ATTORNEY GENERAL OF THE STATE OF NEW YORKBUREAU OF CONSUMER FRAUDS & PROTECTION

In the Matter of the

IJIvestigation by Eric T. Schneiderman,Attorney General of New York, of

Assurance No. 12-002

STEVEN J. BAUM p.e., PILLAR PROCESSING, LLC,STEVEN.J.. BAUM, individually and as principal ofSteven J. Bauffi, P.C. and Pillar Processing, LLC,and BRIAN KUMIEGA, individually and as partner ofSteven J. Baum, P.C., and principal of Pillar Processing, LLC

Respondents.

ASSURANCE OF DISCONTINUANCE

The Office ofAttorney General of the State of New York (the "OAG") has been

conducting an ongoing investigation, pursuant to Executive Law § 63(12) and General Business

Law ("GBL") § 349, of the business practices of Steven J. Baum p.e.; the New York operations

of Pillar Processing, LLC; Steven J. Baum, individually and as principal of Steven J. BauIn P.C.

and Pillar Processing, LLC; and Brian Kumiega, individually and as partner of Steven J. Baum

P.C. and principal ofPillar Processing, LLC (collectively, "respondents"). This Assurance of

Discontinuance ("Assurance") contains fil1dings of the OAG's investigation (the "Investigation")

insofar as it concerns respondents' foreclosure-related law practices, and the relief agreed to by

the GAG and respondents (collectively, the "parties~~).

I. FINDINGS

Parties

1. Respondent Steven J. Baum P.C. ("Baum Firm") is a law firm with its principal

place of business at 220 Northpointe Parkway, Suite G, Amherst, New York. The Baum Firm

1

also has a smaller office in Westbury, New York. Until recently, the Baum Firm was one of the

largest volume mortgage foreclosure firms in New York State. In November 2011, shortly after

Fannie Mae and Freddie Mac barred mortgage servicers from referring new foreclosure

proceedings to the Baum Firm, the Baum Firm announced layoffs of its 89 attorneys. The Baum

Firm largely ceased operations on or about December 31, 2011 and is finalizing the winding

down of its operations.

2. Respondent Pillar Processing, LLC ("Pillar") is a business service provider with

its principal place of business at 220 Northpointe Parkway, Suite G, Amherst, New York.

Steven J. Baum formed Pillar in 2007 to provide law-related back office and administrative

support for the Baum Firm and other law fi!ffis. Steven J. Baum sold Pillar to a private equity

firm the same year. Although legally separate entities, the Baum Firm and Pillar shared some of

the same office suites. Prior to 2007, much of the Baum Firm's foreclosure work was handled

by non-attorney staff employed by the Baum Fi~. When Pillar became a separate legal entity in

November 2007, these individuals became Pillar employees. In 2009, Pillar moved to a

professional employer organization model, and the Baum Finn leased the Pillar employees. In

November 2011, Pillar announced layoffs of its 610 New York employees. Pillar largely ceased

its New York operations on or about December 31, 2011 and is finalizing the winding down of

those operations.

3. Respondent Steven J. Baum is the president of the Baum Finn and a founder, the

former Chief Executive Officer, and indirect partial owner of Pillar through Pillar Holdings LLC

("Pillar Holdings"). Baum was an attorney at Marvin R. Bauffi, PC, the predecessor to the Baum

Firm since 1986 and became its president in 1999. III 2001, Marvin R. Bauffi, PC was renamed

the Baum Firm. Baum has -been involved in the management of the Baum Firm and Pillar and

2

3

addition, the Office of the Comptroller of the Currency ("OCC") issued cease and desist orders

against fourteen of the nation's mortgage loan servicers finding that mortgage servicers filed

affidavits "making various assertions ... in which the affiant represented that the assertions in

the affidavit were made based on personal knowledge or based on a review by the affiant of the

relevant books and records, when, in many cases, they were not based on such personal

knowledge or review of the relevant books and records." The ace further found that mortgage

servicers had "failed to sufficiently oversee counsel and other third-party providers handling

foreclosure related servicers."

9. In an attempt to correct these widespread servicer abuses, as of October 20, 2010

the New York State Court System required foreclosure attorneys to submit an affinnation

attesting to the accuracy of the foreclosure summons and complaint they filed ("Lippman

Affirmation")..The Lippman Affirmation requirements led to a substantial decrease in the

number of foreclosure filings by the Baum Firm and the withdrawal of a large volume of already

filed foreclosure proceedings.

The Baum Firm's Practices with Respect to Standing

10. Compounding the problem ofrobo-signing by servicers, the Baum Firm

repeatedly filed complaints, affirmations and other legal papers in foreclosure and bankruptcy

proceedings without taking appropriate steps to verify the accuracy of (i) the allegations, (ii) the

plaintiffs right to foreclose or (iii) its ability to file a bankruptcy proof of claim~1

11. To maximize efficiencies and the volume of foreclosure filings, the Baum Firm

created a highly compartmentalized system for processing foreclosures. The Baum Firm relied

on Pillar, comprised of approximately twenty-five departments staffed by non-attorneys, to

1 Many of the problematic foreclosure practices described in this Assurance were also used in bankruptcy mattersrelated to foreclosures.

4

handle the bulk of the work in each stage of the foreclosure proceeding, from client referral

through foreclosure sale. Complaints and other legal doc'uments were generated through the

Baum Firn1s' computerized data system into which Pillar employees input basic information

about each delinquent mortgage with insuffi~ient attorney supervision.

12. Under New York law, a foreclosing plaintiff has standing where it is both the

holder or assignee of the subject mortgage and the holder or assignee of the underlying note,

either by physical delivery or execution of a written assignment prior to the commencement of

tIle foreclosure action. However, Pillar employees did not always have access to promissory

notes when preparing foreclosure complaints, nor were they trained to review promissory notes.

In addition, from at least 2007 until sometime in 2008, Pillar employees were not instructed to

look for mortgage assignments when preparing the complaints. Instead, the form complaints

used at that time stated that "the mortgage was to be assigned." In these cases, mortgage

assignments were not executed until after the filing ofthe complaint.

13. From at least 2007 until sometime in 2009, Baum Finn attorneys repeatedly

verified complaints in foreclosure actions stating, among other things, that the plaintiff was "the

owner and holder of the note and mortgage being foreclosed" and that the attorney had: (i) read \

the foregoing summons and complaints and knew the contents thereof; and (ii) the grounds for

belief as to all matters in the Complaint not stated to be upon his or her knowledge was based on

the "original note, mortgage and/or financial documents, together with correspondence."

14. In fact, in many cases, particularly where the llnderlying loan was securitized and

thus the original lender was no longer the holder of the note and mortgage, the plaintiff did not

provide the Baum Firm and the Baum Firm did not have in its possession at the time of the filing

of a foreclosure action documentary proof that the plaintiff was the holder or owner of the note --

5

the usual prerequisites to standing under New York foreclosure law.

15. Thus, in many of the cases filed by the Baum Firm, the mortgage had not yet been

assigned in writing to the plaintiff; and/or the only photocopy of the note within the Baum Firm's

possession, if any, did not bear endorsements showing it had been transferred to the plaintiff.

Furthermore, attorneys routinely verified and signed complaints without reviewing the contents

or the underlying documents such as the original note or mortgage.

16. Moreover, even if the mortgage had been assigned, in many cases Baum attorneys

acted as certifying officers of Mortgage Electronic Registration Systems, Inc. ("MERS").

Through corporate resolutions, MERS appointed several attorneys at the Baum Firm as "assistant

secretaries and vice presidents," authorizing them to execute documents necessary to foreclose

(including assignments and affidavits) on mortgages registered in the MERS System to various

servicer members. Thus, in foreclosure proceedings filed by the Baum Firm, Baum attorneys,

including Kumiega, wearing their hat as MERS certifying officers, regularly assigned mortgages

from MERS to the foreclosing parties that the Baum Firm represented. This practice h~s been

questioned by courts. See U.S. Nat'l Bank Ass'n v. Kosak, 2007 WL 2480127, at *2 (N.Y. Sup.

Ct. Sept. 4, 2007).

Improper Verification and Notarization Process

17. Indeed, while Baum Fim1 attorneys were familiar with the standardized con1plaint

forms, from 'at least 2007 through sometime in 2008, attorneys did not routinely see the actual

complaints after they were generated. Instead attorneys pre-signed and notarized verification

and certification pages that were subsequently attached to the complaints by Pillar employees.

The pre-signed and notarized pages were kept in drawers of Pillar employees, with each

employee possessing stacks of between twenty-five and fifty pre-signed pages for each litigation

6

attorney. After the verification and certification pages were attached to the complaints, the

complaints were copied by an on-site copy service and the original summons, complaints and lis

pendens were sent for filing at the end of each day with the various county clerks.

18. Even after the practice of attaching pre-signed certification and verification pages

to the complaints changed, attorneys continued to verify complaints without reading them.

Although on occasion attorneys were only provided verification pages, Pillar employees

typically brought each attorney folders of complaints for signature several times per day.

Attorneys typically opened the folders, turned to the last page of the documents and signed their

names without rea4ing or reviewing the summons and complaints.2

19. The Baum Firm stopped verifying conlplaints by 2010, adopted explicit

procedures in late 2010 requiring attorneys to review complaints prior to signing them, and also

instituted additional procedural safeguards in order to pennit the Baum Firm to independently

confirm the accuracy of certain of its clients' representations. However, the Baum Firm

continued to file foreclosure actions without always having the evidence or conducting the due

diligence to determine that the plaintiff had the standing to bring the action.

20. Until sometime in 201 I, the Baum Firm also failed to properly notarize

documents signed b'y its attorneys. In violation ofNew York law as established by judicial and

Department of State decisions, Baum Firm attorneys routinely signed documents such as

complaint verification pages without being in the notaries' presence; or when documents were

signed prior to notarization, did so without the required oath being administered. Indeed, some

notaries even notarized documents that were signed by an attorney who was not present in the

state at the time the documents were notarized.

2 These practices were widespread. Memoranda to attorneys from the managing attorney of the lltlefltlondepartment exhorted attorneys to make sure that complaints and other documents were signed quickly and did not,until 2011, instruct attorneys to review the complaints prior to execution. .

7

21. In a significant number of cases handled by the Baum Firm, courts have

concluded that the plaintiff had not adequately demonstrated its basis for the relief sought, or that

the complaint or litigation pleadings contained an error. See, e.g., Federal Home Loan

Mortgage Corp. v. Raia, 2010 N.Y. Slip Ope 52003(U) (Dist. Ct. 2010); Deutsche Bank v.

McRae, 894 N.Y.S.2d 720, 722-24 (N.Y. Sup. 2010); JPMorgan Chase Bank NA v. George,

2010 WL 1780952, *2-4 (N.Y. Sup. 2010); In re Mims, No. 10-14030 (Bankr. S.D.N.Y. 2010);

Citigroup Global Markets Realty Corp. v. Bowling, 2009 N.V. Slip Ope 52567(U) (Sup. Ct.

Kings Co. 2009). In addition, one court has questioned the practice of Baum attorneys signing

mortgage assignments on behalf ofMERS in cases handled by the Baum Firm. See, e.g., LaSalle

Bank National Association v. Smith, 2010 WL 1007826, *3-5 (N. Y. Sup. Mar. 22, 2010);

Deutsche Bank NA v. Campbell, 2008 WL 5220543 (N. Y Sup. Dec. 16, 2008).

Failure to File Specialized Requests for Judicial Intervention

22. Pursuant to New York court rules, a specialized Request for Judicial Intervention

form ("RJI") must be filed in residential foreclosure actions at the time proof of service of the

summons and complaint is filed with the county clerk. See 22 N.Y.C.R.R. § 202.12-a(b). The

Lippman Affirmation, Which requires attorney certification of the accuracy ofplaintiffs' filings

in foreclosure proceedings, must be filed simultaneously. 3

23. In the vast majority of cases, the Baum Firm failed to file the RJI and Lippman

Affirmation until many months after proof of service had been filed. Because the filing of the

RJI triggers the scheduling of a mandatory settlement conference and notification of local

housing counselors that the homeowner is at risk of foreclosure, the Baum Firm's untimely filing

of the RJI had the effect of delaying the holding of a formal settlement conference.

J The original Administrative Order 548-10 was later slightly modified in March 2011 by Administrative Order431-11. However, the timing of the required filing renlained the same.

8

24. New York Executive Law § 63(12) prohibits persons or business entities from

engaging in repeated fraudulent or illegal acts or otherwise demonstrating persistent fraud or

illegality in the carrying on, conducting or transaction of business.

25. New York GBL § 349 prohibits deceptive acts or practices in tIle conduct of any

business, trade or commerce in this State.

26. The OAG has concluded that there is sufficient evidence to support a claim that

the practices described above constitute repeated fraudulent and illegal acts under Executive Law

§ 63(12) and repeated violations ofGBL § 349.

IT IS HEREBY AGREED by respondents Steven J. Baum and Brian Kumiega, and

respondents Steven J. Baum P.C., Pillar Processing, LLC, their principals, successors and assigns

and on behalfof their agents, representatives, employees and by any corporation, subsidiary or

division through which it acts or hereafter acts, as follows:

II. PROSPECTIVE RELIEF

WHEREAS, the OAG has been conducting an ongoing investigation, pursuant to

Executive Law § 63(12) and GBL § 349, of the business practices of respondents related to

respondents' foreclosure-related law practices;

WHEREAS, respondents neither admit nor deny the OAG's Findings (1) - (26) above;

WHEREAS, the GAG is willing to accept the terms of the Assurance pursuant to New

York Executive Law § 63(15) and to discontinue its Investigation with respect to respondents;

and

WHEREAS, the parties each believe that the obligations imposed by this Assurance are

prudent and appropriate;

IT IS HEREBY UNDERSTOOD AND AGREED, by and between the parties that:

9

27. Respondents shall comply fully with General Business Law § 349, Executive Law

§ 63 (12) and Uniform Rule 202.12-a(b).

28. Respondents Steven J. Baum and Brian Kumiega shall not represel1t lenders or

servicers in any new residential mortgage foreclosure action, any application in bankruptcy court

to lift the automatic stay for purposes of initiating or continuing a residential mortgage

foreclosure action, or any other action asserting rights or seeking remedies relating to any

residential mortgage ("Foreclosure Proceeding") after the effective date of this Assurance, which

shall be the date the Assurance is executed by the parties ("Effective Date") for a period of two

years from the Effective Date. Nothing in this Assurance shall prohibit Baum or Kumiega from

(i) representing lenders or servicers in Foreclosure Proceedings for which the Baum Firm was

previously retained as legal counsel ("Current Proceedings") until such time as those proceedings

are transferred to another law finn, (ii) appearing or representing lenders or servicers in any

action when required to do so by a court order, administrative rule, or any federal or state law or

regulation, or (iii) otherwise practicing law. Baum and Kumiega shall make their best efforts to

transfer Current Proceedings expeditiously.

II. PAYMENT

29. Respondents shall pay $4,000,000.00 by certified check(s) to the State of New

York Department of Law for penalties, costs, fees and any other lawful purpose, including

funding programs that offer assistance to consumers facing foreclosure or victims of predatory

lending practices, pursuant to the following schedule:

(a) $2,000,000.00 within ten (10) days of the Effective Date;

(b) $1,000,000 on or before May 1, 2012;

(c) $1,000,000 on or before July 1,2012;

10

The certified checks shall be delivered to:

New York State Office of the Attorney GeneralConsumer Frauds & Protection Bureau120 Broadway, 3rd FloorNew York, New York 10271ATTN: Laura J. Levine, Assistant Attorney General

30. All payments and all correspondence relating to this Assurance shall reference

Assurance Number 12-002.

v. MISCELLANEOUS

31. This Assurance is entered into pursuant to Executive Law § 63(15). As such,

evidence of a violation of the Assurance by respondents shall constitute primajacie proofof a

violation of Executive Law § 63(12) and GBL § 349 in any civil action or proceeding

subsequently con1menced by the OAG.

32. The OAG has agreed to the tenns of this Assurance based on, among other things,

the representations made to the OAG by respondents and its counsel and the OAG's own factual

investigation as set forth in Findings (1) - (26) abo.ve. To the extent that any material

representations are later found to be inaccurate or misleading, this Assurance is voidable by the

OA(} in its sole discretion.

33. The OAG hereby agrees, pursuant to Executive Law § 63(15), to accept this

ASSUlrance in lieu of commencing a civil action or proceeding in connection with the

enforcement of Executive Law § 63(12) or GBL § 349 for the acts, practices and omissions

described in the Findings. This Assurance will conclude the Investigation and release all claims

by the GAG against respondents for the acts, practices and omissions described in the Findings.

11

34. No representation, inducement, promise, understanding, condition, or warranty

not set forth in this Assurance has been made to or relied upon by respondents in agreeing to this

Assurance.

35. Respondents represent and warrant, through the signatures below, that the terms

and conditions of this Assurance are duly approved, and execution of this Assurance is duly

authorized. Respondents shall not take any action expressing the view that this Assurance is

without factual basis. Nothing in this paragraph affects resp~ndents' (i) testimonial obligations

or (ii) right to take any legal or factual positions in defense of litigation or other legal

proceedings or governmental investigations to which the OAG is not a party_ This Assurance is

not intended for use by any third party in any litigation or other proceeding and is not.intended,

and should not be construed, as an admission of wrongdoing or liability or the validity of the

Findings by respondents in any such litigation or proceeding.

36. Respondents agree to cooperate fully in any future GAG investigation, and in any

civil or criminal prosecution of other persons or entities that provide foreclosure services in New

York. Such cooperation includes, but is not limited to, providing truthful testimony under oath

before the OAG and any other tribunal or court of law, and providing documentary evidence as

requested by the OAG. Respondents retain the right to assert any applicable privileges,

including the attorney-client privilege. This Assurance does not alter respondents' independent

obligation to provide documents and witnesses pursuant to subpoena.

37_ This Assurance may not be amended except by an instrument in writing signed on

behalf of all the parties to this Assurance.

38. This Assurance shall be binding on and inure to the benefit of the parties to this

Assurance and their respective successors and assigns, provided that no party.. other than the

12

OAG, may assign, delegate, or otherwise transfer any of its rights or obligations under this

Assurance without the prior written consent of the OAG, except to a successor-in-interest.

39. In the event that anyone or more of the provisions contained in this Assurance

shall for any reason be held to be invalid, illegal, or unenforceable in any respect, in the sale

discretion of the OAG, such invalidity, illegality, or unenforceability shall not affect any other

provision of this Assurance.

40. . To the extent not already provided under this Assurance, respondents shall, upon

request by the OAG, provide all documentation and information reasonably necessary for the

GAG to verify compliance with this Assurance.

41. Acceptance of this Assurance by the OAG shall not be deemed approval by the

GAG of any of the practices or procedures referenced herein, and respondents shall make no

representation to the contrary.

42. If a court of competent jurisdiction determines that respondents have breached

this Assurance, respondents shall pay to the OAG the reasonable cost, if any, of such

determination and of enforcing this Assurance, including without limitation reasonable legal

fees, expenses, and court costs. Prior to the filing of any action alleging a breach of this

Assurance, the OAG shall provide written notice to respondents of the alleged breach and

provide respondents with a two-week period from receipt of such notice to demonstrate to the

OAG why such an action should not be filed unless the OAG determines such notice is contrary

to the public interest.

43. Nothing contained herein shall b.e construed as to deprive any person of any

private right under the law.

13

44. This Assurance constitutes the entire agreement between the GAG and

respondents and supersedes any prior comn1unication, understanding or agreement, whether

written or oral, concerning the subject matter of this Assurance.

45. Any notices, staten1ents or other written documents required by this Assurance

shall be provided by first-class mail and email to the intended recipient at the addresses set forth

below, unless a different address is specified in writing by the party changing such address:

For The People of the State ofNew York:

New York State Office of the Attorney GeneralConsumer Frauds & Protection Bureau120 Broadway, 3rd FloorNew York, New York 10271ATTN: Laura J. Levine, Assistant Attorney General

For respondents:

Elkan Abramowitz, Esq.Morvillo, Abramowitz, Grand, Jason, Anello & Bohrer, P.C.565 Fifth AvenueNew York, NY 10017

Such notices; statements and documents shall be deemed to have been given upon mailing.

46. Respondents shall provide written notice to the OAG of any new law-related

employnlent within ten days of such change for a period of five years from the Effective Date.

47. The GAG finds the relief and agreements contained in this Assurance appropriate

and in the public interest. This Assurance shall be governed by the laws of the State ofNew

York without regard to any conflict of laws principles.

48. The Assurance may be executed in one or more counterparts, each of which shall

be deemed an original but all of which together shall constitute one instrument.

14

tLIvV'~

IN WITNESS WHEREOF, this Assurance is executed by the parties hereto on the 1''1\-day of February, 2012.

Steven J. Baum, P.C.

Pillar Processing, LLC

BY~~arne. ~f\€d~ :So W!(f

Title: l-.().AN'{?"A..(..l1~('".t1.tA ' /1 ~~~ ., ~J"7"". - -, t/')~{

Steven J. Baum

By: ~fJ-~Name: S~ ~'. :1A"'~

Brial1 Kumiega

By: -rill-/;Na~'l.~ ~,

tyl~ frx;t'

Eric T. SchneidermanAttorney General of the State ofNew York

~ //---~By: c7/rt~

Laura J. LevineAssistant Attorney General

15

16

By:-h:7lJ fl'O'~a M. Azia '

reau ChIefConsumer Frauds & Protection