One of the major law firms handling foreclosures in the U.S. is closing its doors after being banned by Fannie Mae and Freddie Mac from receiving new work from lenders and servicers. It's the same firm that threw a Halloween party last year where its employees dressed up as foreclosure victims, mocking people who had lost their homes.
The photos from the party leaked on the Internet, but law firm Steven J. Baum P.C., one of the largest foreclosure law firms in New York state, was also implicated in the robo-signing scandal where landers seeking to foreclose had filed phony paperwork to speed the process.
The firm announced its closure on Monday. Baum handled 40 percent of all foreclosures statewide, according to the Buffalo News.
The firm had been denounced by consumers and consumer advocates for its work on behalf of lenders even before the "robo-signing" controversy thrust it into the middle of a nationwide crisis over the legitimacy of many foreclosures, according to the Buffalo News. The controversy broke nationwide in October 2010, when bank workers or lenders were accused of indiscriminately signing foreclosure documents.
Steven Baum law firm directed ABC News to its spokesman, Earl Wells, who didn't return a request for comment.
"Disrupting the livelihoods of so many dedicated and hardworking people is extremely painful, but the loss of so much business left us no choice but to file these notices," Steven J. Baum, who owns the firm, said in the statement.
Last month the firm agreed to pay a $2 million fine and change its practices to settle a federal investigation by the U.S. Justice Department that it filed misleading legal papers to expedite foreclosures.
"In mortgage foreclosure proceedings, there are no excuses for sloppy practices that could lead to someone mistakenly losing their home," Preet S. Bharara, the United States attorney in Manhattan, said in a statement regarding the settlement last month. "Homeowners facing foreclosure cannot afford to have faulty paperwork or inadequate evidence submitted, and today's agreement will help minimize that risk."
Rep. Elijah Cummings, D-Md., and ranking member of the House Oversight and Government Reform Committee, launched an investigation into the Baum firm, and wrote to the firm to request documents, according to the Buffalo News.
Daren Blomquist, spokesman for RealtyTrac, said the closing of the firm and others has put the spotlight on shoddy practices and a lack of transparency in the foreclosure industry.
"It's good that these questionable practices are coming to light," Blomquist said. "The problem is the foreclosure industry brought this on itself in a way."
One large problem is that it is slowing down the path to a housing recovery, he said.
"It's delaying foreclosure activity that needs to take place for market to reset itself," he said. "It's a good thing that these practices are coming to light, but it's going to mean the markets are going to be bogged down before we can truly recover."
Brad German, Freddie Mac spokesman, said he could not divulge the reasons why the agency told services on Nov. 10 to stop referring new business on its new files to the firm.
A spokesman for Fannie Mae, the Federal National Mortgage Association, confirmed that the federal agency suspended new referrals to the Baum firm on Nov. 15 but said he could not share why. On Monday, the agency distributed broader authorization to transfer existing foreclosure filings to other counsel.
Fannie Mae has processed 960,000 loan workouts, such as modifications and other foreclosure prevention solutions, since 2009. The agency has also opened 12 mortgage help centers across the country, most recently in Washington, D.C. to assist homeowners in trouble.
The average time to close a foreclosure is 336 days, according to RealtyTrac. New York state already has the longest process of any state, with an average of 986 days, which Blomquist says "almost unbelievable."
As a comparison, nationwide in 2007 when the country had a "normal market" the average time to foreclose was 140 days.