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New York AG Fails to Beat Mortgage Lender in Court

New York AG Fails to Beat Mortgage Lender in Court

On March 30, a state supreme court justice in Buffalo dismissed a complaint brought by New York Attorney General Eric T. Schneiderman against HSBC, the United Kingdom-based international banking conglomerate, whom the attorney general accused of “failing to follow state law related to foreclosure actions, putting homeowners at greater risk of losing their homes.” The law in question related to the administrative paperwork necessary to initiate a foreclosure action.

State of New York v. HSBC Bank USA

When Schneiderman initially filed his complaint against HSBC in June 2014, he publicly accused the company of “brazenly ignoring state law” by neglecting to file a “Request for Judicial Intervention” (RJI) in hundreds of residential mortgage foreclosure actions. An RJI is a document filed by the mortgage lender to notify a state court that a foreclosure action has been filed. The RJI triggers the scheduling of a mandatory settlement conference between the lender and borrower. This conference must occur within 60 days of filing the RJI and affords the lender an opportunity to possibly avoid foreclosure by negotiating a modification to the original loan.

Schneiderman claimed HSBC routinely failed to file the required RJIs with their foreclosure complaints, leading to significant delays. For example, he cited the case of a Buffalo woman facing foreclosure on her home. HSBC sued the woman in November 2010 but did not file its RJI until June 2012, more than a year-and-a-half later. This increases the burden on the borrower, Schneiderman said, because the lender can charge additional interest and fees during this delay period.

Schneiderman's lawsuit asked the Supreme Court to order HSBC to immediately file RJIs in hundreds of pending mortgage foreclosure cases and “waive all accrued interest charges, fees and penalties that accrued” against the borrowers. He also asked for damages on behalf of “homeowners injured by HSBC's illegal practices.”

Unfortunately for the attorney general, Erie County Supreme Court Justice John L. Michalski said there was no basis for this lawsuit and dismissed the complaint. The judge said HSBC's violations were “purely procedural” and New York law “does not declare the failure to file [the RJI] on the property owner to be an illegal act,” nor does it authorize the type of remedies sought by the attorney general. The law is “at best, ambiguous” on these issues, the judge said, and “the mere possibility [HSBC] has run afoul of this provision can not serve as the basis for this action.”

The attorney general's office said it disagreed with the judge's decision, but did not announce whether there would be an appeal.

Getting Help With the Foreclosure Backlog

While the attorney general's lawsuit here may have been unsuccessful, state regulators remain active in policing what they consider abusive and unfair practices by mortgage lenders. And there is no disputing the significant increase in foreclosure actions in the past several years. As the attorney general noted, as many as 25,000 foreclosure cases remain backlogged in courts throughout New York.

That is why if you are involved in any type of foreclosure proceeding, it pays to have an experienced New York real estate attorney on your side. Contact our office today if you need to speak with an attorney right away.

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