By MATT CHANDLER
mchandler@bizjournals.com | 716-541-1654

Amherst foreclosure attorney Steven J. Baum has suffered another setback in the wake of news stories about photos of his employees mocking homeless people at a company-sponsored Halloween party.

Just weeks after The New York Times ran a story that led the firm to issue an apology and try to repair its public image, mortgage giants Freddie Mac and Fannie Mae have cut off the local firm. It won't receive any future business from either lender.

In a statement on its website, Freddie Mac said: "After November 10, 2011, servicers may not refer any new Freddie Mac foreclosure or bankruptcy cases in New York to Steven J. Baum, P.C."

It went on to say that the firm will continue to work on all foreclosure and bankruptcy cases that were referred to it prior to Nov. 10.

On. Nov. 16, Fannie Mae also announced that The latest trouble for the law firm, which has been a major player statewide in processing home foreclosures, comes just a month after Baum settled a federal claim against his firm that he mishandled mortgage filings on behalf of clients. He agreed to pay a $2 million fine and undergo major changes to the business practices at his firm.

It has been operating under a cloud after reports that, among other things, it filed misleading pleadings and affidavits - some of which led to people unfairly having their homes foreclosed.

In addition to the fine, terms of the settlement stipulate that the firm must:

• Obtain appropriate affidavits from its clients attesting to the fact that they possess original notes or have conducted a diligent search and the original note could not be found.

• Have experienced attorneys supervise the preparation of pleadings, and review and approve pleadings before they can be filed.

• Implement a 12- to 24-month training program for its attorneys that includes an overview of the foreclosure process in New York and a review of the litigation procedures expected at the firm.

• Provide immediate notice to the government when objections are raised regarding the accuracy of certain court filings related to mortgage foreclosure proceedings.

• Maintain documentation of its compliance with the settlement.

The settlement also prohibits Baum and his firm from engaging in certain practices related to Mortgage Electronic Registration Systems Inc., or MERS, a subscription-based registry system for lenders and other entities that track mortgages. Until recently, Baum's firm had been assigning mortgages on behalf of MERS without having a connection to the company.

When asked to comment on the decision by Freddie Mac to delete it from the list of approved servicers of foreclosures, a representative of Baum's office released this statement:

"The law firm and its management and employees are going through a very difficult period because of the intense scrutiny of late, and while people want to think the mortgage foreclosure crisis is because of the firm and other law firms, that is not the case. The firm has no control over what others might do as far as the business is concerned; the focus at the moment is to do the best job possible for its current clients." 

Asked whether or not the firm viewed the loss of Freddie Mac as a result of the Halloween party fallout or tied it to the recent settlement, Baum's representative said the firm has made numerous public apologies for the photos and also met with the Homeless Alliance of Western New York.

"Whether the photograph incident or the settlement are impacting decisions by companies to do business with the firm is a question for them, not for Mr. Baum," the statement said.