David Gialanella, New Jersey Law Journal
July 2, 2015
Even as foreclosure filings surge in New Jersey
and elsewhere, Zucker Goldberg & Ackerman, arguably the state's bellwether
foreclosure firm, finds itself in debt to the tune of $20 million and facing
bankruptcy after 92 years in the business.
But, after posting $30 million in gross revenue
in 2014, the Mountainside firm's expected shuttering is not for lack of
business; it is instead due to changes in the nature of the business, according
to its bankruptcy counsel.
"The clients have driven Zucker Goldberg
to this point," said Daniel Stolz of Wasserman, Jurista & Stolz in
Basking Ridge. "The regulations and compensation structure that the large
banks have imposed on firms like Zucker Goldberg do not allow them to make a
profit.
"Management of Zucker Goldberg over the
years has overcome a lot of these types of issues," Stolz added. "You
don't want to just walk away, but if it's a downward spiral ... at a certain
point you say, this is crazy."
Just walking away appears to be one of a few
possible outcomes, but one for which the firm is prepared.
Zucker Goldberg made headlines last month when
it filed a notice with the New Jersey Department of Labor on June 23 stating
that it anticipated shuttering as of Aug. 24—news that surprised attorneys
familiar with the well-established firm.
"As far as I can remember ... that was
always the pre-eminent foreclosure firm in the state of New Jersey," said
Barry Levine, a Morris Plains solo who has litigated against Zucker
Goldberg.
Levine said he was "very shocked" to
hear the news.
Woodbury solo Lewis Adler, who also has
litigated against Zucker Goldberg numerous times, said the firm operates in
"a highly competitive market."
"Busy and profitable don't necessarily
follow [one another]," but "certainly I thought their practice was
fairly honed after all these years," he said.
The notice was required by the federal Worker
Adjustment and Retraining Notification (WARN) Act because the planned closure
affects at least 100 workers. With the law's 60-day notice requirement, Aug. 24
represented the earliest date Zucker Goldberg could close and still be in
compliance with the statute.
The notice, filed shortly after the firm
retained Stolz, pinned the number of potential layoffs at 289.
Zucker Goldberg has an attorney head count of
only 12, but employs ranks of paralegals and staff to support the
labor-intensive practice.
The notice's only explanation was,
"Current and anticipated profitability insufficient to sustain current
operations."
There's a lengthier explanation, but it all
boils down to the rate and timing of compensation, according to Stolz.
The clients—who continue to service mortgages
even after selling off the actual debt on the secondary market—pay little or
nothing up front to the firm, and don't necessarily pay monthly bills, as
clients of firms in other practices do, he said.
Through a process called
"curtailment," investors who buy the bundled debt may impose
penalties on the seller-originators when returns are not realized within a
certain time frame, according to Stolz. When that occurs, clients pass the
penalty off to Zucker Goldberg, he said.
Private banks also voluntarily adopted payment
structures formulated by Fannie Mae and other government-backed loan
originators that dictate how much—and at which point during the foreclosure
process—law firms may be paid, according to Stolz.
Some of those strictures are
"draconian," he said: servicers require documentation of every
disbursement, down to mailings. which creates the need for more staff and puts
an entire fee at risk if a client takes issue with a specific expenditure.
And as courts in New Jersey and elsewhere
addressed widespread "robo-signing"—the process of rubber-stamping
foreclosure paperwork with little or no verification—Zucker Goldberg was
affected. During that process, which culminated in 2011 with emergent changes
to New Jersey court rules, clients directed Zucker Goldberg to continue
preparing foreclosure complaints even as they were unable to process them,
according to Stolz.
Zucker Goldberg's typical flat fee for handling
a foreclosure to sale is $1,300, but the per-file cost to the firm has become
"several times that amount," according to Stolz.
The effects were gradual and for years were
staved off because vendors were extended lines of credit, Stolz said, noting
that Zucker Goldberg also had to obtain a loan from Chase to meet day-to-day
expenses.
All told, Zucker Goldberg has about $20 million
in unsecured debt, payable mostly to title and abstract companies, he
said.
Stolz said Wells Fargo NA is the firm's primary
client.
Wells Fargo spokesman Tom Goyda said in a
statement: "While I won't comment specifically about the situation at
Goldberg, Zucker & Ackerman, protracted foreclosure time lines in the
states where they did work for us have created challenges for every party
involved in the foreclosure process. We have a strong oversight program that
closely monitors all vendor activity, including our attorneys, and are actively
working to ensure a smooth transfer of the work that Goldberg, Zucker &
Ackerman has in process for us."
Glenn Reiser of LoFaro & Reiser in
Hackensack, who both prosecutes and defends foreclosures, said of Zucker
Goldberg: "They seem to have a monopoly on the foreclosure practice,"
but, "when a lender is referring high-volume work ... they do it on an
flat-fee basis."
"Every two weeks, they've got to pay
people," he added. "It's just cash flow."
Over the past decade, Zucker Goldberg has faced
litigation over alleged foreclosure overcharges and alleged obstructionist
motion practice in a bankruptcy matter.
The bulk of litigation faced by the firm,
however, has been filed by disgruntled borrowers, most of which was dismissed
at an early stage, Stolz said.
The firm "has been very careful to comply
with the law, but the suits cost money to defend and raised insurance costs,
even though they were largely found to be frivolous," he added.
Zucker Goldberg has about 30,000 active files
that would have to be transferred in the event of a closure.
The firm, which continues to pay its staff, is
likely to file a Chapter 11 reorganization petition in the coming weeks, Stolz
said.
The future of the firm, as well as its lawyers
and staff, is "an evolving situation that is largely beyond our
control," according to Stolz.
"It could be more gradual than" a
complete termination on Aug. 24, he said.
"If we survive in some smaller form or
different form, we really can't tell." •
Contact the reporter at dgialanella@alm.com.
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