A.G. Schneiderman Commends Assembly For Passing Foreclosure Relief Bills

Bills Will Help Prevent New York Homeowners From Getting Trapped In The Growing “Shadow Docket” Of Frozen Foreclosure Cases

Schneiderman: These Bills Will Help Protect Homeowners From Wrongful Foreclosures And Keep More New Yorkers In Their Homes

NEW YORK- Attorney General Eric T. Schneiderman today praised the New York State Assembly for passing two important pieces of legislation aimed at protecting homeowners in New York. The "Certificate of Merit" bill (A. 5582)would help more New York families avoid foreclosure by enacting common sense reforms to bring greater integrity to the foreclosure process and expedite homeowners' participation in court-supervised mediation sessions where they can negotiate workable alternatives to foreclosure with their lender. This joint program bill was proposed by the Office of the Attorney General and the Office of Court Administration.

The Foreclosure Fraud Prevention Act (A.7395) is a program bill proposed by Attorney General Schneiderman that would impose criminal penalties on residential mortgage lenders, servicers and their agents who intentionally engage in fraudulent or deceptive conduct in the preparation, execution or filing of false foreclosure documents.

Both bills are sponsored in the Assembly by Judiciary Committee Chair, Helene Weinstein, and in the Senate by Senate Co-Leader and Independent Democratic Conference Leader, Jeff Klein.

“By passing these two critical pieces of legislation, the Assembly has taken a strong stand on the side of hard working New York families who are fighting to keep their homes but can’t get a fair shake from mortgage providers,” said Attorney General Schneiderman. “The 'Certificate of Merit' bill will help keep countless homeowners from getting trapped in the growing 'shadow docket' of essentially frozen foreclosure cases that prevents them from getting a mandatory court settlement conference that could help them keep their homes. The Foreclosure Fraud Prevention Act will serve as a powerful deterrent for any lender or servicer who thinks it can fraudulently cut corners when it comes to foreclosure. I look forward to these two bills becoming law in the State of New York.”

"With these new laws, we will hold criminals accountable for their abusive foreclosure practices and deter them from unlawfully removing New Yorkers from their homes, and eliminate the “shadow docket" in the courts”, said Assemblywoman Helene Weinstein, Chair of the Assembly Judiciary Committee. "The filing of foreclosure cases by lenders and their refusal to bring cases before a judge has left thousands of homeowners in legal limbo without knowing whether the lender even has a right to bring the action. “Attorney General Eric Schneiderman and Chief Judge Jonathan Lippman have recognized the problems in foreclosure and have put forward this corrective legislation, to protect New York’s homeowners.” Weinstein continued, “sending a clear message: going forward, fraud will no longer be tolerated in foreclosure actions in New York."

Senate Co-Leader Jeff Klein said, "Long delays and incomplete paperwork have become the living legacy of our nation's foreclosure crisis. These measures can change all of that, by ensuring that hard working New York homeowners get their day in court. That's why I'm proud to carry this reform package in the senate and look forward to passing it this year." 

New York Chief Judge Jonathan Lippman said, “The new legislative package will ensure the accuracy of court documents in residential foreclosure filings at the outset of these cases, thereby enabling homeowners to modify their loans before it is too late. I commend the State Assembly for passing this vital legislation, which will bring much-needed relief to thousands of New Yorkers struggling to remain in their homes. I also wish to extend my gratitude to Attorney General Eric T. Schneiderman for his strong commitment to this issue and tremendous efforts to help restore the integrity of New York’s judicial foreclosure process.”

The legislative package is a top priority for Attorney General Schneiderman, who has been an advocate for homeowners who bore the brunt of the financial crisis caused by the collapse of the housing bubble. Many homeowners in New York are still fighting to stay in their homes, and these bills would ensure that families are protected from careless, or irresponsible or even criminal lender behavior.

Homeowners' foreclosure cases regularly languish for months -- and often years -- when mortgage lenders delay in filing critical paperwork that affirms the basis for the foreclosing bank's right to foreclose on the property and ultimately triggers a settlement conference -- the mandatory process under New York law that provides borrowers and their lenders an opportunity to mutually negotiate alternatives to foreclosure, such as loan modifications or short sales.

The delays and subsequent backlogs, often referred to as the “shadow docket,” have become a major burden on both homeowners and the judicial system. This legislative fix will require banks to file the necessary paperwork, which ultimately triggers the settlement conference, simultaneously with the filing of any foreclosure action, thus avoiding future delays. The Office of Court Administration issued a report in July of 2012 which found that 25,000 families are trapped in this legal foreclosure limbo.

“This relatively small change will make a huge difference for families who are trying desperately to hang on to their homes,” said Kirsten Keefe of the Empire Justice Center, a statewide advocacy group that supports the legislation.

The Foreclosure Fraud Prevention Act would impose both misdemeanor and felony-level penalties for lenders and servicers who knowingly engage in fraudulent residential mortgage foreclosure practices. These fraudulent activities include falsifying mortgage foreclosure documents--a practice that came to be known as “robo-signing,” which was rampant in New York and across the country during the early part of the foreclosure crisis.

An investigation of robo-signing conducted by the Office of the Attorney General with 48 State Attorneys General, the Department of Justice and the U.S. Department of Housing and Urban Development, led to the signing of the National Mortgage Settlement, a $25 billion agreement with the nation’s five largest mortgage servicers and provides for billions in mandated consumer relief including mortgage refinancing and principal reductions.

The bill will create a legal definition for residential mortgage foreclosure fraud, which will apply to mortgage lenders and servicers, and extend both to their lower level employees and "high managerial agents." This aspect of the bill is particularly significant because it carries the potential to bring criminal charges against law firms and servicers that specialize in high-volume residential foreclosure cases and knowingly engage in fraud on behalf of the mortgage lender.

Attorney General Schneiderman has made protecting homeowners struggling to avoid foreclosure a top priority. In June of 2012 he announced the Homeowner Protection Program (HOPP), a three-year, $60 million initiative to fund housing counselors and legal services across New York State. The program strives to ensure that every family facing foreclosure has access to a knowledgeable and qualified professional advocate.

Throughout New York State, 34 legal services organizations and 59 housing counseling agencies will receive over $16.1 million this year to provide free foreclosure prevention services. An additional $3.9 million has been allocated for training, technical assistance, and other support services to assist homeowners in foreclosure. In part because of the advocacy of HOPP funded housing counselors and legal services providers, over 4,300 New York homeowners have completed, or have active trial modifications for approximately $540 million worth of first mortgage principal reduction.

For more information on Attorney General Schneiderman’s efforts to support New York families caught in the foreclosure crisis, visit www.AGHomeHelp.com.

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