Stephen L. Baum, the foreclosure mill law firm which generated controversy recently when pictures of a past Halloween party showed employees dressed as homeless people and foreclosure victims, will close its doors, they announced today. But it wasn’t just the fallout from the homeless-themed party that did the law firm in.

A couple major factors loomed large here. First, New York mandated through its Chief Administrative court that law firms would have to personally attest to the veracity of foreclosure documents when they sought to complete a foreclosure. Baum, a foreclosure mill which specializes in foreclosing on homeowners for mortgage servicers, challenged the Constitutionality of this law. If they failed, it would make it very difficult for them to do their work, since they would be on the hook for any inaccuracies or fraudulent documents.

More important, Fannie Mae and Freddie Mac recently dropped the firm from their list of approved lawyers to use in foreclosure:

Last month, the Baum firm settled a federal claim relating to alleged mishandling mortgage filings on behalf of his clients. Baum agreed that the firm would pay $2 million in fines and promised to change business practices at the firm.

The Baum agency was also working under a cloud of suspicion concerning allegedly misleading pleadings and affidavits, some of which led to people having their homes foreclosed under what was deemed unfair circumstances [...]

But, the largest blow came on Nov. 10 when Freddie Mac and Fannie Mae cut off all business with the Baum firm because of its business practices.

Fannie and Freddie own a large chunk of the market, so when they drop a law firm, that basically ends their existence. It’s a pretty powerful tool that it has taken far too much time for the GSEs to use, and it usually follows a slew of negative publicity. In a similar case, Fannie and Freddie dropped David J. Stern, a notorious foreclosure mill in Florida, and that led to their demise.

Cases in New York brought by Baum now go into a legal limbo, much as what happened in Florida as well. This means more delays for foreclosures, which for the homeowners isn’t really a bad thing.

As for Stephen L. Baum, it couldn’t happen to a more callous law firm.