Lentol demands crackdown on ‘deceitful’ mortgage lenders

The state should be doing more to assist homeowners whose houses are in foreclosure proceedings, according to Assemblyman Joseph Lentol, who said that at the very least they should be protected from what he called “deceitful business practices perpetrated by mortgage lenders.”

The State Assembly passed a bill sponsored by Lentol (D-Williamsburg-Greenpoint) that seeks to protect struggling homeowners. The bill, called the Foreclosure Fraud Prevention Act of 2013, has been sent to the State Senate for consideration.

The proposed legislation, which was passed on June 3, would impose misdemeanor and felony-level penalties on banks and lenders who knowingly engage in fraud. The bill would also impose criminal penalties on certain supervisory employees of banks and lenders, referred to as “high managerial agents,” who know about fraudulent conduct by their employees and agents, but fail to take measures to stop it.

“We’ve all heard the stories: lenders ‘robo-signing’ document after document in an assembly-line fashion and without adequate attorney supervision, claiming to have personal knowledge about mortgages and properties that they actually did not,” Lentol said. “That shady practice has led to improper foreclosure proceedings that are forcing innocent, hardworking New Yorkers out of their homes. This is fraud plain and simple,” he said.

“We have taken steps over the past few years to protect hardworking families from unseemly mortgage practices, but we have not specifically criminalized these fraudulent practices. This legislation will take that extra step,” Lentol said.

The bill would create a new crime category: residential mortgage foreclosure fraud in the second degree. The crime would be considered, a Class A misdemeanor, punishable by up to one year in jail and a $1,000 fine. This penalty is directed at employees or agents of residential mortgage companies who knowingly prepare and file false documents in a residential foreclosure action.

In addition, the bill would make residential mortgage foreclosure fraud in the first degree a Class E felony, punishable by up to four years in prison. This penalty would be directed at agents who engage in five or more acts of residential mortgage foreclosure fraud and at those “high managerial agents” who know that one or more of their employees are engaged in residential mortgage foreclosure fraud and fail to take reasonable steps to stop it. 

“Working families need to know that their homes are not going to be taken from them through fraud and deceit,” Lentol said.

The legislation was originally proposed by New York State Attorney General Eric Schneiderman, Lentol said.

Lentol said he went a step further by sponsoring another piece of legislation that seeks to address a foreclosure backlog. The bill would require foreclosure plaintiffs in a court proceeding to file a certificate of merit in residential foreclosure actions. The certificate would have to be accompanied by copies of the legal documents which a lender must have in order to foreclose.

“Because the foreclosure process has gotten so out of hand and difficult to navigate, homeowners have been taken advantage of,” Lentol said.  “In fact, the average foreclosure can drag on for almost three years – it’s ridiculous. Requiring the plaintiffs to file a certificate of merit helps ensure that foreclosure proceedings are legitimate,” he said.

On June 3, Schneider­­man announced that he had filed a lawsuit against HSBC Bank USA and HSBC Mortgage Corporation (USA) for what he said was their failing to follow state law related to foreclosure actions.

Under state law, residential mortgage lenders, servicers and their agents who sue to foreclose on a homeowner are required to file a document known as a “Request for Judicial Intervention” when they file their proof of service with the county clerk. The process mandates that the lender then attend a settlement conference within 60 days. The purpose of this court-supervised conference is to provide an opportunity for borrowers to negotiate alternatives to foreclosure, including loan modifications that make mortgage payments more affordable, the attorney general said.

Across New York, thousands of foreclosure cases are languishing for months, even years, because financial institutions delay filing the paperwork that triggers the settlement conference, according to Schneiderman. The subsequent backlog of cases is often referred to as the "shadow docket," and has become a major burden on homeowners and the judicial system, he said. The Office of Court Administration estimates that 25,000 families are trapped in the shadow docket, the attorney general said.

"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," Schneiderman said. "For homeowners facing foreclosure, time is their greatest enemy,” he said.