HSBC Sued by NY A.G. Over Foreclosure Abuse

Today, the New York State Attorney General’s Office (AGO) announced that it has filed suit against HSBC Bank USA and HSBC Mortgage Corporation (USA) in NY State Supreme Court in Erie County. See THE PEOPLE OF THE STATE OF NY vs. HSBC BANK USA. The lawsuit states that HSBC is failing to follow state law related to foreclosure actions, thereby putting homeowners at greater risk of losing their homes.

Background

In New York, loans for real property are secured through mortgages rather than through deeds of trust. New York, unlike trust states, is a judicial foreclosure state. In states like New York, mortgage foreclosure actions must proceed through the judiciary system.

Clearly, there are laws that govern the judicial foreclosure process and lenders are no exception to the requirement that these laws be followed. The New York State Unified Court System (UCS) issued a rule in October 2010 requiring that all foreclosure Patent law firms attest to the accuracy of the legal papers they filed in court, in response to the widely reported robo-signing scandal in the mortgage industry. Since the implementation of the rule, after a foreclosure action is filed, the foreclosure firm must file an affirmation (the “Due Diligence Affirmation”) simultaneously with its filing of a Request for Judicial Intervention (RJI). The process mandates that the lender then attend a settlement conference within 60 days. Surprisingly, many foreclosure law firms almost immediately stopped filing RJIs after issuance of the court rule. Foreclosure law firms who refuse to file the RJIs not only run afoul of state law, but also significantly injure homeowners who want to save their homes.

A RJI is a very important instrument in the litigation process that transforms an indexed case wherein documents are filed to a case that now has a justice assigned to the matter. Without an RJI, New York courts do not schedule court-supervised foreclosure settlement conferences. Cases, in which complaints are filed but no RJI is filed—which would otherwise move the case forward by assigning a justice to the matter—often linger indefinitely on the “shadow docket”. The shadow docket in New York consists of thousands of foreclosure cases that linger for several months, and sometimes years, causing distressed homeowners and the overtaxed judicial system to suffer. A recent report indicates that a “re-review of the November 2010 and March 2011 residential foreclosure filings in Brooklyn and Queens reveals that 43% of cases remain in the shadow docket.”

While cases are on the shadow docket, delinquent interest, inspection fees, attorney’s fees, and other costs in addition to the mortgage, continue to accrue. In general, the larger a loan balance, the more difficult it is to attain an appropriate and affordable modification.

Discussion

An investigation conducted by Attorney General Schneiderman showed that lenders HSBC Bank USA and HSBC Mortgage Corporation (USA) repeatedly failed to timely file the RJI in hundreds of foreclosure cases against New York homeowners, increasing the risk that those homeowners would lose their homes. A sampling of HSBC foreclosure filings from four counties — Erie, Monroe, Suffolk and Bronx — identified close to 300 instances where HSBC failed to file the RJI with the proof of service. In some of those cases, homeowners waited for over two years for HSBC to file the RJI.

“Companies like HSBC are brazenly ignoring state law, leaving homeowners across New York stuck in a legal limbo where they can’t even get the legally required settlement conference that could help them keep their homes,” said Attorney General Schneiderman. “For homeowners facing foreclosure, time is their greatest enemy. Every day spent waiting for a settlement conference is a day that the lender piles on additional interest, fees and penalties and the homeowner falls further behind. I am committed to doing everything I can to stand up for New Yorkers who are trapped in the ‘shadow docket’ and denied their right to fight for their homes.”

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