(Updates with Sinton comment in the 15th paragraph.)
Oct. 6 (Bloomberg) -- Steven J. Baum’s foreclosure law firm, one of the largest in New York state, will pay the U.S. $2 million and change its practices, including those related to Merscorp Inc.’s mortgage database, to resolve a probe of its foreclosure filings.
The agreement, signed today, resolves an investigation into whether the Baum firm filed misleading pleadings, affidavits and mortgage assignments in courts, according to a statement by U.S. Attorney Preet Bharara in Manhattan. The settlement doesn’t constitute a finding of wrongdoing.
“There are no excuses for sloppy practices that could lead to someone mistakenly losing their home,” Bharara said in the statement. “Homeowners facing foreclosure cannot afford to have faulty paperwork or inadequate evidence submitted, and today’s agreement will help minimize that risk.”
Steven J. Baum PC, located in Amherst, New York, just north of Buffalo, has attracted lawsuits and fines for its actions during the housing crisis. It has been accused of overcharging, filing false documents and representing parties on both sides of a mortgage transfer.
State attorneys general and federal regulators are negotiating with banks including JPMorgan Chase & Co. and Bank of America Corp. to try to reach a settlement over faulty foreclosure practices in the wake of the financial crisis.
The changes in procedure “go over and above what current law requires,” Baum said in an e-mailed statement. “We will continue to adhere to the highest ethical standards.”
Pillar Processing LLC, which processes foreclosure documents and shares an address with the law firm, is also part of the settlement. Pillar is owned by Manhattan private-equity firm Tailwind Capital LLC, according to its website.
Brooke Gordon, spokeswoman for Tailwind Capital, declined to comment on the settlement.
Baum acknowledged that the firm “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,” according to Bharara’s statement.
The agreement calls for the firm’s employees to halt their practice of assigning mortgages as supposed employees of Mortgage Electronic Registration Systems Inc., an electronic database of mortgages.
“Until recently, employees of Baum, with the consent of MERS, had been assigning mortgages on behalf of MERS, even though they had no connection to MERS whatsoever,” according to Bharara’s statement.
MERS, a unit of Reston, Virginia-based Merscorp Inc., was set up by the mortgage industry to allow banks to assign and reassign home loans without having to record the changes with county land-records offices.
Janis Smith, a MERS spokeswoman, didn’t have an immediate comment on the MERS allegation.
The agreement calls for the Baum firm to obtain affidavits from clients attesting that they have the original promissory notes or have searched for them, to have experienced attorneys supervise the preparation of documents and to implement a training program for its attorneys.
“Borrowers and some courts have been questioning the validity of MERS assignments, pleadings and affidavits from the Baum firm for several years,” Jennifer Sinton, deputy director of the foreclosure-prevention project at South Brooklyn Legal Services, said in an interview. “It’s good to see that Baum is now required to discontinue these practices. Hopefully, this will protect courts and homeowners from bogus foreclosure lawsuits.”
New York State Supreme Court Justice Arthur M. Schack in Brooklyn called the Baum firm’s explanations in one case “so incredible, outrageous, ludicrous and disingenuous that they should have been authored by the late Rod Serling.”
Schack threw out the case in part because he said the assignment of the loan by a Baum lawyer on behalf of MERS as nominee of the lender had been done improperly.
The same day, the Baum firm represented the buyer of the loan by filing the foreclosure action, the judge said. Schack said it was a conflict for the firm to represent both sides.
“Steven J. Baum PC appears to be operating in a parallel mortgage universe, unrelated to the real universe,” the judge wrote in that May 2010 decision. “Next stop, the Twilight Zone,” he said, quoting from Serling’s TV series about science fiction and the supernatural.
Baum said last year that in several cases where Schack stated the firm represented both sides in a mortgage transfer, “we have supplied to the court relevant documentation indicating that no conflict of interest existed.”
--Editors: Mary Romano, Andrew Dunn
To contact the reporter on this story: Thom Weidlich in Brooklyn, New York, federal court at firstname.lastname@example.org.
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