headed right now.”

Stern’s attorney, Jeffrey Tew, said Stern has used technology and a well-organized operation to
efficiently process foreclosures. Stern gets a flat fee of about $1,400 a foreclosure, according to
Tew, of Tew Cardenas LLP in Miami.

‘His Acumen’

“David’s wealth is a reflection of his acumen and the tremendous volume of foreclosures,” Tew
said in an interview yesterday. “He had something to do with the acumen part. He had nothing to
do with the amount of foreclosures we have.”

Stern’s firm handles thousands of cases a month. It conducted a review of its files and found 21
had “issues with the affidavits,” Stern said in a Sept. 8 conference call to discuss second-quarter
results for DJSP Enterprises Inc. DJSP provides non-legal foreclosure services, such as title
searches, for his law firm, Law Offices of David J. Stern PA. Both businesses share the same
Plantation, Florida, address.

Stern sold those operations this year in a transaction that formed DJSP, a publicly traded company
incorporated in the British Virgin Islands. Stern, the chairman and chief executive officer of DJSP,
declined through his attorney to be interviewed for this story.

Stern grew up in Liberty City section of Miami and worked his way through school, Tew said. He
received his law degree from South Texas College of Law in 1986 and founded his firm in 1994.
Before that, he worked for a law firm that specialized in representing mortgage lenders, according
to a regulatory filing by the company that became DJSP.

Island Mansion

Stern owns a $15 million mansion on an island in Fort Lauderdale, a $6 million beachfront
condominium in the city, and a $6 million home in nearby Hillsboro Beach, according to property
records. The mansion includes an adjoining property he bought in 2009 to make room for a tennis
court and parking spaces, according to building records.

Cars registered under Stern’s name in Florida include three Ferraris, four Porsches, a Rolls-Royce,
a Cadillac and the Bugatti, according to the state Department of Highway Safety and Motor
Vehicles. He also owns a yacht, Tew said.

“He started from scratch and has built a wonderful legal practice and has made a lot of money,”
Tew said. “That’s the American dream isn’t it?”

One in 34 housing units in Florida was in the foreclosure process or bank-owned as of Oct. 1, the
third-highest rate in the country, according to Irvine, California-based RealtyTrac Inc., which
monitors foreclosure data. State courts have hired additional judges to hear foreclosure cases and
clear the backlog.

Foreclosures Quadruple

Foreclosures processed by Stern’s law firm more than quadrupled to 70,328 in 2008 from 15,332
in 2006, according to the regulatory filing. Revenue from non-law-firm operations jumped to
$199.2 million in 2008 from $40.4 million over the same period, the filing said. DJSP depends on
the firm for case referrals, according to the regulatory filing.

Stern’s law firm received more than 6,000 new foreclosure cases a month and managed 100,000 at
any given time, according to the filing, which is dated Dec. 28, 2009.

“David and foreclosure lawyers are foreclosing legitimate mortgages that are in default,” Tew said.
“And yet, they have been successfully villainized.”

According to the filing, the law firm has represented the biggest banks and mortgage servicers in
the U.S., including Wells Fargo & Co.; Goldman Sachs Group Inc.’s Litton Loan Servicing,
Countrywide Financial, now owned by Bank of America Corp.; and government-supported Fannie
Mae, the mortgage- financing company. Stern was named Fannie Mae’s attorney of the year in
1998 and 1999, according to the filing.

State Bar Rebuke

The Florida Bar, which regulates lawyers in the state, has an open investigation into Stern,
according to Karen Kirksey, a spokeswoman. She declined to comment on the nature of the
investigation because it’s confidential. The Supreme Court of Florida approved a reprimand of
Stern in 2002 after the bar said he submitted “potentially misleading” affidavits about his costs in
foreclosure cases, according to court documents. He consented to the reprimand, court documents
show.

At an investor conference in California in March, Stern told investors that rising foreclosures were
the key to DJSP’s success, according to a securities lawsuit filed against Stern and DJSP filed in
federal court in Florida in July. Foreclosures, he said, would stay high until 2017, even as
President Barack Obama acted to keep people in their homes.

“No matter what the Obama administration brings our way, we have found the way to create a
profit center on it,” Stern said at the conference, according to the lawsuit.

‘A Factory’

Hilton Wiener, a Florida attorney who has defended homeowners in foreclosure cases against
Stern’s firm, described Stern’s operations as “more similar to a factory than a law firm.” The
business, he said, depends on homeowners’ not contesting foreclosures so that cases can move
quickly through the courts to judgment, Wiener said, basing his view on former Stern paralegals
whom he has hired.

“This is like a production line,” he said. “The bank needs them to get certain results. It just
becomes a foreclosure processing mill.”

Stern’s employees were under pressure to process cases as quickly as possible, according to a
deposition of Tammie Lou Kapusta, a former paralegal in his law firm.

Under oath, Kapusta told lawyers for the Florida attorney general’s office that Stern’s business
grew from about 250 employees in 2008, when she started, to 1,100 when she was fired in July
2009. She said she was fired after refusing to follow a practice that she said she believed was
improper.

‘Getting the Judgments’

Employees repeatedly signed affidavits without reviewing them, forged signatures, and improperly
notarized and backdated documents, she said, according to a transcript of the interview.
“Everything was about getting the judgments entered because we have to report back to the
banks,” Kapusta said.

Tew, Stern’s attorney, declined to comment specifically on Kapusta’s allegations. He said that she
was fired for cause and that she provided no evidence to back her claims.

Kelly Scott, a legal assistant who said she left the firm in February 2009 due to illness, made
allegations similar to Kapusta’s in a sworn interview Oct. 4 with the Florida attorney general’s
office.

Paralegals at Stern’s firm signed documents on behalf of bank employees and had the authority to
do so, Tew said. In May 2009, they stopped that practice so that only bank employees now sign the
documents.

Fixed Fees

Stern’s businesses are paid fixed fees for legal and nonlegal work, such as $400 for title searches,
according to the regulatory filing and Stern’s remarks at the investor conference, as quoted in the
securities lawsuit. Profit depends on cutting costs and boosting volume. The business is supported
by an operation in the Philippines that provides data entry and document preparation, according to
the filing.

This year, Stern made about $146 million when he sold his non-legal foreclosure operations to
China-based Chardan 2008 China Acquisition Corp., a “blank check” company originally formed
to do business in China, according to a regulatory filing. The company was renamed DJSP
Enterprises.

Stern and his businesses were paid as much as $58.3 million in cash, given a note of at least $52.7
million and promised another $35 million in cash that must be paid in full within five years,
according to the filing. He also received about 6 million common and preferred shares in the
company. Stern is the seventh-largest shareholder of DJSP with a stake of 4.2 percent, according to
Bloomberg data.

DJSP reported a profit of $3.8 million on revenue of $56.1 million in the second quarter.

On Oct. 14 DJSP said it was laying off 10 percent of its workforce because foreclosure referrals
had “declined dramatically,” after lenders including Bank of America and JPMorgan Chase & Co.
suspended foreclosures and evictions.
DJSP rose 9 cents to $1.60 yesterday in Nasdaq Stock Market trading. The shares have dropped 82
percent this year.

To contact the reporter on this story: David McLaughlin in New York at

dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.