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AG praises passage of foreclosure relief bills

Two pieces of legislation to protect New York homeowners have been passed by the Assembly and could be passed by the Senate later this year.

The “Certificate of Merit” bill (A. 5582) would help more families avoid foreclosure by bringing greater integrity to the foreclosure process and expediting homeowners’ participation in court-supervised mediation sessions where they can negotiate workable alternatives to foreclosure with their lender.

The joint program bill was proposed by the Office of the Attorney General and the Office of Court Administration.

Eric Schneiderman

The Foreclosure Fraud Prevention Act (A. 10629) is a program bill proposed by Attorney General Eric T. 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. It would also impose criminal penalties on those who, as “high managerial agents” of these businesses, are aware of such conduct by their employees below and fail to stop it.

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

“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,” Chief Judge Jonathan Lippman said in a release. “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.”

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 mandatory settlement conference.

The conferences give 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 homeowners and the judicial system. The proposed 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 2012 that found 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 legislative package is a top priority for 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 are still fighting to stay in their homes and the proposals bills would ensure families are protected from careless, or irresponsible or even criminal lender behavior.

“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,” Weinstein said. “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.”

Klein called the long delays and incomplete paperwork a “living legacy” of the nation’s foreclosure crisis.

“These measures can change all of that, by ensuring that hard-working New York homeowners get their day in court,” he said. “That’s why I’m proud to carry this reform package in the senate and look forward to passing it this year.”

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. Fraudulent activities include falsifying mortgage foreclosure documents, a practice that came to be known as “robo-signing,” and 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 Schneiderman’s office, 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 that 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.

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

Throughout the state, 34 legal services organizations and 59 housing counseling agencies will receive more than $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, more than 4,300 New York homeowners have completed, or have active trial modifications for approximately $540 million worth of first mortgage principal reduction.

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