By Katy Stech 

A New Jersey law firm that helped Wells Fargo Bank N.A. foreclose on thousands of homeowners has sued the lender, saying the bank's delayed efforts to fix its robo-signing problems led the law firm to collapse.

Lawyers for the Zucker, Goldberg & Ackerman law firm, which laid off most of its 335 workers last year, are accusing Wells Fargo of taking several years to comply with a 2010 New Jersey Supreme Court order that called for lenders to show that they were properly submitting mortgage details before foreclosing on a property.

The order, which required banks to submit their internal foreclosure policies, paralyzed foreclosures throughout the state. The average time for the foreclosure process -- from filing the lawsuit to a sheriff's sale -- grew from about 200 days to about 1,000 days, according to documents filed in U.S. Bankruptcy Court in Newark.

Wells Fargo's delay in responding to the court order caused financial problems for Zucker, Goldberg & Ackerman, according to the lawsuit. Under its agreements with mortgage lenders, the law firm would advance most of the foreclosure-related expenses and be reimbursed later, usually after a judgment or sale, court papers said.

"[Wells Fargo officials] were incapable for a very long period of time of complying with what the New Jersey Supreme Court said they should have been doing all along," said Daniel M. Stolz, a New Jersey lawyer who put Zucker, Goldberg & Ackerman into bankruptcy on Aug. 3, 2015.

The lawsuit also states that Wells Fargo has refused to pay more than $2.5 million for work that Zucker, Goldberg & Ackerman did. Wells Fargo hired the law firm to file court pleadings, ensure compliance with state and federal regulations and research information such as ownership, payment history and title history for each case, according to court papers.

Wells Fargo spokesman Tom Goyda said the bank disagrees "with the claims regarding fees owed to the firm" and said that the lawsuit's other allegations "should not be viewed as credible."

U.S. Bankruptcy Court Judge Christine Gravelle set a Dec. 21 hearing on the lawsuit.

The lawsuit, filed Friday, is part of Mr. Stolz's efforts to collect money to repay roughly $30 million of the Zucker, Goldberg & Ackerman law firm's debts.

Law firm officials said in earlier court papers that the mortgage crisis, aside from causing foreclosure delays, also "gave rise to onerous new regulations on the lenders, which the lenders passed along [to the law firm]."

"Because foreclosure law is significantly impacted by economic conditions, government regulations and the condition of the lending industry, it has always been difficult for [the law firm] to control its own destiny," Zucker, Goldberg & Ackerman officials said.

Zucker, Goldberg & Ackerman is one of several high-volume law firms that worked for the banks and stumbled after consumer advocates and government regulators questioned the mortgage industry's foreclosure practices amid the crisis. In 2012, five of the nation's biggest banks agreed to a $25 billion national foreclosure pact to settle accusations of improper practices, such as "robo-signed" documents and otherwise flawed court papers.

In March 2013, a Georgia-based foreclosure processor called Prommis Solutions LLC filed for chapter 11 protection and later sold some of its operations to a competitor.

The 710-worker firm, was hired by law firms and mortgage servicers to keep track of mortgages as they go through the default cycle, grew rapidly after opening in 2006, its lawyers said in U.S. Bankruptcy Court in Wilmington, Del., at the time of the filing. But business slowed once federal regulators and state attorneys general began investigating the mortgage industry's "robo-signing" scandal.

"Residential mortgage default resolution processors, including [Prommis Holdings and its affiliates], experienced a significant deceleration of revenue recognition and, thus, decline in business," Chief Executive Charlie Piper said in court papers.

The Butler & Hosch law firm shut down in May 14, 2015, and laid off nearly 700 lawyers, paralegals and back office staff, according to federal lawsuit that some workers filed over unpaid wages and violations to federal layoff noticing rules.

The Orlando, Fla., firm typically handled between 50,000 and 60,000 foreclosures filed in 27 states, according to the lawsuit. In an email made public in court papers, Chief Executive Officer Robert Hosch said the company "grew too fast."

Write to Katy Stech at katherine.stech@wsj.com

 

(END) Dow Jones Newswires

October 19, 2016 17:23 ET (21:23 GMT)

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