Interest fees accumulate for homeowners in foreclosure

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In a Dec. 19 letter to major mortgage lenders in New York state, Department of Financial Services Superintendent Benjamin M. Lawsky asked lenders to proceed expeditiously to substitute new counsel in foreclosure cases previously handled by the Steven J. Baum Law Firm, and to not charge homeowners penalties, fees, costs or accrued interest.

“Through no fault of the borrowers, their files may sit while additional interest charges, penalties, and fees accrue,” Lawsky said in the letter.

Lawsky told the mortgage lenders they have a duty pursuant to Financial Services regulations of “good faith and fair dealing in their business with borrowers.”

“The department wishes to clarify that, pursuant to this regulation [419.2], servicers should not charge borrowers any penalties, fees, costs or interest accrued for any delays in court appearances including settlement conferences by substituted counsel, as a direct result of the closing of the Baum firm and the substitution of counsel,” the letter stated.

Lawsky asked that loan providers withhold charges until court appearances have been rescheduled.

The New York State Department of Financial Services was established in October and oversees mortgage brokers and bankers as part of its mission.

“It’s good news and it’s encouraging, but how it gets interpreted by the banks remains to be seen,” said Empire Justice Center Senior Attorney Rebecca Case-Grammatico. “I’ll be surprised if I see a tolling of interest and fees by the banks because of Baum’s removal.”

Case-Grammatico said Baum’s removal last month from mortgage foreclosure cases in New York by Fannie Mae and Freddie Mac is just one more delay among many in the foreclosure case process. Rescheduling settlement conferences, lost papers, and requests for more information by banks from homeowners constitute some of the reasons for foreclosure case delay.

Case-Grammatico said Lawsky’s request might be another tool to help her defend homeowners facing foreclosure in the courtroom, but lamented the fact that judges don’t uniformly give homeowners a break from loan fees even if the case delay is not their fault. 

The Baum firm handled an estimated 40 percent of foreclosure cases in New York before being removed by Fannie, Freddie, Bank of America and others. Several mortgage lenders have already agreed to abide by Lawsky’s request, including Ocwen Financial Corp. and Specialized Loan Servicing.

As a result of Baum’s removal, significant delays are expected in pending foreclosure cases while new attorneys are appointed. 

“I commend Specialized Loan Servicing for being a leader and agreeing to adhere to these higher standards that protect homeowners from abuse,” Lawsky said in a statement. “The Cuomo Administration has made it clear that we will do everything possible to see that fair and sensible reforms are put in place in the mortgage industry.”

“Every dollar of added interest, fees or costs jeopardizes a homeowner’s ability to save their home,” said Albany-based Empire Justice Center Senior Attorney Kirsten Keefe. “We hope the DFS’s actions … are embraced quickly by all servicers so that these innocent homeowners are not left paying for the mistakes of others.”

The State Department of Housing and Community Renewal recently approved $1 million for the continuation of New York state foreclosure prevention programs, such as those offered by Empire Justice Center. Case-Grammatico said $4.8 million is needed by foreclosure prevention programs in the state to continue operating at a comparable level of assistance by Dec. 30.