Hat tip to Matt Weidner on this one…

Apparently David J. Stern’s operations are much more, shall we say, interesting than previously reported here, here and here…

Going public may be the downfall of the entire Foreclosure Mill business model since everything you do has to be reported to the SEC.

And, just recently it was announced that David J. Stern DJSP Enterprises, Inc is Under Investor Investigations for Violations of Federal Securities Laws…

Not to mention these other incidents involving David J. Sterns office…

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Foreclosure Fraud Video Tutorial 5 Part Series – HOW THEY STEAL YOUR PROPERTY

Another WSJ Smackdown! Florida Judges Bash Banks in Foreclosure Cases

WSJ Strikes Again – Judge Finds “Fraud” in Foreclosure Mess

Foreclosure Fraud of the Week – David J. Stern ESQ / Cheryl Samons Assignment of Mortgage – No Signature, No Problem!

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Now we get to the meat of the matter with a recent filing by DJSP ENTERPRISES, INC. with the Securities and Exchange Commission

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From the report…

  • DJSP Enterprises, Inc. (“DJSP”, “we,” “us” or “our”) is a holding company whose primary business operations are conducted through three wholly owned subsidiaries, DJS Processing, LLC (“DJS LLC”), Professional Title and Abstract Company of Florida, LLC (“PTA LLC”), and Default Servicing, LLC (“DSI LLC”) of DAL Group LLC (“DAL”), a company in which DJSP holds a controlling interest.   DAL, through its operating subsidiaries, provides non-legal services supporting residential real estate foreclosure, other related legal actions and lender owned real estate (“REO”) services, primarily in Florida.
  • We were incorporated in the British Virgin Islands on February 19, 2008 under the name “Chardan 2008 China Acquisition Corp.” as a blank check company for the purpose of acquiring, engaging in a merger or share exchange with, purchasing all or substantially all of the assets of, or engaging in a contractual control arrangement or any other similar transaction with an unidentified operating business which has its principal business and/or material operations in China.  When the global financial crisis occurred soon after the completion of Chardan 2008’s initial public offering in August 2008, Chardan 2008’s management believed that US equity markets would be less receptive to a transaction with a Chinese company. For that reason, when the opportunity to engage in a transaction with DAL Group LLC (“DAL”) arose in early 2009, management considered it to be the best of the opportunities it had identified to that point and decided to pursue it.
  • On January 15, 2010, Chardan 2008 acquired a controlling interest in DAL in exchange for $64.8 million in cash and the assumption by DAL of approximately $4.1 million in Chardan 2008 expenses (the “Transaction”).  In particular, Chardan 2008 acquired 10,663,866 DAL Common Units, and warrants to acquire 11,441,666 Common Units (the “DAL Warrants”).
  • Concurrently with the Transaction, David J. Stern, the Law  Offices of David J. Stern (“DJS”), Professional Title and abstract Company of Florida, Inc. (“PTA”) and Default Servicing, Inc. (“DSI”) transferred all of their non-legal business and assets to DJS LLC, PTA LLC and DSI LLC, respectively.  Mr. Stern, DJS, PTA and DSI (the “Stern Contributors”) then transferred all of their ownership interests in DJS LLC, PTA LLC and DSI LLC to DAL.  In consideration for their contribution of their ownership interests in DJS LLC, PTA LLC and DSI LLC to DAL, the Stern Contributors received from DAL the following: (i) $58,500,080 in cash; (ii) $52,469,000 in a promissory note issued by DAL to DJS (the “Stern Deferral Note”); (iii) 1,200,000 DAL Common Units; (iv) 1,666,667 DAL Series A Preferred Units; (v) 3,133,333 DAL Series B Preferred Units; and (vi) the right to receive $35 million in post-closing cash.
  • As a result of the Transaction, DAL acquired membership interests in the three limited liability companies (DJS LLC, PTA LLC and DSI LLC) that together constitute a provider of non-legal residential mortgage foreclosure processing and other services, principally in the state of Florida. DAL did not acquire any portion of such companies that involves the provision of legal services.
  • Revenues increased by $16.6 million, or 30%, to $71.6 million in the three months ended March 31, 2010 as compared to the same period in 2009, primarily as a result of the increase in client reimbursed costs and, to a lesser extent, as a result of an increase in foreclosure fee revenue, the expansion of our REO operations, and an increase in closing fee revenue, all partially offset by a decrease in title fee revenue.
  • Revenues from client reimbursed costs increased by 63% to $40.8 million from $25.0 million in the first quarter of 2009 primarily due to an increase in filing fees which, as a result of changes in Florida law, over the course of 2009 increased by approximately 400%.  These costs are reimbursed by DJS’s clients and so generally do not impact our profitability.
  • Revenue from foreclosure fees increased by 9% to $19.6 million during the three month period ended March 31, 2010 as compared to $17.9 million for the same period in 2009.  This increase is primarily due to an increase in the per file fee we receive for providing such services that became effective as of the beginning of 2010.  Revenue from closing services increased to $2.6 million during the first quarter of 2010 from $1.7 million during the first quarter of 2009, representing an increase of 55.5%.  This increase is primarily due to an increase in the number of closing files.
  • During the three months ended March 31, 2010, our REO liquidation services business became an increasingly significant source of revenue, generating approximately 5% of our total revenue during that period.  Our REO liquidation business has a sole customer through which we generated $3.3 million in revenue for the first quarter of 2010 compared to $1.9 million in the same period last year, primarily due to an increase in the number of REO liquidation files which grew to 1,728 files in the first quarter of 2010, an increase of 56%, from 1,111 files in the first quarter of 2009.  In addition to the overall increase in volumes, the increasing trend of foreclosed properties reverting back to the foreclosing lender, as opposed to being reinstated or sold to third parties at the foreclosure sale, has continued, fueling the growth of this aspect of our operations.  We intend to offer these services to additional customers as a means of increasing our revenues and profits, although we do not have any such additional customers at this time.  Because of the time required to negotiate a contract with a new client, implement necessary client-specific systems and sell REO properties, we believe it could take up to six months for us to begin to recognize revenue from REO liquidation services for any such new clients, and so do not expect revenue from such new clients, if any, to impact our results of operations for 2010.  An added benefit resulting from the increase in the share of our revenues produced by REO services is that, because these REO services follow the completion of the foreclosure process, they will have the effect of helping to sustain our revenues even if foreclosure volumes stabilize or begin what is expected to be a slow decline following 2012.
  • DJS LLC has one law firm customer in Florida, DJS. Each foreclosure, bankruptcy, eviction, litigation, and other mortgage default related case file referred to DJS will typically have a fixed fee associated with it that is based on a schedule established by government sponsored entities, such as Freddie Mac and Fannie Mae. DJS LLC will be paid a fixed fee by DJS for the services it renders to DJS. Therefore, the success of our mortgage default processing services business is tied to the number of these case files that DJS receives from its mortgage lending and mortgage loan servicing firm clients and DJS LLC’s and DAL’s ability to control costs. During calendar years 2007, 2008 and 2009, DJS referred to us case files totaling 61,480, 96,509 and 98,259, respectively.
  • Each state has laws, regulations and codes of professional responsibility that govern the conduct and obligations of attorneys to their clients and the courts. Adherence to those codes of professional responsibility are a requirement to retaining a license to practice law in the licensing jurisdiction. The boundaries of the “practice of law,” however, can be indistinct, vary from one state to another and are the product of complex interactions among state law, bar association standards and constitutional law as formulated by the U.S. Supreme Court. Many states define the practice of law to include the giving of advice and opinions regarding another person’s legal rights, the preparation of legal documents or the preparation of court documents for another person. Although we are not aware of any ruling or interpretation of laws, regulations or other applicable standards that would result in the operations that DJS LLC will perform being considered the practice of law, we cannot say with certainty that no existing law, regulation or standard will be interpreted to produce that result, or that a new law, regulation or standard leading to that result will not be adopted in the future. In addition, all states and the American Bar Association prohibit attorneys from sharing fees for legal services with non-attorneys, so that if any aspect of our business is deemed to constitute the practice of law, it would not be possible for DJS LLC, PTA LLC or DSI LLC to perform those services.
  • DJS LLC’s principal business activity involves providing foreclosure processing services, usually in connection with legal proceedings, such as foreclosure actions. Current laws, regulations and codes of professional responsibility governing the practice of law pose the following principal risks to DJS LLC’s business:
  • State or local bar associations, state or local prosecutors or other persons may claim that some portion of the services that DJS LLC provides constitute the unauthorized practice of law. Any such challenge could have a disruptive effect on our operations, including the diversion of significant time and attention of our senior management in order to respond. DJS LLC, PTA LLC, DSI LLC or DAL may also incur significant expenses in connection with such a challenge, including substantial fees for attorneys and other professional advisors. If a challenge to the legitimacy of DJS LLC’s or another operating subsidiary’s operations were successful, the service operations may need to be modified in a manner that could adversely affect our business and DAL’s revenues and profitability, DJS LLC, PTA LLC, DSI LLC, and DAL could be subject to a range of penalties and suffer damage to our reputation; and
  • The Services Agreement to which DJS LLC is a party could be deemed to be unenforceable, in whole or in part, if a court were to determine that such agreements constitute an impermissible fee sharing arrangement between the law firm customer and DJS LLC.
  • In addition, Florida is a “judicial” foreclosure state, which means that the foreclosure process is overseen at each step by a judge in a court of law. The processing services required, and the fees generated as a result, in a judicial state are significantly greater than those in a non-judicial state, which has minimal, if any, proceedings in a court of law in processing a foreclosure. If we choose to market our services in a non-judicial state, the revenue per file will be substantially less than we are currently generating in Florida, and that decreased revenue per file may prove not to be sufficient to justify the expense of modifying our software systems to expand our business into those jurisdictions.
  • Mr. Stern received a significant amount of cash consideration in connection with the Transaction, which may reduce his incentive to devote his full efforts to continue to develop and expand the business of DJS and our business.
  • Under the terms of the Acquisition Agreement, Mr. Stern and his affiliates received approximately $58.5 million in Initial Cash in exchange for contributing their business to DAL, plus another approximately $88 million in the Stern Note and Post-Closing Cash. Those amounts will be paid to the contributors of the business acquired by DAL (Professional Title and Abstract Company of Florida, Inc. (“PTA”), Default Servicing, Inc. (“DSI”) and the Law Offices of David J. Stern, P.A. (“DJS”) and David J. Stern (“Stern,” together with DSI, PTA and DJS the “Stern Contributors”)  regardless of how we perform. Although he also has a substantial equity stake in DAL, which gives him an incentive to improve our operations, there can be no assurance that he will do so, or that his efforts to do so, however diligent, will succeed.
  • The Supreme Court of Florida has recently taken steps to insure that proper documentation is filed in foreclosure actions, and if DJS does not comply with the new rules and procedures the foreclosure actions on which they are working may be dismissed, which may result in DJS receiving fewer referrals, and, since they are our primary client, reduced revenues for us.
  • The Supreme Court of Florida has recently taken an active role in ensuring that proper documentation is filed in a foreclosure action by amending several rules of civil procedure and pertinent forms related to foreclosure actions filed in Florida.  The amendments are aimed at addressing certain concerns courts have recently had regarding foreclosure filings and create more stringent standards to be followed by plaintiffs and plaintiffs’ counsel.  DJS, our primary client, has taken certain steps to insure that the more stringent standards are met.  However, DJS may not be successful in complying with these new rules. If DJS is not successful in doing so, they may receive fewer cases to work on from their  financial institution clients, and, since they provide us with the vast majority of the cases on which we work, our case-load would significantly decline as well.

Full Report below…

Something big is about to break…

Watch out for the NY Times article from Gretchen Morgenson…

Should be a game changer…

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4closureFraud.org

Djsp Enterprises, Inc. David J. Stern Form F-1/A