WE’RE HEARING from New York where the attorney general recently filed a law suit against HSBC alleging things which, if true, could help explain why judicial foreclosures take so long. In fact if you like irony and tongue-in-cheek humor this story is for you. In addition to the lawsuit two bills have passed the New York Assembly relating to foreclosure. One of the bills is known as the Foreclosure Fraud Prevention Act of 2013 which could lead the way to jail time for certain lender employees who violate the act.
The AG’s lawsuit claims that HSBC engaged in a procedural delay in conducting foreclosure cases. The delay related to filing a document with the county clerk that triggers a mandatory settlement conference between the lender and borrower in an attempt to do a loan workout. These delays cause interest, fees, costs, etc., to pile up adding to what the borrower owes the lender.
In a press release the AG claims that many lenders have engaged in this delay tactic resulting in thousands of foreclosure cases jamming up the court system for months and in some cases years. The New York Office of Court Administration estimates that 25,000 such cases exist and they are known as the “shadow docket.” One of the pending legislative bills is designed to eliminate the ability of a lender to delay the mandatory settlement conference.
The other pending bill, A.07395, a k a the Foreclosure Fraud Prevention Act, creates the crimes of residential mortgage foreclosure fraud in the first and second degree. One crime is a misdemeanor and the other a felony. The act would apply to mortgage lenders, servicers and their agents who intentionally engage in deceptive conduct in the preparation, execution or filing of false documents in connection with a foreclosure. Sounds a lot like robo-signing to me.
Also from New York we are hearing from the Department of Financial Services. We all know interest rates shot up recently. So much so that the department had to issue guidance about the definition of subprime home loans under Section 6-m of the Banking Law. Whether a loan is considered to be sub prime will relate not to the closing date but rather the delivery of the GFE for ARMs and the commitment date for fixed-rate loans. Many lenders use the closing date to determine the fully indexed rate and the pop up in rates had been cause for alarm. Not to worry folks.
Speaking of mortgage loan modifications we are hearing from the great state of South Carolina. The South Carolina Supreme Court has ruled that mortgage lenders and servicers can modify loans without using an attorney. Being an attorney I find the decision horrible. The facts of the underlying two cases may have had something to do with the decision. Those cases were foreclosures where the borrowers were inventing the defense to the foreclosure that there had been no attorney involved with the loan mod. That is an interesting defense to nonpayment.
A related issue about mortgage loan mods and the need for attorney involvement is active in Illinois in connection with the HUD Buyer Select program on foreclosure resales. Under the HUD program the buyer selects their own closing agent. This program is active in certain northern Illinois counties including the big one, Cook, which includes Chicago. Under the program HUD is not represented by an attorney. Instead certain traditional seller attorney functions are shifted to the closing agent. The Illinois Real Estate Lawyers Association has pointed out that this is probably illegal. We will have to wait and see what HUD says.
Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at email@example.com.