State attorneys general in all 50 states have recently launched a joint investigation on the recent allegations of fraud regarding foreclosure paperwork and proceedings. With the real estate world focusing on said issue, banks and mortgage lenders can never be too careful. This is why the country’s largest provider of mortgage financing has decided to suspend foreclosure work with a law firm that’s under hot water and investigation by the state attorney general regarding foreclosure of homes.

Fannie Mae, which holds $3.3 trillion book of business, announced a halt in referrals to Florida foreclosure processing law firm Law Offices of David J. Stern PA. The firm is currently being investigated by Attorney General Bill McCollum for alleged fraud and improperly prepared documents on foreclosure proceedings. Even Citigroup Inc. announced a suspension of referrals to Florida-based Stern’s Plantation.

“Given the increasing questions related to the Stern law firm, we decided it was appropriate and responsible to suspend new referrals to the firm,” explains Fannie Mae’s spokeswoman Amy Bontitabus.

Washington-based Fannie Mae put into effect the suspension last October 11. The government-sponsored enterprise hired law firm Bradley Arrant Boult Cummings LP. The law firm is tasked to review the processes and operations implemented by Stern on foreclosing homes.

David Stern’s attorney Jeffrey Tew said that Stern will cooperate fully with Fannie Mae. He further says that the mortgage giant is just being dutiful and the law firm welcomes that. Tew says, “The firm is fine with that and we’re happy to let them do their review.”

Second largest mortgage financing provider Freddie Mac has also made the same decision: it has severed ties, for now, with Stern’s firm. Holding $2.2 trillion book of business, Virginia-based Freddie Mac announced concerns regarding reports that Stern’s firm has failed to follow appropriate legal standards when preparing and filing foreclosure documents.

Amidst the suspension of referrals, rumor has it that Fannie Mae has imposed quotas on Stern’s firm and that Stern has paid for food and lodging on Fannie’s employees. Fannie Mae has denied both.